810 
day of the first taxable year that such cor-
poration is not an S corporation). 
‘‘(ii) A liquidation or sale of substan-
tially all the assets of such S corporation 
(including in a title 11 or similar case), a 
cessation of business by such S corpora-
tion, 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 (in-
cluding by reason of death, or otherwise). 
‘‘(B) PARTIAL TRANSFERS OF STOCK.—In 
the case of a transfer of less than all of the tax-
payer’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 trans-
fer 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 liabil-
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ity with respect to such stock in the same man-
ner 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 allo-
cations 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), sub-
section (h) shall be applied— 
‘‘(A) 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 time-
ly 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 liabil-
ity occurs, 
‘‘(C) the first installment under subsection 
(h) with respect to such liability shall be paid 
not later than such due date (but determined 
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without regard to any extension of time for fil-
ing 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 COR-
PORATION.—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 COLLEC-
TION.—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 trig-
gering event with respect to such liability. 
‘‘(7) 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 sub-
section (a) and shall be made in such manner as the 
Secretary may provide. 
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‘‘(j) INCLUSION OF DEFERRED FOREIGN INCOME 
UNDER THIS SECTION NOT TO TRIGGER RECAPTURE OF 
OVERALL
FOREIGN
LOSS.—For purposes of section 
904(f)(1), 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 shall be determined without regard to this 
section. 
‘‘(k) 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) DEDICATION OF REVENUES TO HIGHWAY TRUST 
FUND.— 
(1) IN GENERAL.—Section 9503(f) is amended 
by redesignating paragraph (5) as paragraph (6) 
and by inserting after paragraph (4) the following 
new paragraph: 
‘‘(5) APPROPRIATION TO TRUST FUND OF NET 
TAX LIABILITIES RECEIVED UNDER SECTION 965.— 
‘‘(A) IN GENERAL.—Out of money in the 
Treasury not otherwise appropriated, there are 
hereby appropriated to the Highway Trust 
Fund amounts equivalent to the aggregate net 
tax liabilities under section 965 (as defined in 
such section) received in the Treasury. 
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‘‘(B) MONTHLY TRANSFERS BASED ON ES-
TIMATES.—For rule providing for the monthly 
transfer of amounts appropriated under sub-
paragraph (A) based on estimates of the Sec-
retary, see section 9601.’’. 
(2) TRANSFERS TO MASS TRANSIT ACCOUNT.— 
Section 9503(e)(2) is amended by striking ‘‘the 
mass transit portion’’ and inserting ‘‘, 20 percent of 
the amounts appropriated to the Highway Trust 
Fund under subsection (f)(5), and the mass transit 
portion’’. 
(c) CLERICAL AMENDMENT.—The table of section for 
subpart F of part III of subchapter N of chapter 1 is 
amended by striking the item relating to section 965 and 
inserting the following: 
‘‘Sec. 965. Treatment of deferred foreign income upon transition to participa-
tion exemption system of taxation.’’. 
SEC. 4004. LOOK-THRU RULE FOR RELATED CONTROLLED 
FOREIGN 
CORPORATIONS 
MADE 
PERMA-
NENT. 
(a) IN GENERAL.—Paragraph (6) of section 954(c) 
is amended by striking subparagraph (C). 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2013, and to taxable 
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years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
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. 
(a) REPEAL OF SECTION 902 INDIRECT FOREIGN 
TAX CREDITS.—Subpart A of part III of subchapter N 
of chapter 1 is amended by striking section 902. 
(b) DETERMINATION OF SECTION 960 CREDIT ON 
CURRENT YEAR BASIS.—Section 960 is amended— 
(1) by striking subsection (c), by redesignating 
subsection (b) as subsection (c), by striking all that 
precedes subsection (c) (as so redesignated) and in-
serting the following: 
‘‘SEC. 960. DEEMED PAID CREDIT FOR SUBPART F INCLU-
SIONS. 
‘‘(a) IN GENERAL.—For purposes of this subpart, if 
there is included in the gross income of a domestic cor-
poration 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 
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income taxes as are properly attributable to the item of 
income so included. 
‘‘(b) SPECIAL RULES
FOR DISTRIBUTIONS FROM 
PREVIOUSLY TAXED EARNINGS AND PROFITS.—For pur-
poses of this subpart— 
‘‘(1) IN GENERAL.—If any portion of a dis-
tribution from a controlled foreign corporation to a 
domestic corporation which is a United States share-
holder with respect to such controlled foreign cor-
poration 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 por-
tion, and 
‘‘(B) have not been deemed to have to been 
paid by such domestic corporation under this 
section for any prior taxable year. 
‘‘(2) TIERED CONTROLLED FOREIGN CORPORA-
TIONS.—If section 959(b) applies to any portion of 
a distribution from a controlled foreign corporation 
to another controlled foreign corporation, such con-
trolled foreign corporation shall be deemed to have 
paid so much of such other controlled foreign cor-
poration’s foreign income taxes as— 
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‘‘(A) are properly attributable to such por-
tion, and 
‘‘(B) have not been deemed to have been 
paid by a domestic corporation under this sec-
tion for any prior taxable year.’’, 
(2) and by adding after subsection (c) (as so re-
designated) the following new subsections: 
‘‘(d) FOREIGN INCOME TAXES.—The term ‘foreign 
income taxes’ means any income, war profits, or excess 
profits taxes paid or accrued to any foreign country or 
possession of the United States. 
‘‘(e) REGULATIONS.—The Secretary shall provide 
such regulations as may be necessary or appropriate to 
carry out the provisions of this section.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 78 is amended to read as follows: 
‘‘SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX 
CREDIT. 
‘‘If a domestic corporation chooses to have the bene-
fits 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 section 960 (relating to deemed paid credit for sub-
part F inclusions) for such taxable year shall be treated 
for purposes of this title (other than section 960) as an 
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item of income required to be included in the gross income 
of such domestic corporation under section 951(a).’’. 
(2) Section 245(a)(10) is amended by striking 
‘‘902,’’. 
(3) Sections 535(b)(1) and 545(b)(1) are each 
amended by striking ‘‘section 902(a) or 960(a)(1)’’ 
and inserting ‘‘section 960’’. 
(4) Paragraph (1) of section 814(f) is amend-
ed— 
(A) by striking subparagraph (B), and 
(B) by striking all that precedes ‘‘No in-
come’’ and inserting the following: 
‘‘(1) TREATMENT OF FOREIGN TAXES.—’’. 
(5) Subparagraph (B) of section 864(h)(1) is 
amended by striking ‘‘902,’’. 
(6) Subsection (a) of section 901 is amended by 
striking ‘‘sections 902 and 960’’ and inserting ‘‘sec-
tion 960’’. 
(7) Paragraph (2) of section 901(e) is amended 
by striking ‘‘but is not limited to—’’ and all that fol-
lows through ‘‘that portion’’ and inserting ‘‘but is 
not limited to that portion’’. 
(8) Subsection (f) of section 901 is amended by 
striking ‘‘sections 902 and 960’’ and inserting ‘‘sec-
tion 960’’. 
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(9) Subparagraph (A) of section 901(j)(1) is 
amended by striking ‘‘902 or’’. 
(10) Subparagraph (B) of section 901(j)(1) is 
amended by striking ‘‘sections 902 and 960’’ and in-
serting ‘‘section 960’’. 
(11) Paragraph (2) of section 901(k) is amend-
ed by striking ‘‘902,’’. 
(12) Paragraph (6) of section 901(k) is amend-
ed by striking ‘‘902 or’’. 
(13) Subparagraph (A) of section 904(h)(10) is 
amended by striking ‘‘sections 902, 907, and 960’’ 
and inserting ‘‘sections 907 and 960’’. 
(14) Section 904 is amended by striking sub-
section (k). 
(15) Paragraph (1) of section 905(c) is amend-
ed by striking the last sentence. 
(16) Subclause (I) of section 905(c)(2)(B)(i) is 
amended by striking ‘‘section 902 or’’. 
(17) Subsection (a) of section 906 is amended 
by striking ‘‘(or deemed, under section 902, paid or 
accrued during the taxable year)’’. 
(18) Subsection (b) of section 906 is amended 
by striking paragraphs (4) and (5). 
(19) Subparagraph (B) of section 907(b)(2) is 
amended by striking ‘‘902 or’’. 
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(20) Paragraph (3) of section 907(c) is amend-
ed— 
(A) by striking subparagraph (A) and re-
designating subparagraphs (B) and (C) as sub-
paragraphs (A) and (B), respectively, and 
(B) by striking ‘‘section 960(a)’’ in sub-
paragraph (A) (as so redesignated) and insert-
ing ‘‘section 960’’. 
(21) Paragraph (5) of section 907(c) is amend-
ed by striking ‘‘902 or’’. 
(22) Clause (i) of section 907(f)(2)(B) is 
amended by striking ‘‘902 or’’. 
(23) Subsection (a) of section 908 is amended 
by striking ‘‘902 or’’. 
(24) Subsection (b) of section 909 is amend-
ed— 
(A) by striking ‘‘section 902 corporation’’ 
in the matter preceding paragraph (1) and in-
serting ‘‘specified 10-percent owned foreign cor-
poration’’, 
(B) by striking ‘‘902 or’’ in paragraph (1), 
(C) by striking ‘‘by such section 902 cor-
poration’’ and all that follows in the matter fol-
lowing paragraph (2) and inserting ‘‘by such 
specified 10-percent owned foreign corporation 
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or a domestic corporation which is a United 
States shareholder with respect to such speci-
fied 10-percent owned foreign corporation.’’, 
and 
(D) by striking ‘‘SECTION 902 CORPORA-
TIONS’’ in the heading thereof and inserting 
‘‘SPECIFIED
10-PERCENT
OWNED
FOREIGN 
CORPORATIONS’’. 
(25) Subsection (d) of section 909 is amended 
by striking paragraph (5). 
(26) Paragraph (1) of section 958(a) is amend-
ed by striking ‘‘960(a)(1)’’ and inserting ‘‘960’’. 
(27) Subsection (d) of section 959 is amended 
by striking ‘‘Except as provided in section 960(a)(3), 
any’’ and inserting ‘‘Any’’. 
(28) Subsection (e) of section 959 is amended 
by striking ‘‘and section 960(b)’’. 
(29) Subparagraph (A) of section 1291(g)(2) is 
amended by striking ‘‘any distribution—’’ and all 
that follows through ‘‘but only if’’ and inserting 
‘‘any distribution, any withholding tax imposed with 
respect to such distribution, but only if’’. 
(30) Section 1293 is amended by striking sub-
section (f). 
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(31) Subparagraph (B) of section 6038(c)(1) is 
amended by striking ‘‘sections 902 (relating to for-
eign tax credit for corporate stockholder in foreign 
corporation) and 960 (relating to special rules for 
foreign tax credit)’’ and inserting ‘‘section 960’’. 
(32) Paragraph (4) of section 6038(c) is 
amended by striking subparagraph (C). 
(33) The table of sections for subpart A of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 902. 
