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(A) by redesignating subsection (g) as sub-
section (h), 
(B) by inserting after subsection (f) the 
following new subsection: 
‘‘(g) INFORMATION RELATING TO LIFE INSURANCE 
CONTRACT TRANSACTIONS.—This section shall not apply 
to any information which is required to be reported under 
section 6050X.’’, and 
(C) by adding at the end of subsection (h), 
as so redesignated, the following new para-
graph: 
‘‘(4) For provisions requiring reporting of infor-
mation relating to certain life insurance contract 
transactions, see section 6050X.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to— 
(1) reportable policy sales (as defined in section 
6050X(d)(2) of the Internal Revenue Code of 1986 
(as added by subsection (a)) after December 31, 
2014, and 
(2) reportable death benefits (as defined in sec-
tion 6050X(d)(4) of such Code (as added by sub-
section (a)) paid after December 31, 2014. 
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SEC. 3514. CLARIFICATION OF TAX BASIS OF LIFE INSUR-
ANCE CONTRACTS. 
(a) CLARIFICATION WITH RESPECT
TO ADJUST-
MENTS.—Paragraph (1) of section 1016(a) is amended by 
striking subparagraph (A) and all that follows and insert-
ing the following: 
‘‘(A) for— 
‘‘(i) taxes or other carrying charges 
described in section 266; or 
‘‘(ii) expenditures described in section 
173 (relating to circulation expenditures), 
for which deductions have been taken by the 
taxpayer in determining taxable income for the 
taxable year or prior taxable years; or 
‘‘(B) for mortality, expense, or other rea-
sonable charges incurred under an annuity or 
life insurance contract;’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to transactions entered into after 
August 25, 2009. 
SEC. 3515. EXCEPTION TO TRANSFER FOR VALUABLE CON-
SIDERATION RULES. 
(a) IN GENERAL.—Subsection (a) of section 101 is 
amended by inserting after paragraph (2) the following 
new paragraph: 
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‘‘(3) EXCEPTION TO VALUABLE CONSIDERATION 
RULES FOR COMMERCIAL TRANSFERS.— 
‘‘(A) IN GENERAL.—The second sentence 
of paragraph (2) shall not apply in the case of 
a transfer of a life insurance contract, or any 
interest therein, which is a reportable policy 
sale. 
‘‘(B) REPORTABLE
POLICY
SALE.—For 
purposes of this paragraph, the term ‘reportable 
policy sale’ means the acquisition of an interest 
in a life insurance contract, directly or indi-
rectly, if the acquirer has no substantial family, 
business, or financial relationship with the in-
sured apart from the acquirer’s interest in such 
life insurance contract. For purposes of the pre-
ceding sentence, the term ‘indirectly’ applies to 
the acquisition of an interest in a partnership, 
trust, or other entity that holds an interest in 
the life insurance contract.’’. 
(b) CONFORMING AMENDMENT.—Paragraph (1) of 
section 101(a) is amended by striking ‘‘paragraph (2)’’ 
and inserting ‘‘paragraphs (2) and (3)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers after December 31, 
2014. 
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Subtitle G—Pass-Thru and Certain 
Other Entities 
PART 1—S CORPORATIONS 
SEC. 3601. REDUCED RECOGNITION PERIOD FOR BUILT-IN 
GAINS MADE PERMANENT. 
(a) IN GENERAL.—Paragraph (7) of section 1374(d) 
(relating to definitions and special rules) is amended to 
read as follows: 
‘‘(7) RECOGNITION PERIOD.— 
‘‘(A) IN GENERAL.—The term ‘recognition 
period’ means the 5-year period beginning with 
the 1st day of the 1st taxable year for which 
the corporation was an S corporation. For pur-
poses of applying this section to any amount in-
cludible in income by reason of distributions to 
shareholders pursuant to section 593(e), the 
preceding sentence shall be applied without re-
gard to the phrase ‘5-year’. 
‘‘(B) INSTALLMENT SALES.—If an S cor-
poration sells an asset and reports the income 
from the sale using the installment method 
under section 453, the treatment of all pay-
ments received shall be governed by the provi-
sions of this paragraph applicable to the taxable 
year in which such sale was made.’’. 
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(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2013. 
SEC. 3602. MODIFICATIONS TO S CORPORATION PASSIVE 
INVESTMENT INCOME RULES. 
(a) INCREASED PERCENTAGE LIMIT.—Paragraph (2) 
of section 1375(a) is amended by striking ‘‘25 percent’’ 
and inserting ‘‘60 percent’’. 
(b) REPEAL OF EXCESSIVE PASSIVE INCOME AS A 
TERMINATION EVENT.—Section 1362(d) is amended by 
striking paragraph (3). 
