H. R. 4872—25 
‘‘(jj) PRIMARY CARE SERVICES DEFINED.—For purposes of sub-
section (a)(13)(C), the term ‘primary care services’ means— 
‘‘(1) evaluation and management services that are proce-
dure codes (for services covered under title XVIII) for services 
in the category designated Evaluation and Management in 
the Healthcare Common Procedure Coding System (established 
by the Secretary under section 1848(c)(5) as of December 31, 
2009, and as subsequently modified); and 
‘‘(2) services related to immunization administration for 
vaccines and toxoids for which CPT codes 90465, 90466, 90467, 
90468, 90471, 90472, 90473, or 90474 (as subsequently modi-
fied) apply under such System.’’. 
(2) UNDER
MEDICAID
MANAGED
CARE
PLANS.—Section 
1932(f) of such Act (42 U.S.C. 1396u–2(f)) is amended— 
(A) in the heading, by adding at the end the following: 
‘‘; ADEQUACY OF PAYMENT FOR PRIMARY CARE SERVICES’’; 
and 
(B) by inserting before the period at the end the fol-
lowing: ‘‘and, in the case of primary care services described 
in section 1902(a)(13)(C), consistent with the minimum pay-
ment rates specified in such section (regardless of the 
manner in which such payments are made, including in 
the form of capitation or partial capitation)’’. 
(b) INCREASE IN PAYMENT USING INCREASED FMAP.—Section 
1905 of the Social Security Act, as amended by section 1004(b) 
of this Act and section 10201(c)(6) of the Patient Protection and 
Affordable Care Act, is amended by adding at the end the following 
new subsection: 
‘‘(dd) INCREASED FMAP FOR ADDITIONAL EXPENDITURES FOR 
PRIMARY CARE SERVICES.—Notwithstanding subsection (b), with 
respect to the portion of the amounts expended for medical assist-
ance for services described in section 1902(a)(13)(C) furnished on 
or after January 1, 2013, and before January 1, 2015, that is 
attributable to the amount by which the minimum payment rate 
required under such section (or, by application, section 1932(f)) 
exceeds the payment rate applicable to such services under the 
State plan as of July 1, 2009, the Federal medical assistance 
percentage for a State that is one of the 50 States or the District 
of Columbia shall be equal to 100 percent. The preceding sentence 
does not prohibit the payment of Federal financial participation 
based on the Federal medical assistance percentage for amounts 
in excess of those specified in such sentence.’’. 
SEC. 1203. DISPROPORTIONATE SHARE HOSPITAL PAYMENTS. 
(a) IN GENERAL.—Section 1923(f) of the Social Security Act 
(42 U.S.C. 1396r–4(f)), as amended by sections 2551(a)(4) and 
10201(e)(1) of the Patient Protection and Affordable Care Act, is 
amended— 
(1) in paragraph (6)(B)(iii), in the matter preceding sub-
clause (I), by striking ‘‘or paragraph (7)’’; and 
(2) by striking paragraph (7) and inserting the following: 
‘‘(7) MEDICAID DSH REDUCTIONS.— 
‘‘(A) REDUCTIONS.— 
‘‘(i) IN GENERAL.—For each of fiscal years 2014 
through 2020 the Secretary shall effect the following 
reductions:
H. R. 4872—26 
‘‘(I) REDUCTION IN DSH ALLOTMENTS.—The Sec-
retary shall reduce DSH allotments to States in 
the amount specified under the DSH health reform 
methodology under subparagraph (B) for the State 
for the fiscal year. 
‘‘(II) REDUCTIONS
IN
PAYMENTS.—The Sec-
retary shall reduce payments to States under sec-
tion 1903(a) for each calendar quarter in the fiscal 
year, in the manner specified in clause (iii), in 
an amount equal to 1⁄4 of the DSH allotment reduc-
tion under subclause (I) for the State for the fiscal 
year. 
‘‘(ii) 
AGGREGATE
REDUCTIONS.—The 
aggregate 
reductions in DSH allotments for all States under 
clause (i)(I) shall be equal to— 
‘‘(I) $500,000,000 for fiscal year 2014; 
‘‘(II) $600,000,000 for fiscal year 2015; 
‘‘(III) $600,000,000 for fiscal year 2016; 
‘‘(IV) $1,800,000,000 for fiscal year 2017; 
‘‘(V) $5,000,000,000 for fiscal year 2018; 
‘‘(VI) $5,600,000,000 for fiscal year 2019; and 
‘‘(VII) $4,000,000,000 for fiscal year 2020. 
The Secretary shall distribute such aggregate reduc-
tions among States in accordance with subparagraph 
(B). 
‘‘(iii) MANNER
OF
PAYMENT
REDUCTION.—The 
amount of the payment reduction under clause (i)(II) 
for a State for a quarter shall be deemed an overpay-
ment to the State under this title to be disallowed 
against the State’s regular quarterly draw for all 
spending under section 1903(d)(2). Such a disallowance 
is not subject to a reconsideration under subsections 
(d) and (e) of section 1116. 
‘‘(iv) DEFINITION.—In this paragraph, the term 
‘State’ means the 50 States and the District of 
Columbia. 
‘‘(B) DSH HEALTH REFORM METHODOLOGY.—The Sec-
retary shall carry out subparagraph (A) through use of 
a DSH Health Reform methodology that meets the fol-
lowing requirements: 
‘‘(i) The methodology imposes the largest percent-
age reductions on the States that— 
‘‘(I) have the lowest percentages of uninsured 
individuals (determined on the basis of data from 
the Bureau of the Census, audited hospital cost 
reports, and other information likely to yield 
accurate data) during the most recent year for 
which such data are available; or 
‘‘(II) do not target their DSH payments on— 
‘‘(aa) hospitals with high volumes of Med-
icaid inpatients (as defined in subsection 
(b)(1)(A)); and 
‘‘(bb) hospitals that have high levels of 
uncompensated care (excluding bad debt). 
‘‘(ii) The methodology imposes a smaller percentage 
reduction on low DSH States described in paragraph 
(5)(B).
H. R. 4872—27 
‘‘(iii) The methodology takes into account the 
extent to which the DSH allotment for a State was 
included in the budget neutrality calculation for a cov-
erage expansion approved under section 1115 as of 
July 31, 2009.’’. 
(b) EXTENSION OF DSH ALLOTMENT.—Section 1923(f)(6)(A) of 
the Social Security Act (42 U.S.C. 1396r–4(f)(6)(A)) is amended 
by adding at the end the following: 
‘‘(v) ALLOTMENT FOR 2D, 3RD, AND 4TH QUARTERS 
OF FISCAL YEAR 2012 AND FOR FISCAL YEAR 2013.—Not-
withstanding the table set forth in paragraph (2): 
‘‘(I) 2D, 3RD, AND
4TH
QUARTERS
OF
FISCAL 
YEAR 2012.—In the case of a State that has a DSH 
allotment of $0 for the 2d, 3rd, and 4th quarters 
of fiscal year 2012, the DSH allotment shall be 
$47,200,000 for such quarters. 
‘‘(II) FISCAL YEAR 2013.—In the case of a State 
that has a DSH allotment of $0 for fiscal year 
2013, the DSH allotment shall be $53,100,000 for 
such fiscal year.’’. 
SEC. 1204. FUNDING FOR THE TERRITORIES. 
(a) IN GENERAL.—Part III of subtitle D of title I of the Patient 
Protection and Affordable Care Act, as amended by section 10104(m) 
of such Act, is amended by inserting after section 1322 the following 
section: 
‘‘SEC. 1323. FUNDING FOR THE TERRITORIES. 
‘‘(a) IN GENERAL.—A territory that— 
‘‘(1) elects consistent with subsection (b) to establish an 
Exchange in accordance with part II of this subtitle and estab-
lishes such an Exchange in accordance with such part shall 
be treated as a State for purposes of such part and shall 
be entitled to payment from the amount allocated to the terri-
tory under subsection (c); or 
‘‘(2) does not make such election shall be entitled to an 
increase in the dollar limitation applicable to the territory 
under subsections (f) and (g) of section 1108 of the Social 
Security Act (42 U.S.C. 1308) for such period in such amount 
for such territory and such increase shall not be taken into 
account in computing any other amount under such subsections. 
‘‘(b) TERMS
AND CONDITIONS.—An election under subsection 
(a)(1) shall— 
‘‘(1) not be effective unless the election is consistent with 
section 1321 and is received not later than October 1, 2013; 
and 
‘‘(2) be contingent upon entering into an agreement between 
the territory and the Secretary that requires that— 
‘‘(A) funds provided under the agreement shall be used 
only to provide premium and cost-sharing assistance to 
residents of the territory obtaining health insurance cov-
erage through the Exchange; and 
‘‘(B) the premium and cost-sharing assistance provided 
under such agreement shall be structured in such a manner 
so as to prevent any gap in assistance for individuals 
between the income level at which medical assistance is 
available through the territory’s Medicaid plan under title 
XIX of the Social Security Act and the income level at
H. R. 4872—28 
which premium and cost-sharing assistance is available 
under the agreement. 