(34) The table of sections for subpart F of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 960 and insert-
ing the following: 
‘‘Sec. 960. Deemed paid credit for subpart F inclusions.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2014, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
SEC. 4102. FOREIGN TAX CREDIT LIMITATION APPLIED BY 
ALLOCATING ONLY DIRECTLY ALLOCABLE 
DEDUCTIONS TO FOREIGN SOURCE INCOME. 
(a) IN GENERAL.—Subsection (b) of section 904, as 
amended by the preceding provisions of this Act, is amend-
ed by adding at the end the following new paragraph: 
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‘‘(3) DEDUCTIONS
ALLOCABLE
TO
FOREIGN 
SOURCE INCOME ONLY IF DIRECTLY ALLOCABLE.— 
For purposes of subsection (a), the taxpayer’s tax-
able income from sources without the United States 
shall be determined by allocating deductions to such 
income only if such deductions are directly allocable 
to such income.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2014, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
SEC. 4103. PASSIVE CATEGORY INCOME EXPANDED TO IN-
CLUDE OTHER MOBILE INCOME. 
(a) TREATMENT OF FOREIGN BASE COMPANY IN-
TANGIBLE INCOME AND FOREIGN BASE COMPANY SALES 
INCOME AS MOBILE CATEGORY INCOME.—Clause (i) of 
section 904(d)(2)(A) is amended by striking ‘‘and speci-
fied passive category income’’ and inserting ‘‘specified pas-
sive category income, foreign base company sales income 
(as defined in section 954(d)), and foreign base company 
intangible income (as defined in section 954(f))’’. 
(b) REPEAL OF SPECIAL RULES TREATING FINAN-
CIAL SERVICES INCOME
AS GENERAL CATEGORY IN-
COME.—Paragraph (2) of section 904(d) is amended by 
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striking subparagraphs (C) and (D) and by redesignating 
subparagraphs (E) through (K) as subparagraphs (C) 
through (I), respectively. 
(c) CONFORMING AMENDMENTS.— 
(1) RELATING TO REFERENCES TO PASSIVE IN-
COME.— 
(A) Section 904(d)(1)(A) is amended by 
striking ‘‘passive category income’’ and insert-
ing ‘‘mobile category income’’. 
(B) Section 904(d)(2)(A)(i), as amended 
by subsection (a), is amended— 
(i) by striking ‘‘PASSIVE
CATEGORY 
INCOME’’ in the heading thereof and insert-
ing ‘‘MOBILE CATEGORY INCOME’’, 
(ii) by striking ‘‘passive category in-
come’’ and inserting ‘‘mobile category in-
come’’, 
(iii) by striking ‘‘passive income’’ and 
inserting ‘‘mobile income’’, and 
(iv) by striking ‘‘specified passive cat-
egory income’’ and inserting ‘‘specified mo-
bile category income’’. 
(C) Section 904(d)(2)(A)(ii) is amended by 
striking ‘‘passive category income’’ and insert-
ing ‘‘mobile category income’’. 
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(D) Section 904(d)(2)(B) is amended— 
(i) by striking ‘‘PASSIVE INCOME’’ in 
the heading thereof and inserting ‘‘MOBILE 
INCOME’’, 
(ii) by striking ‘‘passive income’’ in 
clauses (i), (ii), and (iii) and inserting 
‘‘mobile income’’, 
(iii) by striking ‘‘SPECIFIED PASSIVE 
CATEGORY
INCOME’’ in the heading of 
clause (iv) and inserting ‘‘SPECIFIED MO-
BILE CATEGORY INCOME’’, and 
(iv) by striking ‘‘specified passive cat-
egory income’’ in clause (iv) and inserting 
‘‘specified mobile category income’’. 
(E) Section 904(d)(2)(D), as redesignated 
by subsection (b), is amended by striking ‘‘pas-
sive income’’ and inserting ‘‘mobile income’’. 
(F) Section 904(d)(3)(A) is amended by 
striking ‘‘passive category income’’ and insert-
ing ‘‘mobile category income’’. 
(G) Section 904(d)(3)(B) is amended by 
striking ‘‘passive category income’’ both places 
it appears and inserting ‘‘mobile category in-
come’’. 
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(H) Section 904(d)(3)(C) is amended by 
striking ‘‘passive category income’’ both places 
it appears and inserting ‘‘mobile category in-
come’’. 
(I) Section 904(d)(3)(D) is amended by 
striking ‘‘passive category income’’ both places 
it appears and inserting ‘‘mobile category in-
come’’. 
(J) Section 904(d)(3)(E) is amended— 
(i) by striking ‘‘passive category in-
come’’ both places it appears and inserting 
‘‘mobile category income’’, and 
(ii) by striking ‘‘passive income’’ and 
inserting ‘‘mobile income’’. 
(K) Section 904(d)(3)(F) is amended by 
striking ‘‘passive category income’’ both places 
it appears and inserting ‘‘mobile category in-
come’’. 
(2) OTHER CONFORMING AMENDMENTS.— 
(A) Subparagraph (B) of section 864(f)(5) 
is amended by inserting ‘‘(as in effect before its 
repeal)’’ after ‘‘section 904(d)(2)(D)(ii)’’. 
(B) Subparagraph (B) of section 954(c)(2) 
is amended by striking ‘‘section 904(d)(2)(G)’’ 
and inserting ‘‘section 904(d)(2)(E)’’. 
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(d) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years of foreign 
corporations beginning after December 31, 2014, 
and to taxable years of United States shareholders 
in which or with which such taxable years of foreign 
corporations end. 
(2) TREATMENT
OF
CARRYFORWARDS
AND 
CARRYBACKS.—For purposes of section 904 of the 
Internal Revenue Code of 1986— 
(A) the amendments made by this section 
shall apply to any taxes carried from any tax-
able year beginning before January 1, 2015, to 
any taxable year beginning on or after such 
date, and 
(B) the Secretary of the Treasury, or his 
designee, may by regulations provide for the al-
location of any carryback of taxes with respect 
to income from a taxable year beginning on or 
after January 1, 2015, to a taxable year begin-
ning before such date for purposes of allocating 
such income among the separate categories in 
effect under section 904(d) for the taxable year 
to which carried. 
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SEC. 4104. SOURCE OF INCOME FROM SALES OF INVEN-
TORY DETERMINED SOLELY ON BASIS OF 
PRODUCTION ACTIVITIES. 
(a) IN GENERAL.—Subsection (b) of section 863 is 
amended by adding at the end the following: ‘‘Gains, prof-
its, 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 activi-
ties with respect to the property.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
Subtitle C—Rules Related to 
Passive and Mobile Income 
PART 1—MODIFICATION OF SUBPART F 
PROVISIONS 
SEC. 4201. SUBPART F INCOME TO ONLY INCLUDE LOW- 
TAXED FOREIGN INCOME. 
(a) IN GENERAL.—Subsection (a) of section 954 is 
amended— 
(1) by redesignating paragraphs (1), (2), (3), 
and (5) as subparagraphs (A) through (D), respec-
tively, 
(2) by striking ‘‘For purposes of’’ and inserting 
the following: 
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‘‘(1) IN GENERAL.—For purposes of’’, and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) APPLICATION
ONLY
TO
FOREIGN
BASE 
COMPANY INCOME SUBJECT TO A LOW FOREIGN EF-
FECTIVE RATE OF TAX.— 
‘‘(A) IN GENERAL.—Foreign base company 
income shall only include items of income re-
ceived by a controlled foreign corporation which 
are subject to an effective rate of income tax 
imposed by a foreign country which is less than 
100 percent of the maximum rate of tax speci-
fied in section 11. 
‘‘(B) APPLICATION
TO
FOREIGN
BASE 
COMPANY INCOME SUBJECT TO REDUCED DO-
MESTIC RATE OF TAX.— 
‘‘(i) FOREIGN BASE COMPANY SALES 
INCOME.—In the case of foreign base com-
pany sales income, subparagraph (A) shall 
be applied by substituting ‘50 percent’ for 
‘100 percent’. 
‘‘(ii) FOREIGN BASE COMPANY INTAN-
GIBLE
INCOME.—In the case of foreign 
base company intangible income, subpara-
graph (A) shall be applied— 
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‘‘(I) by substituting ‘the applica-
ble percentage of the foreign percent-
age (determined under section 250(c) 
with respect to the controlled foreign 
corporation)’ for ‘100 percent’, and 
‘‘(II) by treating the foreign base 
company intangible income as a single 
item of income. 
‘‘(iii) APPLICABLE
PERCENTAGE.— 
For purposes of clause (ii)(I), the term 
‘applicable percentage’ means, with respect 
to any taxable year of a controlled foreign 
corporation, the percentage determined in 
accordance with the following table: 
‘‘In the case of any taxable year beginning in: 
The applicable percentage 
is: 
2015 ..........................................................................
45 percent 
2016 ..........................................................................
48 percent 
2017 ..........................................................................
52 percent 
2018 ..........................................................................
56 percent 
2019 or thereafter .....................................................
60 percent.’’. 
(b) INSURANCE INCOME.—Subsection (a) of section 
953 is amended by redesignating paragraph (2) as para-
graph (3) and by inserting after paragraph (1) the fol-
lowing new paragraph: 
‘‘(2) APPLICATION
ONLY
TO
INSURANCE
IN-
COME
SUBJECT
TO
A
LOW
FOREIGN
EFFECTIVE 
RATE OF TAX.—Insurance income shall only include 
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items of income received by a controlled foreign cor-
poration which are subject to an effective rate of in-
come tax imposed by a foreign country which is less 
than the maximum rate of tax specified in section 
11.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 954(b)(3)(B) is amended by strik-
ing ‘‘paragraphs (4) and (5)’’ and inserting ‘‘sub-
section (a)(2), section 953(a)(2), and paragraph 
(5)’’ 
(2) Section 954(b) is amended by striking para-
graph (4). 
(3) Section 954(c)(1) is amended by striking 
‘‘subsection (a)(1)’’ and inserting ‘‘this section’’. 
(4) Section 954(d)(1) is amended by striking 
‘‘subsection (a)(2)’’ and inserting ‘‘this section’’. 
(5) Section 954(e)(1) is amended by striking 
‘‘subsection (a)(3)’’ and inserting ‘‘this section’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2014, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
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SEC. 4202. FOREIGN BASE COMPANY SALES INCOME. 
(a) 50-PERCENT EXCLUSION FOR LOW-TAXED FOR-
EIGN BASE COMPANY SALES INCOME.— 
(1) IN GENERAL.—Subparagraph (B) of section 
954(a)(1), as amended by the preceding provisions 
of this Act, is amended by inserting ‘‘50 percent of’’ 
before ‘‘the foreign base company sales income’’. 
(2) PRESERVATION OF DEEMED PAID FOREIGN 
TAX CREDIT ON LOW-TAXED FOREIGN BASE COM-
PANY INCOME.—Section 960, as amended by this 
Act, is amended by redesignating subsection (c) as 
subsection (d) and by inserting after subsection (b) 
the following new subsection: 
‘‘(c) DEEMED PAID CREDIT DETERMINED WITHOUT 
REGARD TO CERTAIN EXCLUSIONS FROM SUBPART F IN-
COME.—Solely for purposes of subsection (a), section 
954(a)(1)(B) shall be applied by substituting ‘100 per-
cent’ for ‘50 percent’ in determining amounts included 
under section 951(a)(1).’’. 
