I 
113TH CONGRESS 
1ST SESSION 
H. R. 505 
To repeal sequester while achieving balance in deficit reduction between rev-
enue and cuts, and between non-defense cuts and defense cuts, to invest 
in job creation, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 5, 2013 
Mr. ELLISON (for himself, Mr. GRIJALVA, Mr. CONYERS, Mr. MCDERMOTT, 
Ms. CLARKE, Mr. NADLER, Ms. LEE of California, Mr. MARKEY, Ms. 
SCHAKOWSKY, Ms. CHU, Mr. COHEN, Mr. CLAY, Ms. EDDIE BERNICE 
JOHNSON of Texas, Mr. GRAYSON, and Mr. GUTIERREZ) introduced the 
following bill; which was referred to the Committee on Ways and Means, 
and in addition to the Committees on the Budget, Oversight and Govern-
ment Reform, Armed Services, Education and the Workforce, Transpor-
tation and Infrastructure, and Financial Services, for a period to be sub-
sequently determined by the Speaker, in each case for consideration of 
such provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To repeal sequester while achieving balance in deficit reduc-
tion between revenue and cuts, and between non-defense 
cuts and defense cuts, to invest in job creation, and 
for other purposes. 
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
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SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Balancing Act’’. 
(b) TABLE OF CONTENTS.—The table of contents for 
this Act is as follows: 
Sec. 1. Short title; table of contents. 
TITLE I—REPEAL SEQUESTER 
Sec. 101. Repeal of section 251A sequestration to enforce budget goal. 
TITLE II—CLOSE TAX LOOPHOLES TO ACHIEVE BALANCE 
Subtitle A—28 Percent Limitation on Certain Deductions and Exclusions 
Sec. 201. 28 percent limitation on certain deductions and exclusions. 
Subtitle B—Tax Carried Interest in Investment Partnerships as Ordinary 
Income 
Sec. 211. Partnership interests transferred in connection with performance of 
services. 
Sec. 212. Special rules for partners providing investment management services 
to partnerships. 
Subtitle C—Dual Capacity Taxpayers 
Sec. 221. Modifications of foreign tax credit rules applicable to dual capacity 
taxpayers. 
Sec. 222. Separate basket treatment taxes paid on foreign oil and gas income. 
Subtitle D—Close Exclusion of Foreign-Earned Income Loophole 
Sec. 231. Repeal of foreign earned income exclusion. 
Subtitle E—Close S Corporation Loophole 
Sec. 241. Employment tax treatment of professional service businesses. 
Subtitle F—Limitation on Mortgage Interest Deduction With Respect to 
Boats 
Sec. 251. Mortgage interest deduction allowed with respect to boats only if boat 
is used as the principal residence of the taxpayer. 
TITLE III—ENDING CORPORATE SUBSIDIES 
Subtitle A—End Fossil Fuel Subsidies 
Sec. 301. Termination of various tax expenditures relating to fossil fuels. 
Sec. 302. Termination of alternative fuel vehicle refueling property credit with 
respect to fossil fuels. 
Sec. 303. Uniform seven-year amortization for geological and geophysical ex-
penditures. 
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Sec. 304. Repeal of domestic manufacturing deduction for hard mineral mining. 
Sec. 305. Limitation on deduction for income attributable to domestic produc-
tion of oil, natural gas, or primary products thereof. 
Sec. 306. Termination of last-in, first-out method of inventory for oil, natural 
gas, and coal companies. 
Sec. 307. Repeal of percentage depletion for coal and hard mineral fossil fuels. 
Sec. 308. Termination of capital gains treatment for royalties from coal. 
Sec. 309. Increase in oil spill liability trust fund financing rate. 
Sec. 310. Denial of deduction for removal costs and damages for certain oil 
spills. 
Sec. 311. Tax on crude oil and natural gas produced from the outer Conti-
nental Shelf in the Gulf of Mexico. 
Subtitle B—Ending Excessive Corporate Tax Deductions for Stock Options 
Sec. 331. Consistent treatment of stock options by corporations. 
Sec. 332. Application of executive pay deduction limit. 
Subtitle C—Reduce Deduction of Corporate Meals and Entertainment 
Sec. 341. Reduction in business meals and entertainment tax deduction. 
TITLE IV—CLOSE INTERNATIONAL TAX SYSTEM LOOPHOLES 
Subtitle A—Reformation of U.S. International Tax System 
Sec. 401. Allocation of expenses and taxes on basis of repatriation of foreign 
income. 
Sec. 402. Excess income from transfers of intangibles to low-taxed affiliates 
treated as subpart F income. 
Sec. 403. Limitations on income shifting through intangible property transfers. 