‘‘(c) APPROPRIATION AND ALLOCATION.— 
‘‘(1) APPROPRIATION.—Out of any funds in the Treasury 
not otherwise appropriated, there is appropriated for purposes 
of payment pursuant to subsection (a) $1,000,000,000, to be 
available during the period beginning with 2014 and ending 
with 2019. 
‘‘(2) ALLOCATION.—The Secretary shall allocate the amount 
appropriated under paragraph (1) among the territories for 
purposes of carrying out this section as follows: 
‘‘(A) For Puerto Rico, $925,000,000. 
‘‘(B) For another territory, the portion of $75,000,000 
specified by the Secretary.’’. 
(b) MEDICAID FUNDING.— 
(1) INCREASE
IN
FUNDING
CAPS.—Section 1108(g) of the 
Social Security Act (42 U.S.C. 1308(g)), as amended by section 
2005(a) of the Patient Protection and Affordable Care Act, 
is amended— 
(A) in paragraph (2), by inserting ‘‘and section 
1323(a)(2) of the Patient Protection and Affordable Care 
Act’’ after ‘‘subject to’’; and 
(B) by striking paragraph (5) and inserting the fol-
lowing: 
‘‘(5) ADDITIONAL INCREASE.—The Secretary shall increase 
the amounts otherwise determined under this subsection for 
Puerto Rico, the Virgin Islands, Guam, the Northern Mariana 
Islands, and American Samoa (after the application of sub-
section (f) and the preceding paragraphs of this subsection) 
for the period beginning July 1, 2011, and ending on September 
30, 2019, by such amounts that the total additional payments 
under title XIX to such territories equals $6,300,000,000 for 
such period. The Secretary shall increase such amounts in 
proportion to the amounts applicable to such territories under 
this subsection and subsection (f) on the date of enactment 
of this paragraph.’’. 
(2) DISREGARD
OF
PAYMENTS; INCREASED
FMAP.—Section 
2005 of the Patient Protection and Affordable Care Act is 
amended— 
(A) by repealing subsection (b) (and the amendments 
made by that subsection) and section 1108(g)(4) of the 
Social Security Act shall be applied as if such amendments 
had never been enacted; and 
(B) in subsection (c)(2), by striking ‘‘January’’ and 
inserting ‘‘July’’. 
SEC. 1205. DELAY IN COMMUNITY FIRST CHOICE OPTION. 
Section 1915(k)(1) of the Social Security Act (42 U.S.C. 
1396n(k)), as added by section 2401 of the Patient Protection and 
Affordable Care Act, is amended by striking ‘‘October 1, 2010’’ 
and inserting ‘‘October 1, 2011’’. 
SEC. 1206. DRUG REBATES FOR NEW FORMULATIONS OF EXISTING 
DRUGS. 
(a) TREATMENT OF NEW FORMULATIONS.—Subparagraph (C) of 
section 1927(c)(2) of the Social Security Act (42 U.S.C. 1396r– 
8(c)(2)), as added by section 2501(d) of the Patient Protection and 
Affordable Care Act, is amended to read as follows:
H. R. 4872—29 
‘‘(C) TREATMENT OF NEW FORMULATIONS.—In the case 
of a drug that is a line extension of a single source drug 
or an innovator multiple source drug that is an oral solid 
dosage form, the rebate obligation with respect to such 
drug under this section shall be the amount computed 
under this section for such new drug or, if greater, the 
product of— 
‘‘(i) the average manufacturer price of the line 
extension of a single source drug or an innovator mul-
tiple source drug that is an oral solid dosage form; 
‘‘(ii) the highest additional rebate (calculated as 
a percentage of average manufacturer price) under this 
section for any strength of the original single source 
drug or innovator multiple source drug; and 
‘‘(iii) the total number of units of each dosage 
form and strength of the line extension product paid 
for under the State plan in the rebate period (as 
reported by the State). 
In this subparagraph, the term ‘line extension’ means, with 
respect to a drug, a new formulation of the drug, such 
as an extended release formulation.’’. 
(b) EFFECTIVE DATE.—The amendment made by subsection (a) 
shall take effect as if included in the enactment of the Patient 
Protection and Affordable Care Act. 
Subtitle D—Reducing Fraud, Waste, and 
Abuse 
SEC. 1301. COMMUNITY MENTAL HEALTH CENTERS. 
(a) IN GENERAL.—Section 1861(ff)(3)(B) of the Social Security 
Act (42 U.S.C. 1395x(ff)(3)(B)) is amended— 
(1) in clause (ii), by striking ‘‘and’’ at the end; 
(2) by redesignating clause (iii) as clause (iv); and 
(3) by inserting after clause (ii) the following: 
‘‘(iii) provides at least 40 percent of its services to individ-
uals who are not eligible for benefits under this title; and’’. 
(b) RESTRICTION.—Section 1861(ff)(3)(A) of such Act (42 U.S.C. 
1395x(ff)(3)(A)) is amended by inserting ‘‘other than in an individ-
ual’s home or in an inpatient or residential setting’’ before the 
period. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to items and services furnished on or after the first 
day of the first calendar quarter that begins at least 12 months 
after the date of the enactment of this Act. 
SEC. 1302. MEDICARE PREPAYMENT MEDICAL REVIEW LIMITATIONS. 
Section 1874A(h) of the Social Security Act (42 U.S.C. 1395w– 
3a(h)) is repealed. 
SEC. 1303. FUNDING TO FIGHT FRAUD, WASTE, AND ABUSE. 
(a) FUNDING TO FIGHT FRAUD, WASTE, AND ABUSE.— 
(1) IN GENERAL.—Section 1817(k) of the Social Security 
Act (42 U.S.C. 1395i(k)), as amended by section 6402(i) of 
the Patient Protection and Affordable Care Act, is further 
amended— 
(A) by adding at the end the following new paragraph:
H. R. 4872—30 
‘‘(8) ADDITIONAL FUNDING.— 
‘‘(A) IN GENERAL.—In addition to the funds otherwise 
appropriated to the Account from the Trust Fund under 
paragraphs (3)(C) and (4)(A) and for purposes described 
in paragraphs (3)(C) and (4)(A), there are hereby appro-
priated to such Account from such Trust Fund the following 
additional amounts: 
‘‘(i) For fiscal year 2011, $95,000,000. 
‘‘(ii) For fiscal year 2012, $55,000,000. 
‘‘(iii) For each of fiscal years 2013 and 2014, 
$30,000,000. 
‘‘(iv) For each of fiscal years 2015 and 2016, 
$20,000,000. 
‘‘(B) ALLOCATION.—The funds appropriated under this 
paragraph shall be allocated in the same proportion as 
the total funding appropriated with respect to paragraphs 
(3)(A) and (4)(A) was allocated with respect to fiscal year 
2010, and shall be available without further appropriation 
until expended.’’; and 
(B) in paragraph (4)(A), by inserting ‘‘for activities 
described in paragraph (3)(C) and’’ after ‘‘necessary’’. 
(b) MEDICAID INTEGRITY PROGRAM.—Section 1936(e)(1) of such 
Act (42 U.S.C. 1396–u6(e)(1)) is amended— 
(1) in subparagraph (B), by striking at the end ‘‘and’’; 
(2) in subparagraph (C)— 
(A) by striking ‘‘for each fiscal year thereafter’’ and 
inserting ‘‘for each of fiscal years 2009 and 2010’’; and 
(B) by striking the period and inserting ‘‘; and’’; and 
(3) by adding at the end the following new subparagraph: 
‘‘(D) for each fiscal year after fiscal year 2010, the 
amount appropriated under this paragraph for the previous 
fiscal year, increased by the percentage increase in the 
consumer price index for all urban consumers (all items; 
United States city average) over the previous year.’’. 
SEC. 1304. 90-DAY PERIOD OF ENHANCED OVERSIGHT FOR INITIAL 
CLAIMS OF DME SUPPLIERS. 
Section 1866(j), as amended by section 6401 of the Patient 
Protection and Affordable Care Act, is further amended— 
(1) by redesignating paragraphs (4) through (7) as para-
graphs (5) through (8), respectively; and 
(2) by inserting after paragraph (3) the following new para-
graph: 
‘‘(4) 90-DAY PERIOD OF ENHANCED OVERSIGHT FOR INITIAL 
CLAIMS
OF
DME
SUPPLIERS.—For periods beginning after 
January 1, 2011, if the Secretary determines that there is 
a significant risk of fraudulent activity among suppliers of 
durable medical equipment, in the case of a supplier of durable 
medical equipment who is within a category or geographic 
area under title XVIII identified pursuant to such determina-
tion and who is initially enrolling under such title, the Secretary 
shall, notwithstanding sections 1816(c), 1842(c), and 1869(a)(2), 
withhold payment under such title with respect to durable 
medical equipment furnished by such supplier during the 90- 
day period beginning on the date of the first submission of 
a claim under such title for durable medical equipment fur-
nished by such supplier.’’.