(b) EXCEPTION FROM FOREIGN BASE COMPANY 
SALES INCOME FOR FOREIGN CORPORATIONS ELIGIBLE 
FOR BENEFITS UNDER COMPREHENSIVE INCOME TAX 
TREATIES.—Section 954(d) is amended by adding at the 
end the following new paragraph: 
‘‘(5) EXCEPTION FOR FOREIGN CORPORATIONS 
ELIGIBLE FOR BENEFITS UNDER COMPREHENSIVE 
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INCOME TAX TREATIES.—No portion of the gross in-
come of a controlled foreign corporation shall be 
treated as foreign base company sales income if such 
controlled foreign corporation is eligible as a quali-
fied resident for all of the benefits provided under a 
comprehensive income tax treaty with the United 
States.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2014, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
SEC. 4203. INFLATION ADJUSTMENT OF DE MINIMIS EXCEP-
TION FOR FOREIGN BASE COMPANY INCOME. 
(a) IN GENERAL.—Paragraph (3) of section 954(b) 
is amended by adding at the end the following new sub-
paragraph: 
‘‘(D) INFLATION
ADJUSTMENT.—In the 
case of any taxable year beginning after 2015, 
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 de-
termined under section 1(c)(2)(A) for the 
calendar year in which the taxable year be-
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gins, determined by substituting ‘calendar 
year 2014’ for ‘calendar year 2012’ in 
clause (ii) thereof. 
Any increase determined under the preceding 
sentence shall be rounded to the nearest mul-
tiple of $50,000.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2014, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
SEC. 4204. ACTIVE FINANCING EXCEPTION EXTENDED WITH 
LIMITATION FOR LOW-TAXED FOREIGN IN-
COME. 
(a) EXTENSION
OF ACTIVE FINANCING EXCEP-
TION.— 
(1) IN
GENERAL.—Paragraph (9) of section 
954(h) is amended by striking ‘‘January 1, 2014’’ 
and inserting ‘‘January 1, 2019’’. 
(2) EXEMPT INSURANCE INCOME.—Paragraph 
(10) of section 953(e) is amended— 
(A) by striking ‘‘January 1, 2014’’ and in-
serting ‘‘January 1, 2019’’, and 
(B) by striking ‘‘December 31, 2013’’ and 
inserting ‘‘December 31, 2018’’. 
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(b) LIMITATION
FOR LOW-TAXED FOREIGN IN-
COME.— 
(1) IN
GENERAL.—Paragraph (1) of section 
954(h) is amended to read as follows: 
‘‘(1) IN GENERAL.—For purposes of subsection 
(c)(1), in the case of an eligible controlled foreign 
corporation, foreign personal holding company in-
come shall not include— 
‘‘(A) qualified banking or financing income 
which is subject to an effective rate of income 
tax imposed by a foreign country which is at 
least 50 percent of the maximum rate of tax 
specified in section 11, and 
‘‘(B) 50 percent of any other qualified 
banking or financing income of such eligible 
controlled foreign corporation.’’. 
(2) INSURANCE BUSINESS INCOME.—Paragraph 
(1) of section 954(i) is amended to read as follows: 
‘‘(1) IN GENERAL.—For purposes of subsection 
(c)(1), in the case of a qualifying insurance com-
pany, foreign personal holding company income shall 
not include— 
‘‘(A) any qualified insurance income which 
is subject to an effective rate of income tax im-
posed by a foreign country which is at least 50 
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percent of the maximum rate of tax specified in 
section 11, and 
‘‘(B) 50 percent of any other qualified in-
surance income of such qualifying insurance 
company.’’. 
(3) PRESERVATION OF DEEMED PAID FOREIGN 
TAX CREDIT ON HIGH-TAXED FOREIGN INCOME.— 
Subsection (c) of section 960, as amended by the 
preceding provisions of this Act, is amended by 
striking ‘‘Solely for purposes of subsection (a)’’ and 
all that following and inserting the following: ‘‘Solely 
for purposes of subsection (a)— 
‘‘(1) section 954(a)(1)(B) shall be applied by 
substituting ‘100 percent’ for ‘50 percent’, and 
‘‘(2) the exclusions under subsections (h)(1)(B) 
and (i)(1)(B) of section 954 shall not apply, 
in 
determining 
amounts 
included 
under 
section 
951(a)(1).’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2013, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
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SEC. 4205. REPEAL OF INCLUSION BASED ON WITHDRAWAL 
OF PREVIOUSLY EXCLUDED SUBPART F IN-
COME FROM QUALIFIED INVESTMENT. 
(a) IN GENERAL.—Subpart F of part III of sub-
chapter N of chapter 1 is amended by striking section 955. 
(b) CONFORMING AMENDMENTS.— 
(1)(A) Subparagraph (A) of section 951(a)(1), 
as amended by this Act, is amended to read as fol-
lows: 
‘‘(A) his pro rata share (determined under 
paragraph (2)) of the corporation’s subpart F 
income for such year, and’’. 
(B) Paragraph (3) of section 851(b) is amended 
by striking ‘‘section 951(a)(1)(A)(i)’’ in the flush 
language at the end and inserting ‘‘section 
951(a)(1)(A)’’. 
(C) Clause (i) of section 952(c)(1)(B) is amend-
ed by striking ‘‘section 951(a)(1)(A)(i)’’ and insert-
ing ‘‘section 951(a)(1)(A)’’. 
(D) Subparagraph (C) of section 953(c)(1) is 
amended by striking ‘‘section 951(a)(1)(A)(i)’’ and 
inserting ‘‘section 951(a)(1)(A)’’. 
(2) Subsection (a) of section 951 is amended by 
striking paragraph (3). 
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(3) Subclause (II) of section 953(d)(4)(B)(iv) is 
amended by striking ‘‘or amounts referred to in 
clause (ii) or (iii) of section 951(a)(1)(A)’’. 
(4) Subsection (b) of section 964 is amended by 
striking ‘‘, 955,’’. 
(5) Section 970 is amended by striking sub-
section (b). 
(6) The table of sections for subpart F of part 
III of subchapter N of chapter 1 is amended by 
striking the item relating to section 955. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years of foreign corpora-
tions beginning after December 31, 2014, and to taxable 
years of United States shareholders in which or with which 
such taxable years of foreign corporations end. 
PART 2—PREVENTION OF BASE EROSION 
SEC. 4211. FOREIGN INTANGIBLE INCOME SUBJECT TO 
TAXATION AT REDUCED RATE; INTANGIBLE 
INCOME TREATED AS SUBPART F INCOME. 
(a) FOREIGN BASE COMPANY INTANGIBLE INCOME 
TREATED AS SUBPART F INCOME.— 
(1) TREATMENT
AS
SUBPART
F
INCOME.— 
Paragraph (1) of section 954(a), as amended by the 
preceding provisions of this Act, is amended by re-
designating subparagraph (D) as subparagraph (E) 
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and by inserting after subparagraph (C) the fol-
lowing new subparagraph: 
‘‘(D) the foreign base company intangible 
income for the taxable year (determined under 
subsection (f) and reduced as provided in sub-
section (b)(5)), and’’. 
(2) FOREIGN BASE COMPANY INTANGIBLE IN-
COME
DEFINED.—Section 954 of such Code is 
amended by inserting after subsection (e) the fol-
lowing new subsection: 
‘‘(f) FOREIGN BASE COMPANY INTANGIBLE IN-
COME.—For purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘foreign base 
company intangible income’ means, with respect to 
any corporation for any taxable year, the excess of— 
‘‘(A) so much of the adjusted gross income 
of the corporation as exceeds 10 percent of the 
corporation’s qualified business asset invest-
ment, over 
‘‘(B) the applicable percentage of such cor-
poration’s foreign personal holding company in-
come, foreign base company sales income, for-
eign base company services income, and foreign 
base company oil related income. 
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‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of paragraph (1), the term ‘applicable percentage’ 
means, with respect to any corporation for any tax-
able year, the ratio (expressed as a percentage) of— 
‘‘(A) the excess described in paragraph 
(1)(A), divided by 
‘‘(B) the adjusted gross income of the cor-
poration. 
‘‘(3) QUALIFIED
BUSINESS
ASSET
INVEST-
MENT.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
business asset investment’ means, with respect 
to any corporation for any taxable year, the ag-
gregate of the corporation’s adjusted bases (de-
termined as of the close of such taxable year 
and after any adjustments with respect to such 
taxable year) in specified tangible property— 
‘‘(i) used in a trade or business of the 
corporation, and 
‘‘(ii) of a type with respect to which 
a deduction is allowable under section 168. 
‘‘(B) 
DETERMINATION
OF
ADJUSTED 
BASIS.—For purposes of subparagraph (A), the 
adjusted basis in any property shall be deter-
mined without regard to any provision of this 
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title (or any other provision of law) which is en-
acted after the date of the enactment of this 
section. 
‘‘(C) REGULATIONS.—The Secretary shall 
issue such regulations or other guidance as the 
Secretary determines appropriate to prevent the 
avoidance of the purposes of this paragraph, in-
cluding regulations or other guidance which 
provide for the treatment of property if— 
‘‘(i) such property is transferred, or 
held, temporarily, or 
‘‘(ii) the avoidance of the purposes of 
this paragraph is a factor in the transfer 
or holding of such property. 
‘‘(4) ADJUSTED
GROSS
INCOME; SPECIFIED 
TANGIBLE
PROPERTY.—For purposes of this sub-
section— 
‘‘(A) ADJUSTED GROSS INCOME.— 
‘‘(i) IN
GENERAL.—The term ‘ad-
justed gross income’ means, with respect 
to any corporation, the gross income of 
such corporation reduced by such corpora-
tion’s commodities gross income. 
‘‘(ii) COMMODITIES GROSS INCOME.— 
The term ‘commodities gross income’ 
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means, with respect to any corporation, the 
gross income of such corporation which is 
derived from commodities which are pro-
duced or extracted by such corporation. 
‘‘(B) SPECIFIED
TANGIBLE
PROPERTY.— 
The term ‘specified tangible property’ means 
any tangible property unless such property is 
used in the production of commodities gross in-
come. In the case of property which is used in 
the production of commodities gross income and 
other gross income, such property shall be 
treated as specified tangible property in the 
same proportion that the adjusted gross income 
produced with respect to such property bears to 
the total gross income produced with respect to 
such property. 
‘‘(C) COMMODITY.—The term ‘commodity’ 
means any commodity described in section 
475(e)(2).’’. 
(3) APPLICATION ONLY TO FOREIGN BASE COM-
PANY INTANGIBLE INCOME SUBJECT TO A LOW FOR-
EIGN EFFECTIVE RATE OF TAX.—Paragraph (2) of 
section 954(a), as amended by preceding provisions 
of this Act, is amended by inserting ‘‘or foreign base 
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company intangible income’’ after ‘‘foreign base 
company sales income’’. 