Sec. 404. Limitation on earnings stripping by expatriated entities. 
Sec. 405. Prevention of avoidance of tax through reinsurance with non-taxed 
affiliates. 
Subtitle B—Reinsurance 
Sec. 411. Prevention of avoidance of tax through reinsurance with non-taxed 
affiliates. 
Subtitle C—Close Loophole for Corporate Jet Depreciation 
Sec. 421. General aviation aircraft treated as 7-year property. 
TITLE V—CLOSE ESTATE TAX LOOPHOLES 
Sec. 501. Valuation rules for certain transfers of nonbusiness assets; limitation 
on minority discounts. 
Sec. 502. Consistent basis reporting between estate and person acquiring prop-
erty from decedent. 
Sec. 503. Required minimum 10-year term, etc., for grantor retained annuity 
trusts. 
Sec. 504. Limitation on GST exemption of perpetual dynasty trusts. 
TITLE VI—CUT PENTAGON WASTE TO ACHIEVE BALANCE 
Subtitle A—Smarter Approach to Nuclear Expenditures 
Sec. 601. Short title. 
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Sec. 602. Findings. 
Sec. 603. Reduction in nuclear forces. 
Sec. 604. Reports required. 
Subtitle B—Limiting Excessive Contractor Compensation 
Sec. 611. Limitation on allowable compensation costs. 
Subtitle C—Relocate Troops From Europe to the United States 
Sec. 615. Relocation to United States military installations of members of the 
United States Armed Forces assigned to permanent duty in 
Europe. 
Subtitle D—Additional Reduction in Armed Forces End Strength Levels 
Sec. 621. Additional Army and Marine Corps end strength reductions through 
retirement and separation. 
Subtitle E—Procurement of Certain Submarines, Carriers, and Aircraft 
Sec. 631. Limitation on procurement of Virginia class submarines. 
Sec. 632. Limitation on procurement of one Ford class aircraft carrier. 
Sec. 633. Authority for procurement of F/A–18E and F/A–18F aircraft. 
Sec. 634. Prohibition on procurement of V–22 Osprey aircraft. 
Subtitle F—Limit Military Bands 
Sec. 641. Limitation on expenditures for military musical units. 
Subtitle G—Reduction in Number of General and Flag Officers 
Sec. 651. Return of maximum number of general and flag officers to Cold War 
levels. 
Subtitle H—Audit the Pentagon 
Sec. 661. Purposes. 
Sec. 662. Findings. 
Sec. 663. Spending reductions for agencies without clean audits. 
Sec. 664. Report on Department of Defense reporting requirements. 
Sec. 665. Sense of Congress in implementation of defense budget reductions. 
TITLE VII—INVEST IN JOB CREATION 
Subtitle A—Making Work Pay Extension 
Sec. 701. One-year extension of making work pay credit. 
Subtitle B—Support for Teachers and School Modernization 
PART I—PREVENTING TEACHER LAYOFFS AND SUPPORTING THE CREATION 
OF ADDITIONAL JOBS IN PUBLIC EARLY CHILDHOOD, ELEMENTARY, AND 
SECONDARY EDUCATION 
Sec. 711. Purpose. 
Sec. 712. Grants for the outlying areas and the Secretary of the Interior; avail-
ability of funds. 
Sec. 713. State allocation. 
Sec. 714. State application. 
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Sec. 715. State reservation and responsibilities. 
Sec. 716. Local educational agencies. 
Sec. 717. Early learning. 
Sec. 718. Maintenance of effort. 
Sec. 719. Reporting. 
Sec. 720. Definitions. 
Sec. 721. Authorization of appropriations. 
PART II—ELEMENTARY AND SECONDARY SCHOOLS 
Sec. 731. Purpose. 
Sec. 732. Authorization of appropriations. 
Sec. 733. Allocation of funds. 
Sec. 734. State use of funds. 
Sec. 735. State and local applications. 
Sec. 736. Use of funds. 
Sec. 737. Private schools. 
Sec. 738. Additional provisions. 
PART III—COMMUNITY COLLEGE MODERNIZATION 
Sec. 739. Federal assistance for community college modernization. 
PART IV—GENERAL PROVISIONS 
Sec. 740. Definitions. 
Sec. 741. Buy American. 
Subtitle C—Transportation Infrastructure Investments 
PART I—IMMEDIATE TRANSPORTATION INFRASTRUCTURE INVESTMENTS 
Sec. 751. Immediate transportation infrastructure investments. 
PART II—BUILDING AND UPGRADING INFRASTRUCTURE FOR LONG-TERM 
DEVELOPMENT 
SUBPART A—IMMEDIATE TRANSPORTATION INFRASTRUCTURE INVESTMENTS 
Sec. 761. Short title. 