H. R. 4872—31 
Subtitle E—Provisions Relating to 
Revenue 
SEC. 1401. HIGH-COST PLAN EXCISE TAX. 
(a) IN GENERAL.—Section 4980I of the Internal Revenue Code 
of 1986, as added by section 9001 of the Patient Protection and 
Affordable Care Act and amended by section 10901 of such Act, 
is amended— 
(1) in subsection (b)(3)(B)— 
(A) by striking ‘‘The annual’’ and inserting the fol-
lowing: 
‘‘(i) IN
GENERAL.—Except as provided in clause 
(ii), the annual’’; and 
(B) by adding at the end the following new clause: 
‘‘(ii) MULTIEMPLOYER PLAN COVERAGE.—Any cov-
erage provided under a multiemployer plan (as defined 
in section 414(f)) shall be treated as coverage other 
than self-only coverage.’’; 
(2) in subsection (b)(3)(C)— 
(A) by striking ‘‘Except as provided in subparagraph 
(D)—’’; 
(B) in clause (i)— 
(i) by striking ‘‘2013’’ each place it appears in 
the heading and the text and inserting ‘‘2018’’; 
(ii) by striking ‘‘$8,500’’ in subclause (I) and 
inserting ‘‘$10,200 multiplied by the health cost adjust-
ment percentage (determined by only taking into 
account self-only coverage)’’; and 
(iii) by striking ‘‘$23,000’’ in subclause (II) and 
inserting ‘‘$27,500 multiplied by the health cost adjust-
ment percentage (determined by only taking into 
account coverage other than self-only coverage)’’; 
(C) by redesignating clauses (ii) and (iii) as clauses 
(iv) and (v), respectively, and by inserting after clause 
(i) the following new clauses: 
‘‘(ii) HEALTH COST ADJUSTMENT PERCENTAGE.—For 
purposes of clause (i), the health cost adjustment 
percentage is equal to 100 percent plus the excess 
(if any) of— 
‘‘(I) the percentage by which the per employee 
cost for providing coverage under the Blue Cross/ 
Blue Shield standard benefit option under the Fed-
eral Employees Health Benefits Plan for plan year 
2018 (determined by using the benefit package 
for such coverage in 2010) exceeds such cost for 
plan year 2010, over 
‘‘(II) 55 percent. 
‘‘(iii) AGE AND GENDER ADJUSTMENT.— 
‘‘(I) IN
GENERAL.—The amount determined 
under subclause (I) or (II) of clause (i), whichever 
is applicable, for any taxable period shall be 
increased by the amount determined under sub-
clause (II). 
‘‘(II) 
AMOUNT
DETERMINED.—The 
amount 
determined under this subclause is an amount 
equal to the excess (if any) of—
H. R. 4872—32 
‘‘(aa) the premium cost of the Blue Cross/ 
Blue Shield standard benefit option under the 
Federal Employees Health Benefits Plan for 
the type of coverage provided such individual 
in such taxable period if priced for the age 
and gender characteristics of all employees of 
the individual’s employer, over 
‘‘(bb) that premium cost for the provision 
of such coverage under such option in such 
taxable period if priced for the age and gender 
characteristics of the national workforce.’’. 
(D) in clause (iv), as redesignated by subparagraph 
(C)— 
(i) by inserting ‘‘covered by the plan’’ after ‘‘whose 
employees’’; and 
(ii) by striking subclauses (I) and (II) and inserting 
the following: 
‘‘(I) the dollar amount in clause (i)(I) shall 
be increased by $1,650, and 
‘‘(II) the dollar amount in clause (i)(II) shall 
be increased by $3,450,’’, and 
(E) in clause (v), as redesignated by subparagraph 
(C)— 
(i) by striking ‘‘2013’’ and inserting ‘‘2018’’; 
(ii) by striking ‘‘clauses (i) and (ii)’’ and inserting 
‘‘clauses (i) (after the application of clause (ii)) and 
(iv)’’; and 
(iii) by inserting ‘‘in the case of determinations 
for calendar years beginning before 2020’’ after ‘‘1 
percentage point’’ in subclause (II) thereof; 
(3) by striking subparagraph (D) of subsection (b)(3); 
(4) in subsection (d)(1)(B), by redesignating clause (ii) as 
clause (iii) and by inserting after clause (i) the following new 
clause: 
‘‘(ii) any coverage under a separate policy, certifi-
cate, or contract of insurance which provides benefits 
substantially all of which are for treatment of the 
mouth (including any organ or structure within the 
mouth) or for treatment of the eye, or’’; and 
(5) in subsection (d), by adding at the end the following 
new paragraph: 
‘‘(3) EMPLOYEE.—The term ‘employee’ includes any former 
employee, surviving spouse, or other primary insured indi-
vidual.’’. 
(b) EFFECTIVE DATES.— 
(1) Section 9001(c) of the Patient Protection and Affordable 
Care Act is amended by striking ‘‘2012’’ and inserting ‘‘2017’’. 
(2) Section 10901(c) of the Patient Protection and Affordable 
Care Act is amended by striking ‘‘2012’’ and inserting ‘‘2017’’. 
SEC. 1402. UNEARNED INCOME MEDICARE CONTRIBUTION. 
(a) INVESTMENT INCOME.— 
(1) IN GENERAL.—Subtitle A of the Internal Revenue Code 
of 1986 is amended by inserting after chapter 2 the following 
new chapter:
H. R. 4872—33 
‘‘CHAPTER 2A—UNEARNED INCOME MEDICARE 
CONTRIBUTION 
‘‘Sec. 1411. Imposition of tax. 
‘‘SEC. 1411. IMPOSITION OF TAX. 
‘‘(a) IN GENERAL.—Except as provided in subsection (e)— 
‘‘(1) APPLICATION TO INDIVIDUALS.—In the case of an indi-
vidual, there is hereby imposed (in addition to any other tax 
imposed by this subtitle) for each taxable year a tax equal 
to 3.8 percent of the lesser of— 
‘‘(A) net investment income for such taxable year, or 
‘‘(B) the excess (if any) of— 
‘‘(i) the modified adjusted gross income for such 
taxable year, over 
‘‘(ii) the threshold amount. 
‘‘(2) APPLICATION TO ESTATES AND TRUSTS.—In the case 
of an estate or trust, there is hereby imposed (in addition 
to any other tax imposed by this subtitle) for each taxable 
year a tax of 3.8 percent of the lesser of— 
‘‘(A) the undistributed net investment income for such 
taxable year, or 
‘‘(B) the excess (if any) of— 
‘‘(i) the adjusted gross income (as defined in section 
67(e)) for such taxable year, over 
‘‘(ii) the dollar amount at which the highest tax 
bracket in section 1(e) begins for such taxable year. 
‘‘(b) THRESHOLD AMOUNT.—For purposes of this chapter, the 
term ‘threshold amount’ means— 
‘‘(1) in the case of a taxpayer making a joint return under 
section 6013 or a surviving spouse (as defined in section 2(a)), 
$250,000, 
‘‘(2) in the case of a married taxpayer (as defined in section 
7703) filing a separate return, 1⁄2 of the dollar amount deter-
mined under paragraph (1), and 
‘‘(3) in any other case, $200,000. 
‘‘(c) NET INVESTMENT INCOME.—For purposes of this chapter— 
‘‘(1) IN GENERAL.—The term ‘net investment income’ means 
the excess (if any) of— 
‘‘(A) the sum of— 
‘‘(i) gross income from interest, dividends, annu-
ities, royalties, and rents, other than such income 
which is derived in the ordinary course of a trade 
or business not described in paragraph (2), 
‘‘(ii) other gross income derived from a trade or 
business described in paragraph (2), and 
‘‘(iii) net gain (to the extent taken into account 
in computing taxable income) attributable to the dis-
position of property other than property held in a trade 
or business not described in paragraph (2), over 
‘‘(B) the deductions allowed by this subtitle which are 
properly allocable to such gross income or net gain. 
‘‘(2) TRADES AND BUSINESSES TO WHICH TAX APPLIES.—A 
trade or business is described in this paragraph if such trade 
or business is— 
‘‘(A) a passive activity (within the meaning of section 
469) with respect to the taxpayer, or
H. R. 4872—34 
‘‘(B) a trade or business of trading in financial 
instruments 
or 
commodities 
(as 
defined 
in 
section 
475(e)(2)). 