(4) CONFORMING AMENDMENT.—Paragraph (5) 
of section 954(b) is amended by inserting ‘‘the for-
eign base company intangible income,’’ before ‘‘and 
the foreign base company oil related income’’. 
(b) DEDUCTION
FOR FOREIGN INTANGIBLE IN-
COME.— 
(1) IN GENERAL.—Part VIII of subchapter B 
of chapter 1 is amended by adding at the end the 
following new section: 
‘‘SEC. 250. FOREIGN INTANGIBLE INCOME. 
‘‘(a) IN GENERAL.—In the case of a domestic cor-
poration for any taxable year, there shall be allowed as 
a deduction an amount equal to the applicable percentage 
of the lesser of— 
‘‘(1) the sum of— 
‘‘(A) the foreign percentage multiplied by 
the net imputed intangible income of such do-
mestic corporation for such taxable year, plus 
‘‘(B) in the case of a domestic corporation 
which is a United States shareholder with re-
spect to any controlled foreign corporation, the 
foreign percentage (determined with respect to 
such controlled foreign corporation) multiplied 
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by any foreign base company intangible income 
(as defined in section 954(f)) of such controlled 
foreign corporation which is included in the 
gross income of such domestic corporation 
under section 951 for such taxable year, or 
‘‘(2) taxable income of such domestic corpora-
tion (determined without regard to this section) for 
the taxable year. 
‘‘(b) NET IMPUTED INTANGIBLE INCOME.—For pur-
poses of this subsection, the term ‘net imputed intangible 
income’ means the excess of— 
‘‘(1) 
the 
excess 
described 
in 
section 
954(f)(1)(A), over 
‘‘(2) the deductions properly allocable to the 
amount described in paragraph (1). 
‘‘(c) FOREIGN PERCENTAGE.—For purposes of this 
section— 
‘‘(1) IN GENERAL.—The term ‘foreign percent-
age’ means, with respect to any corporation for any 
taxable year, the ratio (expressed as a percentage) 
of— 
‘‘(A) the foreign-derived adjusted gross in-
come of such corporation for such taxable year, 
over 
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‘‘(B) the adjusted gross income of such 
corporation for such taxable year. 
‘‘(2) FOREIGN-DERIVED ADJUSTED GROSS IN-
COME.— 
‘‘(A) IN GENERAL.—The term ‘foreign-de-
rived adjusted gross income’ means, with re-
spect to any corporation for any taxable year, 
any adjusted gross income of such corporation 
which is derived in connection with— 
‘‘(i) property which is sold for use, 
consumption, or disposition outside the 
United States, or 
‘‘(ii) services provided with respect to 
persons or property located outside the 
United States. 
‘‘(B) SPECIAL RULES.— 
‘‘(i) ULTIMATE
DISPOSITION.—Prop-
erty shall not be treated as sold for use, 
consumption, or disposition outside the 
United States if the taxpayer knew, or had 
reason to know, that such property would 
be ultimately sold for use, consumption, or 
disposition in the United States. 
‘‘(ii) SALES TO RELATED PARTIES.— 
If property is sold to a related party, such 
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sale shall not be treated as for use, con-
sumption or disposition outside the United 
States unless— 
‘‘(I) such property is ultimately 
sold for use, consumption or disposi-
tion outside the United States, or 
‘‘(II) such property is resold to 
an unrelated party outside the United 
States and no related party knew or 
had reason to know that such prop-
erty would be ultimately sold for use, 
consumption, or disposition in the 
United States. 
‘‘(iii) APPLICATION
TO
SERVICES.— 
Rules similar to the rules of clauses (i) and 
(ii) shall apply with respect to services de-
scribed in subparagraph (A)(ii). 
‘‘(C) RELATED PARTY.—For purposes of 
this paragraph, the term ‘related party’ means 
any member of an affiliated group as defined in 
section 1504(a), determined— 
‘‘(i) by substituting ‘more than 50 
percent’ for ‘at least 80 percent’ each place 
it appears, and 
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‘‘(ii) without regard to paragraphs (2) 
and (3) of section 1504(b). 
Any person (other than a corporation) shall be 
treated as a member of such group if such per-
son is controlled by members of such group (in-
cluding any entity treated as a member of such 
group by reason of this sentence) or controls 
any such member. For purposes of the pre-
ceding sentence, control shall be determined 
under the rules of section 954(d)(3). 
‘‘(3) ADJUSTED GROSS INCOME.—The term ‘ad-
justed gross income’ has the meaning given such 
term by section 954(f)(4). 
‘‘(d) APPLICABLE PERCENTAGE.—For purposes of 
this section, the term ‘applicable percentage’ means, with 
respect to any taxable year of the domestic corporation 
referred to in subsection (a), the percentage determined 
in accordance with the following table: 
‘‘In the case of any taxable year beginning in: 
The applicable percentage 
is: 
2015 ..........................................................................
55 percent 
2016 ..........................................................................
52 percent 
2017 ..........................................................................
48 percent 
2018 ..........................................................................
44 percent 
2019 or thereafter .....................................................
40 percent. 
‘‘(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.’’. 
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(2) CONFORMING AMENDMENTS.— 
(A) Clause (i) of section 163(j)(6)(A), as 
amended by the preceding provisions of this 
Act, is amended by striking ‘‘and’’ at the end 
of subclause (II) and by adding at the end the 
following new subclause: 
‘‘(IV) any deduction allowable 
under section 250, and’’. 
(B) Subparagraph (C) of section 170(b)(2) 
is amended by striking ‘‘and’’ at the end of 
clause (iv), by redesignating clause (v) as clause 
(vi), and by inserting after clause (iv) the fol-
lowing new clause: 
‘‘(v) section 250, and’’. 
(C) Subsection (d) of section 172, as 
amended by the preceding provisions of this 
Act, is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(7) DEDUCTION
FOR
FOREIGN
INTANGIBLE 
INCOME.—The deduction under section 250 shall not 
be allowed.’’. 
(D) Paragraph (1) of section 246(b) is 
amended by striking ‘‘and 247’’ and inserting 
‘‘247, and 250’’. 
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(E) Clause (iii) of section 469(i)(3)(D), as 
amended by the preceding provisions of this 
Act, is amended by striking ‘‘and 222’’ and in-
serting ‘‘222, and 250’’. 
(c) EFFECTIVE DATE.— 
(1) TREATMENT AS SUBPART F INCOME.—The 
amendments made by subsection (a) shall apply to 
taxable years of foreign corporations beginning after 
December 31, 2014, and to taxable years of United 
States shareholders in which or with which such tax-
able years of foreign corporations end. 
(2) DEDUCTION FOR FOREIGN INTANGIBLE IN-
COME.—The amendments made by subsection (b) 
shall apply to taxable years beginning after Decem-
ber 31, 2014. 
SEC. 4212. DENIAL OF DEDUCTION FOR INTEREST EXPENSE 
OF UNITED STATES SHAREHOLDERS WHICH 
ARE MEMBERS OF WORLDWIDE AFFILIATED 
GROUPS WITH EXCESS DOMESTIC INDEBTED-
NESS. 
(a) IN GENERAL.—Section 163 is amended by redes-
ignating subsection (n) as subsection (o) and by inserting 
after subsection (m) the following new subsection: 
‘‘(n) DISALLOWANCE OF DEDUCTION FOR INTEREST 
EXPENSE OF UNITED STATES SHAREHOLDERS WHICH 
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ARE MEMBERS
OF WORLDWIDE AFFILIATED GROUPS 
WITH EXCESS DOMESTIC INDEBTEDNESS.— 
‘‘(1) IN GENERAL.—In the case of any domestic 
corporation which is a United States shareholder (as 
defined in section 951(b)) with respect to any for-
eign corporation both of which are members of the 
same worldwide affiliated group, the deduction al-
lowed under this chapter for interest paid or accrued 
by such domestic corporation during the taxable year 
shall be reduced by the lesser of— 
‘‘(A) the product of— 
‘‘(i) the net interest expense of such 
domestic corporation, multiplied by 
‘‘(ii) the debt-to-equity differential 
percentage of such worldwide affiliated 
group, or 
‘‘(B) the excess (if any) of— 
‘‘(i) such net interest expense, over 
‘‘(ii) 40 percent of the adjusted tax-
able income (as defined in subsection 
(j)(6)(A)) of such domestic corporation. 
‘‘(2) CARRYFORWARD.—Any amount disallowed 
under paragraph (1) for any taxable year shall be 
treated as interest paid or accrued in the succeeding 
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taxable year (and shall not be treated as disqualified 
interest for purposes of applying subsection (j)). 
‘‘(3) DEBT-TO-EQUITY
DIFFERENTIAL
PER-
CENTAGE.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘debt-to-equity differential 
percentage’ means, with respect to any world-
wide affiliated group, the percentage which the 
excess domestic indebtedness of such group 
bears to the total indebtedness of the domestic 
corporations which are members of such group. 
‘‘(B) 
EXCESS
DOMESTIC
INDEBTED-
NESS.—For purposes of subparagraph (A), the 
term ‘excess domestic indebtedness’ means, with 
respect to any worldwide affiliated group, the 
excess (if any) of— 
‘‘(i) the total indebtedness of the do-
mestic corporations which are members of 
such group, over 
‘‘(ii) 110 percent of the amount which 
the total indebtedness of such domestic 
corporations would be if the ratio of such 
indebtedness to the total equity of such do-
mestic corporations equaled the ratio 
which— 
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‘‘(I) the total indebtedness of 
such group, bears to 
‘‘(II) the total equity of such 
group. 
‘‘(C) TOTAL
EQUITY.—For purposes of 
subparagraph (B), the term ‘total equity’ 
means, with respect to one or more corpora-
tions, the excess (if any) of— 
‘‘(i) the money and all other assets of 
such corporations, over 
‘‘(ii) the total indebtedness of such 
corporations. 
‘‘(D) SPECIAL RULES FOR DETERMINING 
DEBT AND EQUITY.—For purposes of this para-
graph— 
‘‘(i) APPLICATION OF CERTAIN GEN-
ERAL RULES.—Rules similar to the rules 
of clauses (i), (ii), and (iii) of subsection 
(j)(2)(C) shall apply. 
‘‘(ii) INTRAGROUP DEBT AND EQUITY 
INTERESTS DISREGARDED.—The total in-
debtedness, and the assets, of any group of 
corporations shall be determined by treat-
ing all members of such group as one cor-
poration. 
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‘‘(iii) DETERMINATION OF ASSETS OF 
DOMESTIC GROUP.—The assets of the do-
mestic corporations which are members of 
any worldwide affiliated group shall be de-
termined by disregarding any interest held 
by any such domestic corporation in any 
foreign corporation which is a member of 
such group. 