Sec. 762. Findings and purpose. 
Sec. 763. Definitions. 
SUBPART B—AMERICAN INFRASTRUCTURE FINANCING AUTHORITY 
Sec. 765. Establishment and general authority of AIFA. 
Sec. 766. Voting members of the Board of Directors. 
Sec. 767. Chief executive officer of AIFA. 
Sec. 768. Powers and duties of the Board of Directors. 
Sec. 769. Senior management. 
Sec. 770. Special Inspector General for AIFA. 
Sec. 771. Other personnel. 
Sec. 772. Compliance. 
SUBPART C—TERMS AND LIMITATIONS ON DIRECT LOANS AND LOAN 
GUARANTEES 
Sec. 773. Eligibility criteria for assistance from AIFA and terms and limita-
tions of loans. 
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Sec. 774. Loan terms and repayment. 
Sec. 775. Compliance and enforcement. 
Sec. 776. Audits; reports to the President and Congress. 
SUBPART D—FUNDING OF AIFA 
Sec. 777. Administrative fees. 
Sec. 778. Efficiency of AIFA. 
Sec. 779. Funding. 
SUBPART E—EXTENSION OF EXEMPTION FROM ALTERNATIVE MINIMUM TAX 
TREATMENT FOR CERTAIN TAX-EXEMPT BONDS 
Sec. 780. Extension of exemption from alternative minimum tax treatment for 
certain tax-exempt bonds. 
TITLE I—REPEAL SEQUESTER 
SEC. 101. REPEAL OF SECTION 251A SEQUESTRATION TO 
ENFORCE BUDGET GOAL. 
Section 251A of the Balanced Budget and Emer-
gency Deficit Control Act of 1985 is repealed. 
TITLE 
II—CLOSE 
TAX 
LOOP-
HOLES TO ACHIEVE BALANCE 
Subtitle A—28 Percent Limitation 
on Certain Deductions and Ex-
clusions 
SEC. 201. 28 PERCENT LIMITATION ON CERTAIN DEDUC-
TIONS AND EXCLUSIONS. 
(a) IN GENERAL.—Part I of subchapter B of chapter 
1 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new section: 
‘‘SEC. 69. LIMITATION ON CERTAIN DEDUCTIONS AND EX-
CLUSIONS. 
‘‘(a) IN GENERAL.—In the case of an individual for 
any taxable year, if— 
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‘‘(1) the taxpayer’s adjusted gross income is 
above— 
‘‘(A) $250,000 in the case of a joint return 
within the meaning of section 6013, 
‘‘(B) $225,000 in the case of a head of 
household return, 
‘‘(C) $125,000 in the case of a married fil-
ing separately return, or 
‘‘(D) $200,000 in all other cases; and 
‘‘(2) the taxpayer’s adjusted taxable income for 
such taxable year exceeds the minimum marginal 
rate amount, then the tax imposed under section 1 
with respect to such taxpayer for such taxable year 
shall be increased by the amount determined under 
subsection (b). If the taxpayer is subject to tax 
under section 55, 
then in lieu of an increase in tax under section 1, the tax 
imposed under section 55 with respect to such taxpayer 
for such taxable year shall be increased by the amount 
determined under subsection (c). 
‘‘(b) ADDITIONAL AMOUNT.—The amount deter-
mined under this subsection with respect to any taxpayer 
for any taxable year is the excess (if any) of— 
‘‘(1) the tax which would be imposed under sec-
tion 1 with respect to such taxpayer for such taxable 
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year if ‘adjusted taxable income’ were substituted 
for ‘taxable income’ each place it appears therein, 
over 
‘‘(2) the sum of— 
‘‘(A) the tax which would be imposed 
under such section with respect to such tax-
payer for such taxable year on the greater of— 
‘‘(i) taxable income, or 
‘‘(ii) the minimum marginal rate 
amount, plus 
‘‘(B) 28 percent of the excess (if any) of 
the taxpayer’s adjusted taxable income over the 
greater of— 
‘‘(i) the taxpayer’s taxable income, or 
‘‘(ii) the minimum marginal rate 
amount. 
‘‘(c) ADDITIONAL AMT AMOUNT.— 
‘‘(1) The amount determined under this sub-
section with respect to any taxpayer for any taxable 
year is the additional amount computed under sub-
section (b) multiplied by the ratio that— 
‘‘(A) the result of— 
‘‘(i) all itemized deductions (before 
the application of section 68), plus 
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‘‘(ii) the specified above-the-line de-
ductions and specified exclusions, minus 
‘‘(iii) the amount of deductions dis-
allowed under section 56(b)(1)(A) and (B), 
minus 
‘‘(iv) the non-preference disallowed de-
ductions, bears to— 
‘‘(B) the sum of— 
‘‘(i) the total of itemized deductions 
(after the application of section 68), plus 
‘‘(ii) the specified above-the-line de-
ductions and specified exclusions. 