‘‘(3) INCOME ON INVESTMENT OF WORKING CAPITAL SUBJECT 
TO TAX.—A rule similar to the rule of section 469(e)(1)(B) shall 
apply for purposes of this subsection. 
‘‘(4) EXCEPTION FOR CERTAIN ACTIVE INTERESTS IN PARTNER-
SHIPS AND S CORPORATIONS.—In the case of a disposition of 
an interest in a partnership or S corporation— 
‘‘(A) gain from such disposition shall be taken into 
account under clause (iii) of paragraph (1)(A) only to the 
extent of the net gain which would be so taken into account 
by the transferor if all property of the partnership or S 
corporation were sold for fair market value immediately 
before the disposition of such interest, and 
‘‘(B) a rule similar to the rule of subparagraph (A) 
shall apply to a loss from such disposition. 
‘‘(5) EXCEPTION
FOR
DISTRIBUTIONS
FROM
QUALIFIED 
PLANS.—The term ‘net investment income’ shall not include 
any distribution from a plan or arrangement described in sec-
tion 401(a), 403(a), 403(b), 408, 408A, or 457(b). 
‘‘(6) SPECIAL
RULE.—Net investment income shall not 
include any item taken into account in determining self-employ-
ment income for such taxable year on which a tax is imposed 
by section 1401(b). 
‘‘(d) MODIFIED ADJUSTED GROSS INCOME.—For purposes of this 
chapter, the term ‘modified adjusted gross income’ means adjusted 
gross income increased by the excess of— 
‘‘(1) the amount excluded from gross income under section 
911(a)(1), over 
‘‘(2) the amount of any deductions (taken into account 
in computing adjusted gross income) or exclusions disallowed 
under section 911(d)(6) with respect to the amounts described 
in paragraph (1). 
‘‘(e) NONAPPLICATION OF SECTION.—This section shall not apply 
to— 
‘‘(1) a nonresident alien, or 
‘‘(2) a trust all of the unexpired interests in which are 
devoted to one or more of the purposes described in section 
170(c)(2)(B).’’. 
(2) ESTIMATED TAXES.—Section 6654 of the Internal Rev-
enue Code of 1986 is amended— 
(A) in subsection (a), by striking ‘‘and the tax under 
chapter 2’’ and inserting ‘‘the tax under chapter 2, and 
the tax under chapter 2A’’; and 
(B) in subsection (f)— 
(i) by striking ‘‘minus’’ at the end of paragraph 
(2) and inserting ‘‘plus’’; and 
(ii) by redesignating paragraph (3) as paragraph 
(4) and inserting after paragraph (2) the following new 
paragraph: 
‘‘(3) the taxes imposed by chapter 2A, minus’’. 
(3) CLERICAL AMENDMENT.—The table of chapters for sub-
title A of chapter 1 of the Internal Revenue Code of 1986 
is amended by inserting after the item relating to chapter 
2 the following new item:
H. R. 4872—35 
‘‘CHAPTER 2A—UNEARNED INCOME MEDICARE CONTRIBUTION’’. 
(4) EFFECTIVE DATES.—The amendments made by this sub-
section shall apply to taxable years beginning after December 
31, 2012. 
(b) EARNED INCOME.— 
(1) THRESHOLD.— 
(A) FICA.—Paragraph (2) of section 3101(b) of the 
Internal Revenue Code of 1986, as added by section 9015 
of the Patient Protection and Affordable Care Act and 
amended by section 10906 of such Act, is amended by 
striking ‘‘and’’ at the end of subparagraph (A), by redesig-
nating subparagraph (B) as subparagraph (C), and by 
inserting after subparagraph (A) the following new 
subparagraph: 
‘‘(B) in the case of a married taxpayer (as defined 
in section 7703) filing a separate return, 1⁄2 of the dollar 
amount determined under subparagraph (A), and’’. 
(B) SECA.—Section 1401(b)(2) of the Internal Revenue 
Code of 1986, as added by section 9015 of the Patient 
Protection and Affordable Care Act and amended by section 
10906 of such Act, is amended— 
(i) in subparagraph (A), by striking ‘‘and’’ at the 
end of clause (i), by redesignating clause (ii) as clause 
(iii), and by inserting after clause (i) the following 
new clause: 
‘‘(ii) in the case of a married taxpayer (as defined 
in section 7703) filing a separate return, 1⁄2 of the 
dollar amount determined under clause (i), and’’; and 
(ii) in subparagraph (B), by striking ‘‘under clauses 
(i) and (ii)’’ and inserting ‘‘under clause (i), (ii), or 
(iii) (whichever is applicable)’’. 
(2) ESTIMATED TAXES.—Section 6654 of the Internal Rev-
enue Code of 1986 is amended by redesignating subsection 
(m) as subsection (n) and by inserting after subsection (l) the 
following new subsection: 
‘‘(m) SPECIAL RULE FOR MEDICARE TAX.—For purposes of this 
section, the tax imposed under section 3101(b)(2) (to the extent 
not withheld) shall be treated as a tax imposed under chapter 
2.’’. 
(3) EFFECTIVE DATE.—The amendments made by this sub-
section shall apply with respect to remuneration received, and 
taxable years beginning after, December 31, 2012. 
SEC. 1403. DELAY OF LIMITATION ON HEALTH FLEXIBLE SPENDING 
ARRANGEMENTS UNDER CAFETERIA PLANS. 
(a) IN GENERAL.—Section 10902(b) of the Patient Protection 
and Affordable Care Act is amended by striking ‘‘December 31, 
2010’’ and inserting ‘‘December 31, 2012’’. 
(b) INFLATION ADJUSTMENT.—Paragraph (2) of section 125(i) 
of the Internal Revenue Code of 1986, as added by section 9005 
of the Patient Protection and Affordable Care Act and amended 
by section 10902 of such Act, is amended— 
(1) in the matter preceding subparagraph (A), by striking 
‘‘December 31, 2011’’ and inserting ‘‘December 31, 2013’’; and 
(2) in subparagraph (B), by striking ‘‘2010’’ and inserting 
‘‘2012’’.
H. R. 4872—36 
SEC. 1404. BRAND NAME PHARMACEUTICALS. 
(a) IN GENERAL.—Section 9008 of the Patient Protection and 
Affordable Care Act is amended— 
(1) in subsection (a)(1), by striking ‘‘2009’’ and inserting 
‘‘2010’’; 
(2) in subsection (b)— 
(A) by striking ‘‘$2,300,000,000’’ in paragraph (1) and 
inserting ‘‘the applicable amount’’; and 
(B) by adding at the end the following new paragraph: 
‘‘(4) APPLICABLE AMOUNT.—For purposes of paragraph (1), 
the applicable amount shall be determined in accordance with 
the following table: 
‘‘Calendar year 
Applicable amount 
2011 ...............................................................................
$2,500,000,000 
2012 ...............................................................................
$2,800,000,000 
2013 ...............................................................................
$2,800,000,000 
2014 ...............................................................................
$3,000,000,000 
2015 ...............................................................................
$3,000,000,000 
2016 ...............................................................................
$3,000,000,000 
2017 ...............................................................................
$4,000,000,000 
2018 ...............................................................................
$4,100,000,000 
2019 and thereafter ......................................................
$2,800,000,000.’’; 
(3) in subsection (d), by adding at the end the following 
new paragraph: 
‘‘(3) JOINT AND SEVERAL LIABILITY.—If more than one per-
son is liable for payment of the fee under subsection (a) with 
respect to a single covered entity by reason of the application 
of paragraph (2), all such persons shall be jointly and severally 
liable for payment of such fee.’’; and 
(4) by striking subsection (j) and inserting the following 
new subsection: 
‘‘(j) EFFECTIVE DATE.—This section shall apply to calendar years 
beginning after December 31, 2010.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall take effect as if included in section 9008 of the Patient Protec-
tion and Affordable Care Act. 
SEC. 1405. EXCISE TAX ON MEDICAL DEVICE MANUFACTURERS. 
(a) IN GENERAL.—Chapter 32 of the Internal Revenue Code 
of 1986 is amended— 
(1) by inserting after subchapter D the following new sub-
chapter: 
‘‘Subchapter E—Medical Devices 
‘‘Sec. 4191. Medical devices. 
‘‘SEC. 4191. MEDICAL DEVICES. 
‘‘(a) IN GENERAL.—There is hereby imposed on the sale of 
any taxable medical device by the manufacturer, producer, or 
importer a tax equal to 2.3 percent of the price for which so 
sold. 
‘‘(b) TAXABLE MEDICAL DEVICE.—For purposes of this section— 
‘‘(1) IN GENERAL.—The term ‘taxable medical device’ means 
any device (as defined in section 201(h) of the Federal Food, 
Drug, and Cosmetic Act) intended for humans. 