‘‘(4) OTHER
DEFINITIONS.—For purposes of 
this subsection— 
‘‘(A) WORLDWIDE AFFILIATED GROUP.— 
The term ‘worldwide affiliated group’ has the 
meaning which would be given such term by 
section 864(f)(1)(C) if section 1504(a) were ap-
plied by substituting ‘more than 50 percent’ for 
‘at least 80 percent’ each place it appears. 
‘‘(B) NET INTEREST EXPENSE.—The term 
‘net interest expense’ has the meaning given 
such term by subsection (j)(6)(B). 
‘‘(5) TREATMENT OF AFFILIATED GROUP.—For 
purposes of this subsection, all members of the same 
affiliated group (within the meaning of section 
1504(a) applied by substituting ‘more than 50 per-
cent’ for ‘at least 80 percent’ each place it appears) 
shall be treated as 1 taxpayer. 
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‘‘(6) REGULATIONS.—The Secretary shall pre-
scribe such regulations or other guidance as may be 
appropriate to carry out the purposes of this sub-
section, including regulations or other guidance— 
‘‘(A) to prevent the avoidance of the pur-
poses of this subsection, 
‘‘(B) providing such adjustments in the 
case of corporations which are members of an 
affiliated group as may be appropriate to carry 
out the purposes of this subsection, 
‘‘(C) providing for the coordination of this 
subsection with section 884, and 
‘‘(D) providing for the reallocation of 
shares of partnership indebtedness, or distribu-
tive shares of the partnership’s interest income 
or interest expense.’’. 
(b) COORDINATION WITH LIMITATION ON RELATED 
PARTY INDEBTEDNESS.—Paragraph (1) of section 163(j) 
is amended by adding at the end the following new sub-
paragraph: 
‘‘(C) COORDINATION WITH LIMITATION ON 
EXCESS
DOMESTIC
INDEBTEDNESS.—The 
amount disallowed under subparagraph (A) 
with respect to any corporation for any taxable 
year shall be reduced by any amount disallowed 
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under subsection (n)(1) with respect to such 
corporation for such taxable year.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
TITLE V—TAX EXEMPT ENTITIES 
Subtitle A—Unrelated Business 
Income Tax 
SEC. 5001. CLARIFICATION OF UNRELATED BUSINESS IN-
COME TAX TREATMENT OF ENTITIES TREAT-
ED AS EXEMPT FROM TAXATION UNDER SEC-
TION 501(a). 
(a) IN GENERAL.—Subparagraph (A) of section 
511(a)(2) is amended by adding at the end the following: 
‘‘For purposes of the preceding sentence, an organization 
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) CLERICAL AMENDMENT.—The heading for sub-
paragraph (A) of section 511(a)(2) is amended to read 
as follows: ‘‘ORGANIZATIONS EXEMPT FROM TAXATION BY 
REASON OF SECTION 501(a).’’ 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5002. NAME AND LOGO ROYALTIES TREATED AS UNRE-
LATED BUSINESS TAXABLE INCOME. 
(a) IN GENERAL.—Section 513 is amended by adding 
at the end the following new subsection: 
‘‘(k) NAME AND LOGO ROYALTIES.—Any sale or li-
censing by an organization of any name or logo of the 
organization (including any trademark or copyright relat-
ing to such name or logo) shall be treated as an unrelated 
trade or business regularly carried on by such organiza-
tion.’’. 
(b) CALCULATION OF UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 is amended 
by adding at the end the following new paragraph: 
‘‘(20) SPECIAL
RULE
FOR
NAME
AND
LOGO 
ROYALTIES.—Notwithstanding paragraph (1), (2), 
(3), or (5), any income derived from any sale or li-
censing described in section 513(k) shall be included 
as an item of gross income derived from an unre-
lated trade or business.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 5003. UNRELATED BUSINESS TAXABLE INCOME SEPA-
RATELY COMPUTED FOR EACH TRADE OR 
BUSINESS ACTIVITY. 
(a) IN GENERAL.—Subsection (a) of section 512 is 
amended by adding at the end the following new para-
graph: 
‘‘(6) SPECIAL RULE FOR ORGANIZATION WITH 
MORE THAN 1 UNRELATED TRADE OR BUSINESS.— 
In the case of any organization with more than 1 
unrelated trade or business— 
‘‘(A) unrelated business taxable income 
shall be computed separately with respect to 
each such trade or business and without regard 
to subsection (b)(12), 
‘‘(B) the unrelated business taxable income 
of such organization shall be the sum of the un-
related business taxable income so computed 
with respect to each such trade or business, less 
a specific deduction under subsection (b)(12), 
and 
‘‘(C) for purposes of subparagraph (B), 
unrelated business taxable income with respect 
to any such trade or business shall not be less 
than zero, and 
‘‘(D) the net operating loss deduction shall 
only be allowed with respect to the trade or 
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business from which the net operating loss 
arose.’’. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except to the extent pro-
vided in paragraph (2), the amendment made by this 
section shall apply to taxable years beginning after 
December 31, 2014. 
(2) NET OPERATING LOSSES.— 
(A) CERTAIN CARRYOVERS.—In the case of 
any net operating loss arising in a taxable year 
beginning before January 1, 2015, that is car-
ried over to a taxable year beginning on or after 
such date, section 512(a)(6)(D) of the Internal 
Revenue Code of 1986, as added by this Act, 
shall not apply. 
(B) CERTAIN CARRYBACKS.—In the case 
of any net operating loss arising in a taxable 
year beginning after December 31, 2014, and 
carried back to any taxable year beginning on 
or before such date, in computing unrelated 
business taxable income of an organization 
under section 512(a) of such Code for the tax-
able year, the net operating loss deduction shall 
be allowed only with respect to the trade or 
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business from which the net operating loss 
arose. 
SEC. 5004. EXCLUSION OF RESEARCH INCOME LIMITED TO 
PUBLICLY AVAILABLE RESEARCH. 
(a) IN GENERAL.—Paragraph (9) of section 512(b) 
is amended by striking ‘‘from research’’ and inserting 
‘‘from such research’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5005. PARITY OF CHARITABLE CONTRIBUTION LIMITA-
TION BETWEEN TRUSTS AND CORPORATIONS. 
(a) IN GENERAL.—Paragraph (11) of section 512(b) 
is amended by striking the second sentence and inserting 
the following: ‘‘The deduction allowed by this paragraph 
shall not exceed 10 percent of the unrelated business tax-
able income computed without the benefit of this para-
graph.’’ 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5006. INCREASED SPECIFIC DEDUCTION. 
(a) IN GENERAL.—Paragraph (12) of section 512(b) 
is amended by striking ‘‘$1,000’’ each place it appears and 
inserting ‘‘$10,000’’. 
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(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5007. REPEAL OF EXCLUSION OF GAIN OR LOSS FROM 
DISPOSITION OF DISTRESSED PROPERTY. 
(a) IN GENERAL.—Subsection (b) of section 512 is 
amended by striking paragraph (16). 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to property acquired after Decem-
ber 31, 2014. 
SEC. 5008. QUALIFIED SPONSORSHIP PAYMENTS. 
(a) REPEAL
OF USE
OR ACKNOWLEDGMENT
OF 
PRODUCT LINES
FOR QUALIFIED SPONSORSHIP PAY-
MENTS.—Subparagraphs (A) and (B)(ii)(I) of section 
513(i)(2) are each amended by striking ‘‘(or product 
lines)’’. 
(b) USE OR ACKNOWLEDGMENT LIMITED IN CASE 
OF CERTAIN EVENTS.—Subparagraph (B) of section 
513(i)(2) is amended by adding at the end the following 
new clause: 
‘‘(iii) USE
OR
ACKNOWLEDGMENT 
LIMITED IN CASE OF CERTAIN EVENTS.— 
In the case of an event with respect to 
which an organization receives an aggre-
gate amount of qualified sponsorship pay-
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ments greater than $25,000, a payment 
shall not be treated as a qualified sponsor-
ship payment for purposes of paragraph 
(1) unless the use or acknowledgment of 
the sponsor’s name or logo appears with, 
and in substantially the same manner as, 
the names of a significant portion of other 
donors to the organization. For purposes 
of the preceding sentence, whether a num-
ber of donors is a significant portion shall 
be determined based on the total number 
of donors and the total contributed with 
respect to the event, but in no event shall 
fewer than 2 other donors be treated as a 
significant portion of other donors.’’. 
(c) CLERICAL AMENDMENT.—The heading for clause 
(ii) of section 513(i)(2)(B) is amended to read as follows: 
‘‘PERIODICALS AND QUALIFIED CONVENTION AND TRADE 
SHOW ACTIVITIES.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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Subtitle B—Penalties 
SEC. 5101. INCREASE IN INFORMATION RETURN PEN-
ALTIES. 
(a) FAILURE TO FILE RETURN.— 
(1) ORGANIZATION.—Subparagraph (A) of sec-
tion 6652(c)(1) is amended— 
(A) by striking ‘‘$20’’ each place it ap-
pears and inserting ‘‘$40’’, and 
(B) by striking ‘‘$100’’ and inserting 
‘‘$200’’. 
(2) 
MANAGERS.—Clause 
(ii) 
of 
section 
6652(c)(1)(B) is amended by striking ‘‘$10’’ and in-
serting ‘‘$20’’. 
(b) FAILURE TO MAKE RETURNS, REPORTS, AND 
APPLICATIONS AVAILABLE FOR PUBLIC INSPECTION.— 
Subparagraphs (C) and (D) of section 6652(c)(1) are each 
amended by striking ‘‘$20’’ and inserting ‘‘$40’’. 
(c) FAILURE TO FILE RETURNS UNDER SECTION 
6034 OR 6043.—Paragraph (2) of section 6652(c) is 
amended— 
(1) by striking ‘‘$10’’ each place it appears in 
subparagraphs (A) and (B) and inserting ‘‘$20’’, 
and 
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(2) by striking ‘‘substituting ‘$100’ for ‘$20’,’’ 
in subparagraph (C)(ii) and inserting ‘‘substituting 
‘$200’ for ‘$40’,’’. 
(d) FAILURE TO FILE DISCLOSURE UNDER SECTION 
6033(a)(2).— 
(1) ORGANIZATION.—Subparagraph (A) of sec-
tion 6652(c)(3) is amended by striking ‘‘$100’’ and 
inserting ‘‘$200’’. 
(2) MANAGERS.—Subparagraph (B) of section 
6652(c)(3) is amended by striking ‘‘$100’’ and in-
serting ‘‘$200’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply with respect to information returns 
required to be filed on or after January 1, 2015. 
SEC. 5102. MANAGER-LEVEL ACCURACY-RELATED PENALTY 
ON UNDERPAYMENT OF UNRELATED BUSI-
NESS INCOME TAX. 
(a) IN GENERAL.—Section 6662 is amended by add-
ing at the end the following new subsection: 
‘‘(k) MANAGER-LEVEL PENALTY FOR SUBSTANTIAL 
UNDERPAYMENT
OF
UNRELATED
BUSINESS
INCOME 
TAX.— 
‘‘(1) IN GENERAL.—In the case of any substan-
tial underpayment of income tax which is attrib-
utable to the tax imposed by section 511 on the un-
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related business taxable income of an organization 
for the taxable year, there is hereby imposed a tax 
with respect to such organization an amount equal 
to 5 percent of such underpayment to which the un-
derpayment relates. Such tax shall be paid by any 
manager of the organization. 