‘‘(2) If the top of the AMT exemption phase- 
out range for the taxpayer exceeds the minimum 
marginal rate amount for the taxpayer and if the 
taxpayer’s alternative minimum taxable income does 
not exceed the top of the AMT exemption phase-out 
range, the taxpayer must increase its additional 
AMT amount by 7 percent of the excess of— 
‘‘(A) the lesser of— 
‘‘(i) the top of the AMT exemption 
phase-out range, or 
‘‘(ii) the taxpayer’s alternative min-
imum taxable income, computed— 
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‘‘(I) 
without 
regard 
to 
any 
itemized deduction or any specified 
above-the-line deduction, and 
‘‘(II) by including the amount of 
any specified exclusion; over 
‘‘(B) the greater of— 
‘‘(i) the taxpayer’s alternative min-
imum taxable income, or 
‘‘(ii) the minimum marginal rate 
amount. 
‘‘(d) MINIMUM MARGINAL RATE AMOUNT.—For pur-
poses of this section, the term ‘minimum marginal rate 
amount’ means, with respect to any taxpayer for any tax-
able year, the highest amount of the taxpayer’s taxable 
income which would be subject to a marginal rate of tax 
under section 1 that is less than 36 percent with respect 
to such taxable year. 
‘‘(e) ADJUSTED TAXABLE INCOME.—For purposes of 
this section— 
‘‘(1) IN GENERAL.—The term ‘adjusted taxable 
income’ means taxable income computed— 
‘‘(A) without regard to any itemized deduc-
tion or any specified above-the-line deduction, 
and 
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‘‘(B) by including in gross income any 
specified exclusion. 
‘‘(2) 
SPECIFIED
ABOVE-THE-LINE
DEDUC-
TION.—The term ‘specified above-the-line deduction’ 
means— 
‘‘(A) the deduction provided under section 
162(l) (relating to special rules for health insur-
ance costs of self-employed individuals), 
‘‘(B) the deduction provided under section 
199 (relating to income attributable to domestic 
production activities), and 
‘‘(C) the deductions provided under the fol-
lowing paragraphs of section 62(a): 
‘‘(i) Paragraph (2) (relating to certain 
trade and business deductions of employ-
ees), other than subparagraph (A) thereof. 
‘‘(ii) Paragraph (15) (relating to mov-
ing expenses). 
‘‘(iii) Paragraph (16) (relating to Ar-
cher MSAs). 
‘‘(iv) Paragraph (17) (relating to in-
terest on education loans). 
‘‘(v) Paragraph (18) (relating to high-
er education expenses). 
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‘‘(vi) Paragraph (19) (relating to 
health savings accounts). 
‘‘(3) SPECIFIED EXCLUSION.—The term ‘speci-
fied exclusion’ means— 
‘‘(A) any interest excluded under section 
103, 
‘‘(B) any exclusion with respect to the cost 
described in section 6051(a)(14) (without re-
gard to subparagraph (B) thereof), and 
‘‘(C) any foreign earned income excluded 
under section 911. 
‘‘(f) 
NON-PREFERENCE
DISALLOWED
DEDUC-
TIONS.—For purposes of this section, the term ‘AMT-al-
lowed deductions’ means all itemized deductions dis-
allowed by section 68 multiplied by the ratio that— 
‘‘(1) a taxpayer’s itemized deductions for the 
taxable year that are subject to section 68 (that is, 
not including those excluded under section 68(c)) 
and that are not limited under section 56(b)(1)(A) 
or (B), bears to 
‘‘(2) the taxpayer’s itemized deductions for the 
taxable year that are subject to section 68 (that is, 
not including those excluded under section 68(c)). 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be appropriate to carry out this 
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section, including regulations which provide appropriate 
adjustments to the additional AMT amount.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning on or 
after January 1, 2013. 
Subtitle B—Tax Carried Interest in 
Investment Partnerships as Or-
dinary Income 
SEC. 211. PARTNERSHIP INTERESTS TRANSFERRED IN 
CONNECTION WITH PERFORMANCE OF SERV-
ICES. 