‘‘(2) EXEMPTIONS.—Such term shall not include—
H. R. 4872—37 
‘‘(A) eyeglasses, 
‘‘(B) contact lenses, 
‘‘(C) hearing aids, and 
‘‘(D) any other medical device determined by the Sec-
retary to be of a type which is generally purchased by 
the general public at retail for individual use.’’, and 
(2) by inserting after the item relating to subchapter D 
in the table of subchapters for such chapter the following new 
item: 
‘‘SUBCHAPTER E. MEDICAL DEVICES’’. 
(b) CERTAIN EXEMPTIONS NOT TO APPLY.— 
(1) Section 4221(a) of the Internal Revenue Code of 1986 
is amended by adding at the end the following new sentence: 
‘‘In the case of the tax imposed by section 4191, paragraphs 
(3), (4), (5), and (6) shall not apply.’’. 
(2) Section 6416(b)(2) of such Code is amended by adding 
at the end the following: ‘‘In the case of the tax imposed 
by section 4191, subparagraphs (B), (C), (D), and (E) shall 
not apply.’’. 
(c) EFFECTIVE DATE.—The amendments made by this section 
shall apply to sales after December 31, 2012. 
(d) REPEAL
OF SECTION 9009 OF
THE PATIENT PROTECTION 
AND AFFORDABLE CARE ACT.—Section 9009 of the Patient Protection 
and Affordable Care Act, as amended by section 10904 of such 
Act, is repealed effective as of the date of enactment of that Act. 
SEC. 1406. HEALTH INSURANCE PROVIDERS. 
(a) IN GENERAL.—Section 9010 of the Patient Protection and 
Affordable Care Act, as amended by section 10905 of such Act, 
is amended— 
(1) in subsection (a)(1), by striking ‘‘2010’’ and inserting 
‘‘2013’’; 
(2) in subsection (b)(2)— 
(A) by striking ‘‘For purposes of paragraph (1), the 
net premiums’’ and inserting ‘‘For purposes of paragraph 
(1)— 
‘‘(A) IN GENERAL.—The net premiums’’; and 
(B) by adding at the end the following subparagraph: 
‘‘(B) PARTIAL EXCLUSION FOR CERTAIN EXEMPT ACTIVI-
TIES.—After the application of subparagraph (A), only 50 
percent of the remaining net premiums written with respect 
to health insurance for any United States health risk that 
are attributable to the activities (other than activities of 
an unrelated trade or business as defined in section 513 
of the Internal Revenue Code of 1986) of any covered 
entity qualifying under paragraph (3), (4), (26), or (29) 
of section 501(c) of such Code and exempt from tax under 
section 501(a) of such Code shall be taken into account.’’; 
(3) in subsection (c)— 
(A) by inserting ‘‘during the calendar year in which 
the fee under this section is due’’ in paragraph (1) after 
‘‘risk’’; 
(B) in paragraph (2), by striking subparagraphs (C), 
(D), and (E) and inserting the following new subparagraphs: 
‘‘(C) any entity—
H. R. 4872—38 
‘‘(i) which is incorporated as a nonprofit corpora-
tion under a State law, 
‘‘(ii) no part of the net earnings of which inures 
to the benefit of any private shareholder or individual, 
no substantial part of the activities of which is carrying 
on propaganda, or otherwise attempting, to influence 
legislation (except as otherwise provided in section 
501(h) of the Internal Revenue Code of 1986), and 
which does not participate in, or intervene in (including 
the publishing or distributing of statements), any polit-
ical campaign on behalf of (or in opposition to) any 
candidate for public office, and 
‘‘(iii) more than 80 percent of the gross revenues 
of which is received from government programs that 
target low-income, elderly, or disabled populations 
under titles XVIII, XIX, and XXI of the Social Security 
Act, and 
‘‘(D) any entity which is described in section 501(c)(9) 
of such Code and which is established by an entity (other 
than by an employer or employers) for purposes of providing 
health care benefits.’’; 
(C) in paragraph (3)(A), by striking ‘‘subparagraph 
(C)(i)(I), (D)(i)(I), or (E)(i)’’ and inserting ‘‘subparagraph 
(C) or (D)’’; and 
(D) by adding at the end the following new paragraph: 
‘‘(4) JOINT AND SEVERAL LIABILITY.—If more than one per-
son is liable for payment of the fee under subsection (a) with 
respect to a single covered entity by reason of the application 
of paragraph (3), all such persons shall be jointly and severally 
liable for payment of such fee.’’; 
(4) by striking subsection (e) and inserting the following: 
‘‘(e) APPLICABLE AMOUNT.—For purposes of subsection (b)(1)— 
‘‘(1) YEARS BEFORE 2019.—In the case of calendar years 
beginning before 2019, the applicable amount shall be deter-
mined in accordance with the following table: 
‘‘Calendar year 
Applicable amount 
2014 ...............................................................................
$8,000,000,000 
2015 ...............................................................................
$11,300,000,000 
2016 ...............................................................................
$11,300,000,000 
2017 ...............................................................................
$13,900,000,000 
2018 ...............................................................................
$14,300,000,000. 
‘‘(2) YEARS AFTER 2018.—In the case of any calendar year 
beginning after 2018, the applicable amount shall be the 
applicable amount for the preceding calendar year increased 
by the rate of premium growth (within the meaning of section 
36B(b)(3)(A)(ii) of the Internal Revenue Code of 1986) for such 
preceding calendar year.’’; 
(5) in subsection (g), by adding at the end the following 
new paragraphs: 
‘‘(3) ACCURACY-RELATED PENALTY.— 
‘‘(A) IN GENERAL.—In the case of any understatement 
of a covered entity’s net premiums written with respect 
to health insurance for any United States health risk for 
any calendar year, there shall be paid by the covered 
entity making such understatement, an amount equal to 
the excess of—
H. R. 4872—39 
‘‘(i) the amount of the covered entity’s fee under 
this section for the calendar year the Secretary deter-
mines should have been paid in the absence of any 
such understatement, over 
‘‘(ii) the amount of such fee the Secretary deter-
mined based on such understatement. 
‘‘(B) UNDERSTATEMENT.—For purposes of this para-
graph, an understatement of a covered entity’s net pre-
miums written with respect to health insurance for any 
United States health risk for any calendar year is the 
difference between the amount of such net premiums writ-
ten as reported on the return filed by the covered entity 
under paragraph (1) and the amount of such net premiums 
written that should have been reported on such return. 
‘‘(C) TREATMENT OF PENALTY.—The penalty imposed 
under subparagraph (A) shall be subject to the provisions 
of subtitle F of the Internal Revenue Code of 1986 that 
apply to assessable penalties imposed under chapter 68 
of such Code. 
‘‘(4) TREATMENT
OF
INFORMATION.—Section 6103 of the 
Internal Revenue Code of 1986 shall not apply to any informa-
tion reported under this subsection.’’; and 
(6) by striking subsection (j) and inserting the following 
new subsection: 
‘‘(j) EFFECTIVE DATE.—This section shall apply to calendar years 
beginning after December 31, 2013.’’. 
(b) EFFECTIVE DATE.—The amendments made by this section 
shall take effect as if included in section 9010 of the Patient Protec-
tion and Affordable Care Act. 
SEC. 1407. DELAY OF ELIMINATION OF DEDUCTION FOR EXPENSES 
ALLOCABLE TO MEDICARE PART D SUBSIDY. 
Section 9012(b) of the Patient Protection and Affordable Care 
Act is amended by striking ‘‘2010’’ and inserting ‘‘2012’’. 
SEC. 1408. ELIMINATION OF UNINTENDED APPLICATION OF CELLU-
LOSIC BIOFUEL PRODUCER CREDIT. 
(a) IN GENERAL.—Section 40(b)(6)(E) of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new 
clause: 
‘‘(iii) EXCLUSION
OF
UNPROCESSED
FUELS.—The 
term ‘cellulosic biofuel’ shall not include any fuel if— 
‘‘(I) more than 4 percent of such fuel (deter-
mined by weight) is any combination of water and 
sediment, or 
‘‘(II) the ash content of such fuel is more than 
1 percent (determined by weight).’’. 
(b) EFFECTIVE DATE.—The amendment made by this section 
shall apply to fuels sold or used on or after January 1, 2010. 
SEC. 1409. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE AND 
PENALTIES. 
(a) IN GENERAL.—Section 7701 of the Internal Revenue Code 
of 1986 is amended by redesignating subsection (o) as subsection 
(p) and by inserting after subsection (n) the following new sub-
section: 
‘‘(o) CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.—
H. R. 4872—40 
‘‘(1) APPLICATION OF DOCTRINE.—In the case of any trans-
action to which the economic substance doctrine is relevant, 
such transaction shall be treated as having economic substance 
only if— 
‘‘(A) the transaction changes in a meaningful way 
(apart from Federal income tax effects) the taxpayer’s eco-
nomic position, and 
‘‘(B) the taxpayer has a substantial purpose (apart 
from Federal income tax effects) for entering into such 
transaction. 