(c) CONFORMING AMENDMENTS.— 
(1) Subsection (b) of section 1375 is amended 
by striking paragraphs (3) and (4) and inserting the 
following new paragraph: 
‘‘(3) 
PASSIVE
INVESTMENT
INCOME
DE-
FINED.— 
‘‘(A) IN GENERAL.—Except as otherwise 
provided in this paragraph, the term ‘passive 
investment income’ means gross receipts de-
rived from royalties, rents, dividends, interest, 
and annuities. 
‘‘(B) 
EXCEPTION
FOR
INTEREST
ON 
NOTES FROM SALES OF INVENTORY.—The term 
‘passive investment income’ shall not include in-
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terest on any obligation acquired in the ordi-
nary course of the corporation’s trade or busi-
ness from its sale of property described in sec-
tion 1221(a)(1). 
‘‘(C) TREATMENT
OF
CERTAIN
LENDING 
OR FINANCE COMPANIES.—If the S corporation 
meets the requirements of section 542(c)(6) for 
the taxable year, the term ‘passive investment 
income’ shall not include gross receipts for the 
taxable year which are derived directly from the 
active and regular conduct of a lending or fi-
nance 
business 
(as 
defined 
in 
section 
542(d)(1)). 
‘‘(D) TREATMENT
OF
CERTAIN
DIVI-
DENDS.—If an S corporation holds stock in a 
C corporation meeting the requirements of sec-
tion 1504(a)(2), the term ‘passive investment 
income’ shall not include dividends from such C 
corporation to the extent such dividends are at-
tributable to the earnings and profits of such C 
corporation derived from the active conduct of 
a trade or business. 
‘‘(E) EXCEPTION
FOR
BANKS, ETC.—In 
the case of a bank (as defined in section 581) 
or a depository institution holding company (as 
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defined in section 3(w)(1) of the Federal De-
posit Insurance Act (12 U.S.C. 1813(w)(1)), 
the term ‘passive investment income’ shall not 
include— 
‘‘(i) interest income earned by such 
bank or company, or 
‘‘(ii) dividends on assets required to 
be held by such bank or company, includ-
ing stock in the Federal Reserve Bank, the 
Federal Home Loan Bank, or the Federal 
Agricultural Mortgage Bank or participa-
tion certificates issued by a Federal Inter-
mediate Credit Bank. 
‘‘(F) GROSS RECEIPTS FROM THE SALES 
OF
CERTAIN
ASSETS.—For purposes of this 
paragraph— 
‘‘(i) CAPITAL
ASSETS
OTHER
THAN 
STOCK AND SECURITIES.—In the case of 
dispositions of capital assets (other than 
stock and securities), gross receipts from 
such dispositions shall be taken into ac-
count only to the extent of capital gain net 
income therefrom. 
‘‘(ii) STOCK AND SECURITIES.—In the 
case of sales or exchanges of stock or secu-
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rities, gross receipts shall be taken into ac-
count only to the extent of the gain there-
from. 
‘‘(G) 
COORDINATION
WITH
SECTION 
1374.—The amount of passive investment in-
come shall be determined by not taking into ac-
count any recognized built-in gain or loss of the 
S corporation for any taxable year in the rec-
ognition period. Terms used in the preceding 
sentence shall have the same respective mean-
ings as when used in section 1374.’’. 
(2)(A) Subparagraph (J) of section 26(b)(2) is 
amended by striking ‘‘25 percent’’ and inserting ‘‘60 
percent’’. 
(B) Clause (i) of section 1375(b)(1)(A) is 
amended by striking ‘‘25 percent’’ and inserting ‘‘60 
percent’’. 
(C) The heading for section 1375 is amended 
by striking ‘‘25 PERCENT’’ and inserting ‘‘60 PER-
CENT’’. 
(D) The item relating to section 1375 in the 
table of sections for part III of subchapter S of 
chapter 1 is amended by striking ‘‘25 percent’’ and 
inserting ‘‘60 percent’’. 
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(3) Subparagraph (B) of section 1362(f)(1) is 
amended by striking ‘‘paragraph (2) or (3) of sub-
section (d)’’ and inserting ‘‘subsection (d)(2)’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 3603. EXPANSION OF QUALIFYING BENEFICIARIES OF 
AN ELECTING SMALL BUSINESS TRUST. 
(a) NO LOOK-THROUGH
FOR ELIGIBILITY PUR-
POSES.—Subparagraph (C) of section 1361(b)(1) is 
amended by inserting ‘‘(determined without regard to sub-
section (c)(2)(B)(v))’’ after ‘‘shareholder’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall take effect on January 1, 2015. 