‘‘(2) MANAGER.—For purposes of this sub-
section, the term ‘manager’ means any officer, direc-
tor, trustee, employee, or other individual who is 
under a duty to perform an act in respect of which 
the underpayment relates. 
‘‘(3) JOINT AND SEVERAL LIABILITY.—If more 
than one person is liable under paragraph (1) with 
respect to an underpayment, all such persons shall 
be jointly and severally liable under such paragraph 
with respect to such underpayment 
‘‘(4) LIMIT.—With respect to any substantial 
underpayment of income tax for a taxable year, the 
maximum amount of the tax added by paragraph (1) 
shall not exceed $20,000.’’. 
(b) REPORTABLE TRANSACTIONS.—Section 6662A is 
amended by adding at the end the following new sub-
section: 
‘‘(f) MANAGER-LEVEL PENALTY IN CASE OF UNRE-
LATED BUSINESS INCOME TAX.— 
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‘‘(1) IN GENERAL.—In the case of any portion 
of a reportable transaction understatement of the 
tax imposed by section 511 to which this section ap-
plies, there is hereby imposed a tax in an amount 
equal to 10 percent of such portion of the under-
payment to which the reportable transaction under-
statement occurs. Such tax shall be paid by any 
manager of the organization. 
‘‘(2) MANAGER.—For purposes of this sub-
section, the term ‘manager’ means any officer, direc-
tor, trustee, employee, or other individual who is 
under a duty to perform an act in respect of which 
such understatement occurs. 
‘‘(3) JOINT AND SEVERAL LIABILITY.—If more 
than one person is liable under paragraph (1) with 
respect to an understatement, all such persons shall 
be jointly and severally liable under such paragraph 
with respect to such understatement. 
‘‘(4) LIMIT.—With respect to any understate-
ment of tax to which this section applies, the max-
imum amount of the tax added by paragraph (1) 
shall not exceed $40,000’’. 
(c) COORDINATION.—Section 6662 is amended— 
(1) by striking the flush matter at the end of 
subsection (b), and 
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(2) by adding at the end the following new sub-
section: 
‘‘(l) COORDINATION WITH OTHER PENALTIES.— 
This section shall not apply to any portion of an under-
payment on which a penalty is imposed under section 
6663. Except as provided in paragraph (1) or (2)(B) of 
section 6662A(e), this section shall not apply to the por-
tion of any underpayment which is attributable to a re-
portable transaction understatement on which a penalty 
is imposed under section 6662A.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
Subtitle C—Excise Taxes 
SEC. 5201. MODIFICATION OF INTERMEDIATE SANCTIONS. 
(a) ORGANIZATION LEVEL TAX.—Subsection (a) of 
section 4958 is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3) ON THE ORGANIZATION.—In any case in 
which a tax is imposed by paragraph (1), there is 
hereby imposed on the organization a tax equal to 
10 percent of the excess benefit.’’. 
(b) MINIMUM STANDARDS OF ORGANIZATION DUE 
DILIGENCE.—Subsection (d) of section 4958 is amended 
by adding at the end the following new paragraph: 
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‘‘(3) MINIMUM STANDARDS OF ORGANIZATION 
DUE DILIGENCE.— 
‘‘(A) IN
GENERAL.—Subsection (a)(3) 
shall not apply to a transaction, if— 
‘‘(i) the organization establishes that 
the minimum standards of due diligence 
described in subparagraph (B) were met 
with respect to the transaction, or 
‘‘(ii) the organization establishes to 
the satisfaction of the Secretary that such 
other reasonable procedures were used to 
ensure that no excess benefit was provided. 
‘‘(B) MINIMUM STANDARDS.—An organiza-
tion shall be treated as satisfying the minimum 
standards of due diligence described in this sub-
paragraph with respect to any transaction, if— 
‘‘(i) the transaction was approved in 
advance by an authorized body of the orga-
nization composed entirely of individuals 
who did not have a conflict of interest with 
respect to the transaction, 
‘‘(ii) the authorized body obtained and 
relied upon appropriate data as to com-
parability prior to approval of the trans-
action, and 
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‘‘(iii) the authorizing body adequately 
and concurrently documented the basis for 
approving the transaction. 
‘‘(C) NO
PRESUMPTION
AS
TO
REASON-
ABLENESS.—Meeting 
the 
requirements 
of 
clause (i) or (ii) of subparagraph (A) with re-
spect to a transaction shall not give rise to a 
presumption of reasonableness for purposes of 
the taxes imposed by paragraphs (1) or (2) of 
subsection (a) and shall not, by itself, support 
a conclusion that a manager did not act know-
ingly for purposes of subsection (a)(2).’’. 
(c) REPEAL OF EXCEPTION FOR MANAGER RELI-
ANCE
ON
PROFESSIONAL
ADVICE.—Section 4958 is 
amended by adding at the end the following new sub-
section: 
‘‘(g) NO SAFE HARBOR FOR RELIANCE ON PROFES-
SIONAL ADVICE.—An organization manager’s reliance on 
a written opinion of a professional with respect to elements 
of a transaction within the professional’s expertise shall 
not, by itself, preclude the manager from being treated 
as participating in the transaction knowingly.’’. 
(d) ATHLETIC COACHES
AND INVESTMENT MAN-
AGERS TREATED AS DISQUALIFIED PERSONS.— 
(1) ATHLETIC COACHES.— 
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(A) IN GENERAL.—Paragraph (1) of sec-
tion 4958(f) is amended by striking ‘‘and’’ at 
the end of subparagraph (E), by striking the 
period at the end of subparagraph (F) and in-
serting ‘‘, and’’, and by adding at the end the 
following new subparagraph: 
‘‘(G) any person who performs services as 
an athletic coach for the organization.’’. 
(B) 
FAMILY
MEMBERS.—Subparagraph 
(B) of section 4958(f)(1) is amended by insert-
ing ‘‘or (G)’’ after ‘‘subparagraph (A)’’. 
(2) INVESTMENT ADVISORS.— 
(A) IN
GENERAL.—Subparagraph (F) of 
section 4958(f)(1) is amended— 
(i) by striking ‘‘which involves a spon-
soring organization (as defined in section 
4966(d)(1)),’’, and 
(ii) by striking ‘‘such sponsoring orga-
nization (as so defined)’’ and inserting 
‘‘the organization’’. 
(B) INVESTMENT ADVISOR DEFINITION.— 
Subparagraph (B) of section 4958(f)(8) is 
amended to read as follows: 
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‘‘(B) INVESTMENT
ADVISOR
DEFINED.— 
For purposes of subparagraph (A), the term 
‘investment advisor’ means— 
‘‘(i) with respect to any organization, 
any person who is compensated by such or-
ganization and is primarily responsible for 
managing the investment of, or providing 
investment advice with respect to, assets of 
such organization, and 
‘‘(ii) with respect to any sponsoring 
organization 
(as 
defined 
in 
section 
4966(d)(1)), any person (other than an 
employee 
of 
such 
organization) 
com-
pensated by such organization for man-
aging the investment of, or providing in-
vestment advice with respect to, assets 
maintained in donor advised funds (as de-
fined in section 4966(d)(2)) owned by such 
organization.’’. 
(e) APPLICATION TO UNIONS AND TRADE ASSOCIA-
TIONS.—Paragraph (1) of section 4958(e) is amended by 
inserting ‘‘(5), (6),’’ after ‘‘(4),’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 5202. MODIFICATION OF TAXES ON SELF-DEALING. 
(a) ORGANIZATION LEVEL TAX.—Subsection (a) of 
section 4941 is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(3) ON THE FOUNDATION.—In any case in 
which a tax is imposed by paragraph (1), there is 
hereby imposed on the foundation a tax equal to 2.5 
percent (10 percent in the case payment of com-
pensation) of the amount involved with respect to 
the act of self-dealing for each year (or part thereof) 
in the taxable period.’’. 
(b) REPEAL OF EXCEPTION FOR MANAGER RELI-
ANCE
ON ADVICE FROM COUNSEL.—Section 4941 is 
amended by adding at the end the following new sub-
section: 
‘‘(f) NO SAFE HARBOR FOR RELIANCE ON ADVICE 
OF COUNSEL.—A foundation manager’s reliance on a 
written legal opinion by legal counsel that an act is not 
an act of self-dealing shall not, by itself, preclude the man-
ager from being treated as participating in the act know-
ingly.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
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SEC. 5203. EXCISE TAX ON FAILURE TO DISTRIBUTE WITH-
IN 5 YEARS CONTRIBUTION TO DONOR AD-
VISED FUND. 
(a) IN GENERAL.—Subchapter G of chapter 42 is 
amended by adding at the end the following new section: 
‘‘SEC. 4968. FAILURE TO DISTRIBUTE CONTRIBUTIONS 
WITHIN 5 YEARS. 
‘‘(a) IN GENERAL.—In the case of a contribution 
which is held in a donor advised fund, there is hereby im-
posed a tax equal to 20 percent of so much of the portion 
of such contribution as has not been distributed by the 
sponsoring organization in an eligible distribution before 
the beginning of the 6th (or succeeding) taxable year be-
ginning after the taxable year during which such contribu-
tion was made. The tax imposed by this subsection shall 
be paid by such sponsoring organization. 
‘‘(b) TREATMENT OF DISTRIBUTIONS.—For purposes 
of this section— 
‘‘(1) ELIGIBLE DISTRIBUTION.—The term ‘eli-
gible distribution’ means any distribution to an orga-
nization described in section 170(b)(1)(A) (other 
than an organization described in section 509(a)(3) 
or any fund or account described in section 
4966(d)(2). 
‘‘(2) 
ACCOUNTING.—Distributions 
shall 
be 
treated as made from contributions (and any earn-
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ings attributable thereto) on a first-in, first-out 
basis.’’. 
(b) CONFORMING AMENDMENT.—The table of sec-
tions for subchapter G of chapter 42 is amended by adding 
at the end the following new item: 
‘‘Sec. 4968. Failure to distribute contributions within 5 years.’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply to contributions made after December 
31, 2014. 
(2) TRANSITION RULE.—In the case of any con-
tribution— 
(A) which was made before January 1, 
2015, and 
(B) any portion of which (including any 
earnings attributable thereto) is held in a donor 
advised fund on such date, 
such portion shall be treated as contributed on such 
date. 
SEC. 5204. SIMPLIFICATION OF EXCISE TAX ON PRIVATE 
FOUNDATION INVESTMENT INCOME. 
(a) RATE REDUCTION.—Subsection (a) of section 
4940 is amended by striking ‘‘2 percent’’ and inserting 
‘‘1 percent’’. 
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(b) REPEAL OF SPECIAL RULES FOR CERTAIN PRI-
VATE FOUNDATIONS.—Section 4940 is amended by strik-
ing subsections (d) and (e). 