‘‘(2) SPECIAL
RULE
WHERE
TAXPAYER
RELIES
ON
PROFIT 
POTENTIAL.— 
‘‘(A) IN GENERAL.—The potential for profit of a trans-
action shall be taken into account in determining whether 
the requirements of subparagraphs (A) and (B) of para-
graph (1) are met with respect to the transaction only 
if the present value of the reasonably expected pre-tax 
profit from the transaction is substantial in relation to 
the present value of the expected net tax benefits that 
would be allowed if the transaction were respected. 
‘‘(B) TREATMENT OF FEES AND FOREIGN TAXES.—Fees 
and other transaction expenses shall be taken into account 
as expenses in determining pre-tax profit under subpara-
graph (A). The Secretary shall issue regulations requiring 
foreign taxes to be treated as expenses in determining 
pre-tax profit in appropriate cases. 
‘‘(3) STATE AND LOCAL TAX BENEFITS.—For purposes of para-
graph (1), any State or local income tax effect which is related 
to a Federal income tax effect shall be treated in the same 
manner as a Federal income tax effect. 
‘‘(4) FINANCIAL
ACCOUNTING
BENEFITS.—For purposes of 
paragraph (1)(B), achieving a financial accounting benefit shall 
not be taken into account as a purpose for entering into a 
transaction if the origin of such financial accounting benefit 
is a reduction of Federal income tax. 
‘‘(5) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
subsection— 
‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.—The term ‘eco-
nomic substance doctrine’ means the common law doctrine 
under which tax benefits under subtitle A with respect 
to a transaction are not allowable if the transaction does 
not have economic substance or lacks a business purpose. 
‘‘(B) EXCEPTION
FOR
PERSONAL
TRANSACTIONS
OF 
INDIVIDUALS.—In the case of an individual, paragraph (1) 
shall apply only to transactions entered into in connection 
with a trade or business or an activity engaged in for 
the production of income. 
‘‘(C) DETERMINATION OF APPLICATION OF DOCTRINE NOT 
AFFECTED.—The determination of whether the economic 
substance doctrine is relevant to a transaction shall be 
made in the same manner as if this subsection had never 
been enacted. 
‘‘(D) TRANSACTION.—The term ‘transaction’ includes a 
series of transactions.’’. 
(b) PENALTY FOR UNDERPAYMENTS ATTRIBUTABLE TO TRANS-
ACTIONS LACKING ECONOMIC SUBSTANCE.—
H. R. 4872—41 
(1) IN GENERAL.—Subsection (b) of section 6662 is amended 
by inserting after paragraph (5) the following new paragraph: 
‘‘(6) Any disallowance of claimed tax benefits by reason 
of a transaction lacking economic substance (within the 
meaning of section 7701(o)) or failing to meet the requirements 
of any similar rule of law.’’. 
(2) 
INCREASED
PENALTY
FOR
NONDISCLOSED
TRANS-
ACTIONS.—Section 6662 is amended by adding at the end the 
following new subsection: 
‘‘(i) INCREASE IN PENALTY IN CASE OF NONDISCLOSED NON-
ECONOMIC SUBSTANCE TRANSACTIONS.— 
‘‘(1) IN GENERAL.—In the case of any portion of an under-
payment which is attributable to one or more nondisclosed 
noneconomic substance transactions, subsection (a) shall be 
applied with respect to such portion by substituting ‘40 percent’ 
for ‘20 percent’. 
‘‘(2) NONDISCLOSED
NONECONOMIC
SUBSTANCE
TRANS-
ACTIONS.—For purposes of this subsection, the term ‘nondis-
closed noneconomic substance transaction’ means any portion 
of a transaction described in subsection (b)(6) with respect 
to which the relevant facts affecting the tax treatment are 
not adequately disclosed in the return nor in a statement 
attached to the return. 
‘‘(3) SPECIAL RULE FOR AMENDED RETURNS.—In no event 
shall any amendment or supplement to a return of tax be 
taken into account for purposes of this subsection if the amend-
ment or supplement is filed after the earlier of the date the 
taxpayer is first contacted by the Secretary regarding the exam-
ination of the return or such other date as is specified by 
the Secretary.’’. 
(3) CONFORMING AMENDMENT.—Subparagraph (B) of section 
6662A(e)(2) is amended— 
(A) by striking ‘‘section 6662(h)’’ and inserting ‘‘sub-
sections (h) or (i) of section 6662’’; and 
(B) by striking ‘‘GROSS VALUATION MISSTATEMENT PEN-
ALTY’’ in the heading and inserting ‘‘CERTAIN INCREASED 
UNDERPAYMENT PENALTIES’’. 
(c) REASONABLE CAUSE EXCEPTION NOT APPLICABLE TO NON-
ECONOMIC SUBSTANCE TRANSACTIONS.— 
(1) REASONABLE CAUSE EXCEPTION FOR UNDERPAYMENTS.— 
Subsection (c) of section 6664 is amended— 
(A) by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively; 
(B) by striking ‘‘paragraph (2)’’ in paragraph (4)(A), 
as so redesignated, and inserting ‘‘paragraph (3)’’; and 
(C) by inserting after paragraph (1) the following new 
paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not apply to any por-
tion of an underpayment which is attributable to one or more 
transactions described in section 6662(b)(6).’’. 
(2) REASONABLE CAUSE EXCEPTION FOR REPORTABLE TRANS-
ACTION UNDERSTATEMENTS.—Subsection (d) of section 6664 is 
amended— 
(A) by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively; 
(B) by striking ‘‘paragraph (2)(C)’’ in paragraph (4), 
as so redesignated, and inserting ‘‘paragraph (3)(C)’’; and
H. R. 4872—42 
(C) by inserting after paragraph (1) the following new 
paragraph: 
‘‘(2) EXCEPTION.—Paragraph (1) shall not apply to any por-
tion of a reportable transaction understatement which is attrib-
utable to one or more transactions described in section 
6662(b)(6).’’. 
(d) APPLICATION
OF PENALTY
FOR ERRONEOUS CLAIM
FOR 
REFUND OR CREDIT TO NONECONOMIC SUBSTANCE TRANSACTIONS.— 
Section 6676 is amended by redesignating subsection (c) as sub-
section (d) and inserting after subsection (b) the following new 
subsection: 
‘‘(c) NONECONOMIC
SUBSTANCE
TRANSACTIONS
TREATED
AS 
LACKING REASONABLE BASIS.—For purposes of this section, any 
excessive amount which is attributable to any transaction described 
in section 6662(b)(6) shall not be treated as having a reasonable 
basis.’’. 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the amendments made by this section shall apply to 
transactions entered into after the date of the enactment of 
this Act. 
(2) UNDERPAYMENTS.—The amendments made by sub-
sections (b) and (c)(1) shall apply to underpayments attributable 
to transactions entered into after the date of the enactment 
of this Act. 
(3) UNDERSTATEMENTS.—The amendments made by sub-
section (c)(2) shall apply to understatements attributable to 
transactions entered into after the date of the enactment of 
this Act. 
(4) REFUNDS AND CREDITS.—The amendment made by sub-
section (d) shall apply to refunds and credits attributable to 
transactions entered into after the date of the enactment of 
this Act. 
SEC. 1410. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES. 
The percentage under paragraph (1) of section 202(b) of the 
Corporate Estimated Tax Shift Act of 2009 in effect on the date 
of the enactment of this Act is increased by 15.75 percentage 
points. 
Subtitle F—Other Provisions 
SEC. 1501. COMMUNITY COLLEGE AND CAREER TRAINING GRANT PRO-
GRAM. 
Section 279(b) of the Trade Act of 1974 (19 U.S.C. 2372a(b)) 
is amended by striking ‘‘SUPPLEMENT’’ and all that follows through 
‘‘Funds’’ and inserting ‘‘There are’’ and by striking ‘‘pursuant’’ and 
all that follows and inserting ‘‘$500,000,000 for each of fiscal years 
2011, 2012, 2013, and 2014 to carry out this subchapter, except 
that the limitations contained in section 278(a)(2) shall not apply 
to such funds and each State shall receive not less than 0.5 percent 
of the amount appropriated pursuant to this subsection for each 
such fiscal year.’’.
H. R. 4872—43 
TITLE II—EDUCATION AND HEALTH 
Subtitle A—Education 
SEC. 2001. SHORT TITLE; REFERENCES. 
(a) SHORT TITLE.—This subtitle may be cited as the ‘‘SAFRA 
Act’’. 
(b) REFERENCES.—Except as otherwise expressly provided, 
whenever in this subtitle an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section 
or other provision of the Higher Education Act of 1965 (20 U.S.C. 
1001 et seq.). 
PART I—INVESTING IN STUDENTS AND 
FAMILIES 
SEC. 2101. FEDERAL PELL GRANTS. 