(a) MODIFICATION TO ELECTION TO INCLUDE PART-
NERSHIP INTEREST
IN GROSS INCOME
IN YEAR
OF 
TRANSFER.—Subsection (c) of section 83 of the Internal 
Revenue Code of 1986 is amended by redesignating para-
graph (4) as paragraph (5) and by inserting after para-
graph (3) the following new paragraph: 
‘‘(4) PARTNERSHIP
INTERESTS.—Except as 
provided by the Secretary— 
‘‘(A) IN
GENERAL.—In the case of any 
transfer of an interest in a partnership in con-
nection with the provision of services to (or for 
the benefit of) such partnership— 
‘‘(i) the fair market value of such in-
terest shall be treated for purposes of this 
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section as being equal to the amount of the 
distribution which the partner would re-
ceive if the partnership sold (at the time of 
the transfer) all of its assets at fair market 
value and distributed the proceeds of such 
sale (reduced by the liabilities of the part-
nership) to its partners in liquidation of 
the partnership, and 
‘‘(ii) the person receiving such interest 
shall be treated as having made the elec-
tion under subsection (b)(1) unless such 
person makes an election under this para-
graph to have such subsection not apply. 
‘‘(B) ELECTION.—The election under sub-
paragraph (A)(ii) shall be made under rules 
similar to the rules of subsection (b)(2).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to interests in partnerships trans-
ferred after December 31, 2012. 
SEC. 212. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIPS. 
(a) IN GENERAL.—Part I of subchapter K of chapter 
1 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new section: 
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‘‘SEC. 710. SPECIAL RULES FOR PARTNERS PROVIDING IN-
VESTMENT 
MANAGEMENT 
SERVICES 
TO 
PARTNERSHIPS. 
‘‘(a) TREATMENT
OF
DISTRIBUTIVE
SHARE
OF 
PARTNERSHIP ITEMS.—For purposes of this title, in the 
case of an investment services partnership interest— 
‘‘(1) IN
GENERAL.—Notwithstanding section 
702(b)— 
‘‘(A) an amount equal to the net capital 
gain with respect to such interest for any part-
nership taxable year shall be treated as ordi-
nary income, and 
‘‘(B) subject to the limitation of paragraph 
(2), an amount equal to the net capital loss 
with respect to such interest for any partner-
ship taxable year shall be treated as an ordi-
nary loss. 
‘‘(2) RECHARACTERIZATION
OF
LOSSES
LIM-
ITED
TO
RECHARACTERIZED
GAINS.—The amount 
treated as ordinary loss under paragraph (1)(B) for 
any taxable year shall not exceed the excess (if any) 
of— 
‘‘(A) the aggregate amount treated as ordi-
nary income under paragraph (1)(A) with re-
spect to the investment services partnership in-
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terest for all preceding partnership taxable 
years to which this section applies, over 
‘‘(B) the aggregate amount treated as or-
dinary loss under paragraph (1)(B) with re-
spect to such interest for all preceding partner-
ship taxable years to which this section applies. 
‘‘(3) ALLOCATION
TO
ITEMS
OF
GAIN
AND 
LOSS.— 
‘‘(A) NET
CAPITAL
GAIN.—The amount 
treated as ordinary income under paragraph 
(1)(A) shall be allocated ratably among the 
items of long-term capital gain taken into ac-
count in determining such net capital gain. 
‘‘(B) NET
CAPITAL
LOSS.—The amount 
treated as ordinary loss under paragraph (1)(B) 
shall be allocated ratably among the items of 
long-term capital loss and short-term capital 
loss taken into account in determining such net 
capital loss. 
‘‘(4) TERMS RELATING TO CAPITAL GAINS AND 
LOSSES.—For purposes of this section— 
‘‘(A) IN GENERAL.—Net capital gain, long- 
term capital gain, and long-term capital loss, 
with respect to any investment services partner-
ship interest for any taxable year, shall be de-
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termined under section 1222, except that such 
section shall be applied— 
‘‘(i) without regard to the recharacter-
ization of any item as ordinary income or 
ordinary loss under this section, 
‘‘(ii) by only taking into account items 
of gain and loss taken into account by the 
holder of such interest under section 702 
with respect to such interest for such tax-
able year, 
‘‘(iii) by treating property which is 
taken into account in determining gains 
and losses to which section 1231 applies as 
capital assets held for more than 1 year, 
and 
‘‘(iv) without regard to section 1202. 
‘‘(B) NET CAPITAL LOSS.—The term ‘net 
capital loss’ means the excess of the losses from 
sales or exchanges of capital assets over the 
gains from such sales or exchanges. Rules simi-
lar to the rules of clauses (i) through (iv) of 
subparagraph (A) shall apply for purposes of 
the preceding sentence. 
‘‘(5) SPECIAL RULES FOR DIVIDENDS.— 
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