(c) 
CONFORMING
AMENDMENT.—Section 
4945(d)(4)(A) is amended by striking clause (iii) and by 
inserting ‘‘or’’ at the end of clause (i). 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5205. REPEAL OF EXCEPTION FOR PRIVATE OPER-
ATING 
FOUNDATION 
FAILURE 
TO 
DIS-
TRIBUTE INCOME. 
(a) IN GENERAL.—Subsection (a) of section 4942 is 
amended— 
(1) by striking ‘‘a private foundation—’’ and all 
that follows through ‘‘(2) to the extent’’ and insert-
ing ‘‘a private foundation to the extent’’, and 
(2) by redesignating subparagraphs (A), (B), 
(C), and (D) as paragraphs (1), (2), (3), and (4), 
respectively, and by moving such paragraphs, as so 
redesignated, two ems to the left. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 4942(j) is amended by striking 
paragraphs (3), (4), and (5). 
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(2) Section 170(b)(1)(F)(i) is amended by 
striking ‘‘(as defined in section 4942(j)(3))’’, 
(3) Section 170(b)(1) is amended by adding at 
the end the following new subparagraphs: 
‘‘(H) 
PRIVATE
OPERATING
FOUNDA-
TION.—For purposes of this paragraph, the 
term ‘private operating foundation’ means any 
organization— 
‘‘(i) which makes qualifying distribu-
tions (within the meaning of paragraph (1) 
or (2) of section 4942(g)) directly for the 
active conduct of the activities constituting 
the purpose or function for which it is or-
ganized and operated equal to substantially 
all of the lesser of— 
‘‘(I) its adjusted net income (as 
defined in subsection section 4942(f)), 
or 
‘‘(II) its minimum investment re-
turn, and 
‘‘(ii)(I) substantially more than half of 
the assets of which are devoted directly to 
such activities or to functionally related 
businesses, or to both, or are stock of a 
corporation which is controlled by the 
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foundation and substantially all of the as-
sets of which are so devoted, 
‘‘(II) which normally makes qualifying 
distributions (within the meaning of para-
graph (1) or (2) of section 4942(g)) di-
rectly for the active conduct of the activi-
ties constituting the purpose or function 
for which it is organized and operated in 
an amount not less than two-thirds of its 
minimum investment return (as defined in 
section 4942(e)), or 
‘‘(III) substantially all of the support 
(other than gross investment income as de-
fined in section 509(e)) of which is nor-
mally received from the general public and 
from 5 or more exempt organizations 
which 
are 
not 
described 
in 
section 
4946(a)(1)(H) with respect to each other 
or the recipient foundation; not more than 
25 percent of the support (other than 
gross investment income) of which is nor-
mally received from any one such exempt 
organization; and not more than half of 
the support of which is normally received 
from gross investment income. 
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Notwithstanding the provisions of clause (i), if 
the qualifying distributions (within the meaning 
of paragraph (1) or (2) of section 4942(g)) of 
an organization for the taxable year exceed the 
minimum investment return for the taxable 
year, subclause (II) of clause (i) shall not apply 
unless substantially all of such qualifying dis-
tributions are made directly for the active con-
duct of the activities constituting the purpose or 
function for which it is organized and operated. 
‘‘(I) 
FUNCTIONALLY
RELATED
BUSI-
NESS.—For purposes of subparagraph (H), the 
term ‘functionally related business’ means— 
‘‘(i) a trade or business which is not 
an unrelated trade or business (as defined 
in section 513), or 
‘‘(ii) an activity which is carried on 
within a larger aggregate of similar activi-
ties or within a larger complex of other en-
deavors which is related (aside from the 
need of the organization for income or 
funds or the use it makes of the profits de-
rived) to the exempt purposes of the orga-
nization.’’. 
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(4) Section 170(e)(3)(A) is amended by striking 
‘‘as defined in section 4942(j)(3)’’ and inserting ‘‘as 
defined in subsection (b)(1)(H)’’. 
(5) Section 150(b)(3)(F), as redesignated by 
this Act, is amended— 
(A) by striking ‘‘4942 (relating to the ex-
cise tax on a failure to distribute income) and’’, 
(B) by striking ‘‘section 4942(j)(4)’’ and 
inserting ‘‘section 170(b)(1)(I)’’. 
(6) Section 2055(e)(4)(D) is amended by strik-
ing ‘‘section 4942(j)(3)’’ and inserting ‘‘section 
170(b)(1)(H)’’. 
(7) Section 2503(g)(2)(B) is amended by strik-
ing ‘‘section 4942(j)(3)’’ and inserting ‘‘section 
170(b)(1)(H)’’. 
(8) Section 4942(g)(1)(A) is amended by strik-
ing ‘‘which is not an operating foundation (as de-
fined in subsection (j)(3))’’. 
(9) Section 4942(g)(3)(A) is amended by strik-
ing ‘‘which is not an operating foundation’’. 
(10) Section 4942(g)(4)(A) is amended by 
striking ‘‘which is not an operating foundation’’. 
(11) Section 4943(d)(3)(A) is amended by 
striking ‘‘section 4942(j)(4)’’ and inserting ‘‘section 
170(b)(1)(I)’’. 
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(12) Section 6110(l)(2)(A) is amended by strik-
ing ‘‘section 4942(j)(3)’’ and inserting ‘‘section 
170(b)(1)(H)’’. 
(13) Section 7428(a)(1)(C) is amended by 
striking ‘‘section 4942(j)(3)’’ and inserting ‘‘section 
170(b)(1)(H)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5206. EXCISE TAX BASED ON INVESTMENT INCOME OF 
PRIVATE COLLEGES AND UNIVERSITIES. 
(a) IN GENERAL.—Chapter 42 is amended by adding 
at the end the following new subchapter: 
‘‘Subchapter H—Excise Tax Based on Invest-
ment Income of Private Colleges and Uni-
versities 
‘‘Sec. 4969. Excise tax based on investment income of private colleges and uni-
versities. 
‘‘SEC. 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 percent of the net investment income of 
such institution for the taxable year. 
‘‘(b) APPLICABLE EDUCATIONAL INSTITUTION.—For 
purposes of this subchapter— 
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‘‘(1) IN GENERAL.—The term ‘applicable edu-
cational institution’ means an eligible educational in-
stitution (as defined in section 25A(e)(3))— 
‘‘(A) which is not described in the first 
sentence of section 511(a)(2)(B) (relating to 
State colleges and universities), and 
‘‘(B) 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 (or held for use) directly in carrying out 
the institution’s exempt purpose) is at least 
$100,000 per student of the institution. 
‘‘(2) STUDENTS.—For purposes of paragraph 
(1)(B), 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 stu-
dent 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).’’. 
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 42 is amended by adding at the end 
the following new item: 
‘‘SUBCHAPTER H—EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE 
COLLEGES AND UNIVERSITIES’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
Subtitle D—Requirements for 
Organizations Exempt From Tax 
SEC. 5301. REPEAL OF TAX-EXEMPT STATUS FOR PROFES-
SIONAL SPORTS LEAGUES. 
(a) IN GENERAL.—Paragraph (6) of section 501(c) 
is amended— 
(1) by striking ‘‘, boards of trade, or profes-
sional’’ and all that follows through ‘‘players)’’ and 
inserting ‘‘, or boards of trade’’, and 
(2) by adding at the end the following: ‘‘This 
paragraph shall not apply to any professional sports 
league (whether or not administering a pension fund 
for players).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 5302. REPEAL OF EXEMPTION FROM TAX FOR CER-
TAIN INSURANCE COMPANIES AND CO-OP 
HEALTH INSURANCE ISSUERS. 
(a) IN GENERAL.—Section 501(c) is amended by 
striking paragraphs (15) and (29). 
(b) CONFORMING AMENDMENTS.— 
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(1) Section 831(d), as amended by the pre-
ceding provisions of this Act, is amended to read as 
follows: 
‘‘(d) CROSS REFERENCE.—For taxation of foreign 
corporations carrying on an insurance business within the 
United States, see section 842.’’. 
(2) Section 4958(e)(1) is amended by striking 
‘‘(4), or (29)’’ and inserting ‘‘or (4)’’. 
(3) Section 6033 is amended by striking sub-
section (m) and redesignating subsection (n) as sub-
section (m). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
(d) TRANSITION RULES.—In the case of any organi-
zation described in paragraph (15) or (29) of section 
501(c) of the Internal Revenue Code of 1986 (as in effect 
immediately before the enactment of this Act)— 
(1) no adjustment shall be made under section 
481 (or any other provision) of the Internal Revenue 
Code of 1986 on account of a change in its method 
of accounting for its 1st taxable year beginning after 
December 31, 2014, and 
(2) for purposes of determining gain or loss, the 
adjusted basis of any asset held on the 1st day of 
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such taxable year shall be treated as equal to its fair 
market value as of such day. 
SEC. 5303. IN-STATE REQUIREMENT FOR WORKMEN’S COM-
PENSATION INSURANCE ORGANIZATION. 
(a) 
IN
GENERAL.—Clause 
(ii) 
of 
section 
501(c)(27)(B) is amended by inserting before the comma 
at the end the following: ‘‘, and must not offer any other 
insurance’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to insurance policies issued, and 
renewals, after December 31, 2014. 
SEC. 5304. REPEAL OF TYPE II AND TYPE III SUPPORTING 
ORGANIZATIONS. 
(a) IN GENERAL.—Subparagraph (B) of section 
509(a)(3) is amended— 
(1) by inserting ‘‘and’’ at the end of clause (i), 
(2) by striking clauses (ii) and (iii), and 
(3) by striking ‘‘is—’’ and all that follows 
through ‘‘operated, supervised, or controlled’’ and 
inserting ‘‘is operated, supervised, or controlled’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 170(f)(18)(A) is amended by strik-
ing ‘‘is not—’’ and all that follows through ‘‘, and’’ 
and inserting the following: ‘‘is not described in 
paragraph (3), (4), or (5) of subsection (c), and’’. 
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(2)(A)(i) Section 509(f) is amended by striking 
paragraph (1) and by redesignating paragraphs (2) 
and (3) as paragraphs (1) and (2), respectively. 
(ii) Section 4942(g)(4)(A)(ii)(I) is amended by 
striking ‘‘section 509(f)(3)’’ and inserting ‘‘section 
509(f)(2)’’. 
(iii) Section 4958(c)(3)(C)(ii)(II) is amended by 
striking ‘‘section 509(f)(3)’’ and inserting ‘‘section 
509(f)(2)’’. 
(iv) Section 4966(d)(4)(A)(ii)(I) is amended by 
striking ‘‘section 509(f)(3)’’ and inserting ‘‘section 
509(f)(2)’’. 
(B) Section 509(f)(1)(A), as so redesignated, is 
amended by striking ‘‘shall not be considered to 
be—’’ and all that follows through ‘‘if such organi-
zation’’ and inserting the following: ‘‘shall not be 
considered to be operated, supervised, or controlled 
by any organization described in paragraph (1) or 
(2) of subsection (a), if such organization’’. 