(a) AMOUNT OF GRANTS.—Section 401(b) (20 U.S.C. 1070a(b)) 
is amended— 
(1) by amending paragraph (2)(A) to read as follows: 
‘‘(A) The amount of the Federal Pell Grant for a student 
eligible under this part shall be— 
‘‘(i) the maximum Federal Pell Grant, as specified 
in the last enacted appropriation Act applicable to 
that award year, plus 
‘‘(ii) the amount of the increase calculated under 
paragraph (8)(B) for that year, less 
‘‘(iii) an amount equal to the amount determined 
to be the expected family contribution with respect 
to that student for that year.’’; and 
(2) in paragraph (8)— 
(A) in subparagraph (A)— 
(i) in the matter preceding clause (i), by striking 
‘‘, to carry out subparagraph (B) of this paragraph’’; 
and 
(ii) by striking clauses (iii) through (x) and 
inserting the following: 
‘‘(iii) to carry out subparagraph (B) of this para-
graph, such sums as may be necessary for fiscal year 
2010 and each subsequent fiscal year to provide the 
amount of increase of the maximum Federal Pell Grant 
required by clauses (ii) and (iii) of subparagraph (B); 
and 
‘‘(iv) to carry out this section, $13,500,000,000 for 
fiscal year 2011.’’; 
(B) in subparagraph (B)— 
(i) in the matter preceding clause (i), by striking 
‘‘subparagraph (A)’’ and inserting ‘‘clauses (i) through 
(iii) of subparagraph (A)’’; 
(ii) in clause (ii), by striking ‘‘and 2011–2012’’ and 
inserting ‘‘, 2011–2012, and 2012–2013’’; and 
(iii) by striking clause (iii) and inserting the fol-
lowing:
H. R. 4872—44 
‘‘(iii) the amount determined under subparagraph 
(C) for each succeeding award year.’’; and 
(C) by striking subparagraph (C) and inserting the 
following: 
‘‘(C) ADJUSTMENT AMOUNTS.— 
‘‘(i) AWARD YEAR 2013–2014.—For award year 2013– 
2014, the amount determined under this subparagraph 
for purposes of subparagraph (B)(iii) shall be equal 
to— 
‘‘(I) $5,550 or the total maximum Federal Pell 
Grant for the preceding award year (as determined 
under 
clause 
(v)(II)), 
whichever 
is 
greater, 
increased by a percentage equal to the annual 
adjustment percentage for award year 2013–2014, 
reduced by 
‘‘(II) $4,860 or the maximum Federal Pell 
Grant for which a student was eligible for the 
preceding award year, as specified in the last 
enacted appropriation Act applicable to that year, 
whichever is greater; and 
‘‘(III) rounded to the nearest $5. 
‘‘(ii) AWARD YEARS 2014–2015 THROUGH 2017–2018.— 
For each of the award years 2014–2015 through 2017– 
2018, the amount determined under this subparagraph 
for purposes of subparagraph (B)(iii) shall be equal 
to— 
‘‘(I) the total maximum Federal Pell Grant 
for the preceding award year (as determined under 
clause (v)(II)), increased by a percentage equal to 
the annual adjustment percentage for the award 
year for which the amount under this subpara-
graph is being determined, reduced by 
‘‘(II) $4,860 or the maximum Federal Pell 
Grant for which a student was eligible for the 
preceding award year, as specified in the last 
enacted appropriation Act applicable to that year, 
whichever is greater; and 
‘‘(III) rounded to the nearest $5. 
‘‘(iii) SUBSEQUENT AWARD YEARS.—For award year 
2018–2019 and each subsequent award year, the 
amount determined under this subparagraph for pur-
poses of subparagraph (B)(iii) shall be equal to the 
amount determined under clause (ii) for award year 
2017–2018. 
‘‘(iv) DEFINITIONS.—For purposes of this subpara-
graph— 
‘‘(I) the term ‘annual adjustment percentage’ 
as applied to an award year, is equal to the esti-
mated percentage change in the Consumer Price 
Index (as determined by the Secretary, using the 
definition in section 478(f)) for the most recent 
calendar year ending prior to the beginning of 
that award year; and 
‘‘(II) the term ‘total maximum Federal Pell 
Grant’ as applied to a preceding award year, is 
equal to the sum of—
H. R. 4872—45 
‘‘(aa) the maximum Federal Pell Grant 
for which a student is eligible during an award 
year, as specified in the last enacted appro-
priation Act applicable to that preceding 
award year; and 
‘‘(bb) the amount of the increase in the 
maximum Federal Pell Grant required by this 
paragraph for that preceding award year.’’. 
(b) CONFORMING AMENDMENTS.—Title IV (20 U.S.C. 1070 et 
seq.) is further amended— 
(1) in section 401(b) (20 U.S.C. 1070a(b))— 
(A) in paragraph (4)— 
(i) by striking ‘‘maximum basic grant level speci-
fied in the appropriate appropriation Act’’ and inserting 
‘‘maximum amount of a Federal Pell Grant award 
determined under paragraph (2)(A)’’; and 
(ii) by striking ‘‘such level’’ each place it appears 
and inserting ‘‘such Federal Pell Grant amount’’ in 
each such place; and 
(B) in paragraph (6), by striking ‘‘the grant level speci-
fied in the appropriate Appropriation Act for this subpart 
for such year’’ and inserting ‘‘the maximum amount of 
a Federal Pell Grant award determined under paragraph 
(2)(A), for which a student is eligible during such award 
year’’; 
(2) in section 402D(d)(1) (20 U.S.C. 1070a–14(d)(1)), by 
striking ‘‘exceed the maximum’’ and all that follows through 
‘‘Grant, for’’ and inserting ‘‘exceed the Federal Pell Grant 
amount, determined under section 401(b)(2)(A), for which a 
student is eligible, or be less than the minimum Federal Pell 
Grant amount described in section 401(b)(4), for’’; 
(3) in section 435(a)(5)(A)(i)(I) (20 U.S.C. 1085(a)(5)(A)(i)(I)), 
by striking ‘‘one-half the maximum Federal Pell Grant award 
for which a student would be eligible’’ and inserting ‘‘one- 
half the Federal Pell Grant amount, determined under section 
401(b)(2)(A), for which a student would be eligible’’; 
(4) in section 483(e)(3)(A)(ii) (20 U.S.C. 1090(e)(3)(A)(ii)), 
by striking ‘‘based on the maximum Federal Pell Grant award 
at the time of application’’ and inserting ‘‘based on the Federal 
Pell Grant amount, determined under section 401(b)(2)(A), for 
which a student is eligible at the time of application’’; 
(5) in section 485E(b)(1)(A) (20 U.S.C. 1092f(b)(1)(A)), by 
striking ‘‘of such students’ potential eligibility for a maximum 
Federal Pell Grant under subpart 1 of part A’’ and inserting 
‘‘of such students’ potential eligibility for the Federal Pell Grant 
amount, determined under section 401(b)(2)(A), for which the 
student would be eligible’’; and 
(6) 
in 
section 
894(f)(2)(C)(ii)(I) 
(20 
U.S.C. 
1161y(f)(2)(C)(ii)(I)), by striking ‘‘the maximum Federal Pell 
Grant for each award year’’ and inserting ‘‘the Federal Pell 
Grant amount, determined under section 401(b)(2)(A), for which 
a student may be eligible for each award year’’. 
(c) EFFECTIVE DATE.—The amendments made by subsections 
(a) and (b) shall take effect on July 1, 2010. 
SEC. 2102. COLLEGE ACCESS CHALLENGE GRANT PROGRAM. 
Section 781 (20 U.S.C. 1141) is amended—
H. R. 4872—46 
(1) in the first sentence of subsection (a), by striking 
‘‘$66,000,000’’ and all that follows through the period and 
inserting ‘‘$150,000,000 for each of the fiscal years 2010 through 
2014. The authority to award grants under this section shall 
expire at the end of fiscal year 2014.’’; and 
(2) in subsection (c)(2), by striking ‘‘0.5 percent’’ and 
inserting ‘‘1.0 percent’’. 
SEC. 2103. INVESTMENT IN HISTORICALLY BLACK COLLEGES AND 
UNIVERSITIES AND MINORITY-SERVING INSTITUTIONS. 
Section 371(b)(1)(A) (20 U.S.C. 1067q(b)(1)(A)) is amended by 
striking ‘‘and 2009.’’ and all that follows and inserting ‘‘through 
2019. The authority to award grants under this section shall expire 
at the end of fiscal year 2019.’’. 
PART II—STUDENT LOAN REFORM 
SEC. 2201. TERMINATION OF FEDERAL FAMILY EDUCATION LOAN 
APPROPRIATIONS. 