SEC. 3604. CHARITABLE CONTRIBUTION DEDUCTION FOR 
ELECTING SMALL BUSINESS TRUSTS. 
(a) IN GENERAL.—Paragraph (2) of section 641(c), 
as amended by the preceding provisions of this Act, is 
amended by inserting after subparagraph (C) the fol-
lowing new subparagraph: 
‘‘(D)(i) Section 642(c) shall not apply. 
‘‘(ii) For purposes of section 170(b)(1)(E), 
adjusted gross income shall be computed in the 
same manner as in the case of an individual, 
except that the deductions for costs which are 
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paid or incurred in connection with the admin-
istration of the trust and which would not have 
been incurred if the property were not held in 
such trust shall be treated as allowable in arriv-
ing at adjusted gross income.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 3605. PERMANENT RULE REGARDING BASIS ADJUST-
MENT TO STOCK OF S CORPORATIONS MAK-
ING CHARITABLE CONTRIBUTIONS OF PROP-
ERTY. 
(a) IN GENERAL.—Section 1367(a)(2) (relating to 
decreases in basis) is amended by striking the last sen-
tence. 
(b) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contributions made in taxable 
years beginning after December 31, 2013. 
SEC. 3606. EXTENSION OF TIME FOR MAKING S CORPORA-
TION ELECTIONS. 
(a) IN GENERAL.—Subsection (b) of section 1362 is 
amended to read as follows: 
‘‘(b) WHEN MADE.— 
‘‘(1) IN
GENERAL.—An election under sub-
section (a) may be made by a small business cor-
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poration for any taxable year not later than the due 
date for filing the return of the S corporation for 
such taxable year (including extensions). 
‘‘(2) CERTAIN ELECTIONS TREATED AS MADE 
FOR NEXT TAXABLE YEAR.—If— 
‘‘(A) an election under subsection (a) is 
made for any taxable year within the period de-
scribed in paragraph (1), but 
‘‘(B) either— 
‘‘(i) on 1 or more days in such taxable 
year and before the day on which the elec-
tion was made the corporation did not 
meet the requirements of subsection (b) of 
section 1361, or 
‘‘(ii) 1 or more of the persons who 
held stock in the corporation during such 
taxable year and before the election was 
made did not consent to the election, 
then such election shall be treated as made for 
the following taxable year. 
‘‘(3) AUTHORITY TO TREAT LATE ELECTIONS, 
ETC., AS TIMELY.—If— 
‘‘(A) an election under subsection (a) is 
made for any taxable year after the date pre-
scribed by this subsection for making such elec-
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tion for such taxable year or no such election is 
made for any taxable year, and 
‘‘(B) the Secretary determines that there 
was reasonable cause for the failure to timely 
make such election, 
the Secretary may treat such an election as timely 
made for such taxable year. 
‘‘(4) ELECTION ON TIMELY FILED RETURNS.— 
Except as otherwise provided by the Secretary, an 
election under subsection (a) for any taxable year 
may be made on a timely filed return of the S cor-
poration for such taxable year. 
‘‘(5) SECRETARIAL AUTHORITY.—The Secretary 
may prescribe such regulations, rules, or other guid-
ance as may be necessary or appropriate for pur-
poses of applying this subsection.’’. 
(b) COORDINATION WITH CERTAIN OTHER PROVI-
SIONS.— 
(1) 
QUALIFIED
SUBCHAPTER
S
SUBSIDI-
ARIES.—Section 1361(b)(3)(B) is amended by add-
ing at the end the following flush sentence: 
‘‘Rules similar to the rules of section 1362(b) 
shall apply with respect to any election under 
clause (ii).’’. 
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(2) QUALIFIED SUBCHAPTER S TRUSTS.—Sec-
tion 1361(d)(2) is amended by striking subpara-
graph (D). 
(c) 
REVOCATIONS.—Paragraph 
(1) 
of 
section 
1362(d) is amended— 
(1) by striking ‘‘subparagraph (D)’’ in subpara-
graph (C) and inserting ‘‘subparagraphs (D) and 
(E)’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(E) AUTHORITY TO TREAT LATE REVOCA-
TIONS AS TIMELY.—If— 
‘‘(i) a revocation under subparagraph 
(A) is made for any taxable year after the 
date prescribed by this paragraph for mak-
ing such revocation for such taxable year 
or no such revocation is made for any tax-
able year, and 
‘‘(ii) the Secretary determines that 
there was reasonable cause for the failure 
to timely make such revocation, 
the Secretary may treat such a revocation as 
timely made for such taxable year.’’. 
(d) EFFECTIVE DATE.— 
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