(3) Section 2055(e)(5)(A) is amended by strik-
ing ‘‘is not—’’ and all that follows through ‘‘, and’’ 
and inserting the following: ‘‘is not described in 
paragraph (3) or (4) of subsection (a), and’’. 
(4) Section 2522(c)(5)(A) is amended by strik-
ing ‘‘is not—’’ and all that follows through ‘‘, and’’ 
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and inserting the following: ‘‘is not described in 
paragraph (3) or (4) of subsection (a), and’’. 
(5)(A) Section 4942(g)(4)(A), as amended by 
the preceding provision of this Act, is amended— 
(i) by redesignating subclauses (I) and 
(II) of clause (ii) as clauses (i) and (ii), re-
spectively, and moving such redesignated 
clauses 2 ems to the left, 
(ii) by striking ‘‘paid by a private 
foundation to—’’ and all that follows 
through ‘‘any organization which’’ and in-
serting the following: ‘‘paid by a private 
foundation to any organization which’’, 
and 
(iii) by striking ‘‘subparagraph (B) or 
(C)’’ and inserting ‘‘subparagraph (B)’’. 
(B) Section 4942(g)(4)(B) is amended— 
(i) by striking clause (ii), 
(ii) by striking ‘‘section 509(a), or’’ and in-
serting ‘‘section 509(a).’’, 
(iii) by striking ‘‘and is—’’ and all that fol-
lows through ‘‘operated, supervised, or con-
trolled by’’ and inserting the following: ‘‘and is 
operated, supervised, or controlled by’’, and 
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(iv) by striking ‘‘TYPE I AND TYPE II’’ in 
the heading thereof. 
(C) Section 4942(g)(4) is amended by striking 
subparagraph (C). 
(D) Section 4945(d)(4)(A)(ii) is amended by 
striking ‘‘clause (i) or (ii) of section 4942(g)(4)(A)’’ 
and inserting ‘‘section 4942(g)(4)(A)’’. 
(6) Section 4943 is amended by striking sub-
section (f). 
(7)(A) Section 4966(d)(4)(A), as amended by 
this Act, is amended— 
(i) by redesignating subclauses (I) and 
(II) of clause (ii) as clauses (i) and (ii), re-
spectively, and moving such redesignated 
clauses 2 ems to the left, 
(ii) by striking ‘‘with respect to any 
distribution—’’ 
and 
all 
that 
follows 
through ‘‘any organization which’’ and in-
serting the following: ‘‘with respect to any 
distribution, any organization which’’, and 
(iii) by striking ‘‘subparagraph (B) or 
(C)’’ and inserting ‘‘subparagraph (B)’’. 
(B) Section 4966(d)(4)(B) is amended— 
(i) by striking clause (ii), 
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(ii) by striking ‘‘section 509(a), or’’ and in-
serting ‘‘section 509(a).’’, 
(iii) by striking ‘‘and is—’’ and all that fol-
lows through ‘‘operated, supervised, or con-
trolled by’’ and inserting the following: ‘‘and is 
operated, supervised, or controlled by’’, and 
(iv) by striking ‘‘TYPE I AND TYPE II’’ in 
the heading thereof. 
(C) Section 4966(d)(4) is amended by striking 
subparagraph (C). 
(8) Section 6033(l) is amended by inserting 
‘‘and’’ at the end of paragraph (1), by striking para-
graph (2), and by redesignating paragraph (3) as 
paragraph (2). 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall take effect on the date of the enactment of this 
Act. 
(2) DELAY FOR CURRENT SUPPORTING ORGANI-
ZATIONS.—In the case of an organization which, as 
of the date of the enactment of this Act, meets the 
requirements of subparagraphs (A) and (C) of sec-
tion 509(a)(3) of the Internal Revenue Code of 1986 
and is— 
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(A) supervised or controlled in connection 
with one or more organizations described in 
paragraph (1) or (2) of section 509(a) of such 
Code, or 
(B) is operated in connection with one or 
more such organizations, 
the amendments made by this section shall apply to 
taxable years beginning after December 31, 2015. 
TITLE VI—TAX ADMINISTRATION 
AND COMPLIANCE 
Subtitle A—IRS Investigation- 
Related Reforms 
SEC. 6001. ORGANIZATIONS REQUIRED TO NOTIFY SEC-
RETARY OF INTENT TO OPERATE AS 501(c)(4). 
(a) IN GENERAL.—Part I of subchapter F of chapter 
1 is amended by adding at the end the following new sec-
tion: 
‘‘SEC. 506. ORGANIZATIONS REQUIRED TO NOTIFY SEC-
RETARY OF INTENT TO OPERATE AS 501(c)(4). 
‘‘(a) IN GENERAL.—An organization described in 
section 501(c)(4) shall, not later than 60 days after the 
organization is established, notify the Secretary (in such 
manner as the Secretary shall by regulation prescribe) 
that it is operating as such. 
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‘‘(b) CONTENTS OF NOTICE.—The notice required 
under subsection (a) shall include the following informa-
tion: 
‘‘(1) The name, address, and taxpayer identi-
fication number of the organization. 
‘‘(2) The date on which, and the State under 
the laws of which, the organization was organized. 
‘‘(3) A statement of the purpose of the organi-
zation. 
‘‘(c) ACKNOWLEDGMENT
OF RECEIPT.—Not later 
than 60 days after receipt of such a notice, the Secretary 
shall send to the organization an acknowledgment of such 
receipt. 
‘‘(d) EXTENSION
FOR REASONABLE CAUSE.—The 
Secretary may, for reasonable cause, extend the 60-day 
period described in subsection (a). 
‘‘(e) USER FEE.—The Secretary shall impose a rea-
sonable user fee for submission of the notice under sub-
section (a). 
‘‘(f) REQUEST FOR DETERMINATION.—Upon request 
by an organization to be treated as an organization de-
scribed in section 501(c)(4), the Secretary may issue a de-
termination with respect to such treatment. Such request 
shall be treated for purposes of section 6104 as an applica-
tion for exemption from taxation under section 501(a).’’. 
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(b) SUPPORTING INFORMATION WITH FIRST RE-
TURN.—Paragraph (1) of section 6033(f) is amended— 
(1) by striking the period at the end and insert-
ing ‘‘, and’’, 
(2) by striking ‘‘include on the return required 
under subsection (a) the information’’ and inserting 
the following: ‘‘include on the return required under 
subsection (a)— 
‘‘(1) the information’’, and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) in the case of the first such return filed by 
such an organization after submitting a notice to the 
Secretary under section 506(a), such information as 
the Secretary shall by regulation require in support 
of the organization’s treatment as an organization 
described in section 501(c)(4).’’. 
(c) FAILURE TO FILE INITIAL NOTIFICATION.—Sub-
section (c) of section 6652 is amended by redesignating 
paragraphs (4) and (5) as paragraphs (5) and (6), respec-
tively, and by inserting after paragraph (3) the following 
new paragraph: 
‘‘(4) NOTICES UNDER SECTION 506.— 
‘‘(A) PENALTY ON ORGANIZATION.—In the 
case of a failure to submit a notice required 
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under section 506(a) (relating to organizations 
required to notify Secretary of intent to operate 
as 501(c)(4)) on the date and in the manner 
prescribed therefor, there shall be paid by the 
organization failing to so submit $20 for each 
day during which such failure continues, but 
the total amount imposed under this subpara-
graph on any organization for failure to submit 
any one notice shall not exceed $5,000. 
‘‘(B) MANAGERS.—The Secretary may 
make written demand on an organization sub-
ject to penalty under subparagraph (A) speci-
fying in such demand a reasonable future date 
by which the notice shall be submitted for pur-
poses of this subparagraph. If such notice is not 
submitted on or before such date, there shall be 
paid by the person failing to so submit $20 for 
each day after the expiration of the time speci-
fied in the written demand during which such 
failure continues, but the total amount imposed 
under this subparagraph on all persons for fail-
ure to submit any one notice shall not exceed 
$5,000.’’. 
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(d) CLERICAL AMENDMENT.—The table of sections 
for part I of subchapter F of chapter 1 is amended by 
adding at the end the following new item: 
‘‘Sec. 506. Organizations required to notify Secretary of intent to operate as 
501(c)(4).’’. 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to organizations which are 
described in section 501(c)(4) of the Internal Rev-
enue Code of 1986 and organized after December 
31, 2014. 
(2) CERTAIN
EXISTING
ORGANIZATIONS.—In 
the case of any other organization described in sec-
tion 501(c)(4) of such Code, the amendments made 
by this section shall apply to such organization only 
if, on or before the date of the enactment of this 
Act— 
(A) such organization has not applied for 
a written determination of recognition as an or-
ganization described in section 501(c)(4) of 
such Code, and 
(B) such organization has not filed at least 
one annual return or notice required under sub-
section (a)(1) or (i) (as the case may be) of sec-
tion 6033 of such Code. 
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In the case of any organization to which the amend-
ments made by this section apply by reason of the 
preceding sentence, such organization shall submit 
the notice required by section 506(a) of such Code, 
as added by this Act, not later than 180 days after 
the date of the enactment of this Act. 
SEC. 6002. DECLARATORY JUDGMENTS FOR 501(c)(4) ORGA-
NIZATIONS. 
(a) IN GENERAL.—Paragraph (1) of section 7428(a) 
is amended by striking ‘‘or’’ at the end of subparagraph 
(C) and by inserting after subparagraph (D) the following 
new subparagraph: 
‘‘(E) with respect to the initial classifica-
tion or continuing classification of an organiza-
tion described in section 501(c)(4) which is ex-
empt from tax under section 501(a), or’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to pleadings filed after the date 
of the enactment of this Act. 
SEC. 6003. RESTRICTION ON DONATION REPORTING FOR 
CERTAIN 501(c)(4) ORGANIZATIONS. 
(a) IN GENERAL.—Subsection (f) of section 6033, as 
amended by this Act, is amended— 
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(3) Section 275(a) is amended by striking the 
last sentence. 
(4) Section 882(a)(1) is amended by striking 
‘‘59A,’’. 
(5) Section 6425(c)(1)(A), as amended by the 
preceding provisions of this Act, is amended to read 
as follows: 
‘‘(A) the tax imposed by section 11 or 
1201(a), or subchapter L of chapter 1, which-
ever is applicable, over’’. 
(6) Section 6655(g)(1)(A), as amended by the 
preceding provisions of this Act, is amended by add-
ing ‘‘plus’’ at the end of clause (i) and by striking 
clause (ii). 
SEC. 8005. ANNUITIES; CERTAIN PROCEEDS OF ENDOW-
MENT AND LIFE INSURANCE CONTRACTS. 
Section 72 is amended— 
(1) in subsection (c)(4) by striking ‘‘; except 
that if such date was before January 1, 1954, then 
the annuity starting date is January 1, 1954’’, and 
(2) in subsection (g)(3) by striking ‘‘January 1, 
1954, or’’ and ‘‘, whichever is later’’. 
SEC. 8006. UNEMPLOYMENT COMPENSATION. 
Section 85 is amended by striking subsection (c). 
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