Section 421 (20 U.S.C. 1071) is amended— 
(1) in subsection (b), in the first sentence of the matter 
following paragraph (6), by inserting ‘‘, except that no sums 
may be expended after June 30, 2010, with respect to loans 
under this part for which the first disbursement is after such 
date’’ after ‘‘expended’’; and 
(2) by adding at the end the following new subsection: 
‘‘(d) TERMINATION OF AUTHORITY TO MAKE OR INSURE NEW 
LOANS.—Notwithstanding paragraphs (1) through (6) of subsection 
(b) or any other provision of law— 
‘‘(1) no new loans (including consolidation loans) may be 
made or insured under this part after June 30, 2010; and 
‘‘(2) no funds are authorized to be appropriated, or may 
be expended, under this Act or any other Act to make or 
insure loans under this part (including consolidation loans) 
for which the first disbursement is after June 30, 2010, 
except as expressly authorized by an Act of Congress enacted after 
the date of enactment of the SAFRA Act.’’. 
SEC. 2202. TERMINATION OF FEDERAL LOAN INSURANCE PROGRAM. 
Section 424(a) (20 U.S.C. 1074(a)) is amended by striking ‘‘Sep-
tember 30, 1976,’’ and all that follows and inserting ‘‘September 
30, 1976, for each of the succeeding fiscal years ending prior to 
October 1, 2009, and for the period from October 1, 2009, to June 
30, 2010, for loans first disbursed on or before June 30, 2010.’’. 
SEC. 2203. TERMINATION OF APPLICABLE INTEREST RATES. 
Section 427A(l) (20 U.S.C. 1077a(l)) is amended— 
(1) in the subsection heading, by inserting ‘‘AND BEFORE 
JULY 1, 2010’’ after ‘‘2006’’; 
(2) in paragraph (1), by inserting ‘‘and before July 1, 2010,’’ 
after ‘‘July 1, 2006,’’; 
(3) in paragraph (2), by inserting ‘‘and before July 1, 2010,’’ 
after ‘‘July 1, 2006,’’; 
(4) in paragraph (3), by inserting ‘‘and that was disbursed 
before July 1, 2010,’’ after ‘‘July 1, 2006,’’; and 
(5) in paragraph (4)— 
(A) in the matter preceding subparagraph (A), by 
striking ‘‘July 1, 2012’’ and inserting ‘‘July 1, 2010’’; and
H. R. 4872—47 
(B) by repealing subparagraphs (D) and (E). 
SEC. 2204. TERMINATION OF FEDERAL PAYMENTS TO REDUCE STU-
DENT INTEREST COSTS. 
(a) HIGHER EDUCATION ACT OF 1965.—Section 428 (20 U.S.C. 
1078) is amended— 
(1) in subsection (a)— 
(A) in paragraph (1), in the matter preceding subpara-
graph (A), by inserting ‘‘for which the first disbursement 
is made before July 1, 2010, and’’ after ‘‘eligible institution’’; 
and 
(B) in paragraph (5), by striking ‘‘September 30, 2014,’’ 
and all that follows through the period and inserting ‘‘June 
30, 2010.’’; 
(2) in subsection (b)(1)— 
(A) in subparagraph (G)(ii), by inserting ‘‘and before 
July 1, 2010,’’ after ‘‘July 1, 2006,’’; and 
(B) in subparagraph (H)(ii), by inserting ‘‘and that 
are first disbursed before July 1, 2010,’’ after ‘‘July 1, 
2006,’’; 
(3) in subsection (f)(1)(A)(ii)— 
(A) by striking ‘‘during fiscal years beginning’’; and 
(B) by inserting ‘‘and first disbursed before July 1, 
2010,’’ after ‘‘October 1, 2003,’’; and 
(4) in subsection (j)(1), by inserting ‘‘, before July 1, 2010,’’ 
after ‘‘section 435(d)(1)(D) of this Act shall’’. 
(b) COLLEGE COST REDUCTION AND ACCESS ACT.—Section 303 
of the College Cost Reduction and Access Act (Public Law 110– 
84) is repealed. 
SEC. 2205. TERMINATION OF FFEL PLUS LOANS. 
Section 428B(a)(1) (20 U.S.C. 1078–2(a)(1)) is amended by 
striking ‘‘A graduate’’ and inserting ‘‘Prior to July 1, 2010, a grad-
uate’’. 
SEC. 2206. FEDERAL CONSOLIDATION LOANS. 
(a) IN
GENERAL.—Section 428C (20 U.S.C. 1078–3) is 
amended— 
(1) in subsection (a)(4)(A), by inserting ‘‘, and first disbursed 
before July 1, 2010’’ after ‘‘under this part’’; 
(2) in subsection (b)— 
(A) in paragraph (1)(E), by inserting before the semi-
colon ‘‘, and before July 1, 2010’’; and 
(B) in paragraph (5), by striking ‘‘In the event that’’ 
and inserting ‘‘If, before July 1, 2010,’’; 
(3) in subsection (c)(1)— 
(A) in subparagraph (A)(ii), by inserting ‘‘and that is 
disbursed before July 1, 2010,’’ after ‘‘2006,’’; and 
(B) in subparagraph (C), by inserting ‘‘and disbursed 
before July 1, 2010,’’ after ‘‘1994,’’; and 
(4) in subsection (e), by striking ‘‘September 30, 2014.’’ 
and inserting ‘‘June 30, 2010. No loan may be made under 
this section for which the disbursement is on or after July 
1, 2010.’’. 
(b) TEMPORARY LOAN CONSOLIDATION AUTHORITY.—Part D of 
title IV (20 U.S.C. 1087a et seq.) is amended by inserting after 
section 459A (20 U.S.C. 1087i) the following:
H. R. 4872—48 
‘‘SEC. 459B. TEMPORARY LOAN CONSOLIDATION AUTHORITY. 
‘‘(a) TEMPORARY LOAN CONSOLIDATION AUTHORITY.— 
‘‘(1) IN GENERAL.—A borrower who has 1 or more loans 
in 2 or more of the categories described in paragraph (2), 
and who has not yet entered repayment on 1 or more of those 
loans in any of the categories, may consolidate all of the loans 
of the borrower that are described in paragraph (2) into a 
Federal Direct Consolidation Loan during the period described 
in paragraph (3). 
‘‘(2) CATEGORIES OF LOANS THAT MAY BE CONSOLIDATED.— 
The categories of loans that may be consolidated under para-
graph (1) are— 
‘‘(A) loans made under this part; 
‘‘(B) loans purchased by the Secretary pursuant to 
section 459A; and 
‘‘(C) loans made under part B that are held by an 
eligible lender, as such term is defined in section 435(d). 
‘‘(3) TIME PERIOD IN WHICH LOANS MAY BE CONSOLIDATED.— 
The Secretary may make a Federal Direct Consolidation Loan 
under this section to a borrower whose application for such 
Federal Direct Consolidation Loan is received on or after July 
1, 2010, and before July 1, 2011. 
‘‘(b) TERMS OF LOANS.—A Federal Direct Consolidation Loan 
made under this section shall have the same terms and conditions 
as a Federal Direct Consolidation Loan made under section 455(g), 
except that— 
‘‘(1) in determining the applicable rate of interest on the 
Federal Direct Consolidation Loan made under this section 
(other than on a Federal Direct Consolidation Loan described 
in paragraph (2)), section 427A(l)(3) shall be applied without 
rounding the weighted average of the interest rate on the 
loans consolidated to the nearest higher one-eighth of 1 percent 
as described in subparagraph (A) of section 427A(l)(3); and 
‘‘(2) if a Federal Direct Consolidation Loan made under 
this section that repays a loan which is subject to an interest 
rate determined under section 427A(g)(2), (j)(2), or (k)(2), then 
the interest rate for such Federal Direct Consolidation Loan 
shall be calculated— 
‘‘(A) by using the applicable rate of interest described 
in section 427A(g)(2), (j)(2), or (k)(2), respectively; and 
‘‘(B) in accordance with section 427A(l)(3).’’. 
SEC. 2207. TERMINATION OF UNSUBSIDIZED STAFFORD LOANS FOR 
MIDDLE-INCOME BORROWERS. 
Section 428H (20 U.S.C. 1078–8) is amended— 
(1) in subsection (a), by inserting ‘‘that are first disbursed 
before July 1, 2010,’’ after ‘‘under this part’’; 
(2) in subsection (b)— 
(A) by striking ‘‘Any student’’ and inserting ‘‘Prior to 
July 1, 2010, any student’’; and 
(B) by inserting ‘‘for which the first disbursement is 
made before such date’’ after ‘‘unsubsidized Federal Staf-
ford Loan’’; and 
(3) in subsection (h), by inserting ‘‘and that are first dis-
bursed before July 1, 2010,’’ after ‘‘July 1, 2006,’’.
H. R. 4872—49 
SEC. 2208. TERMINATION OF SPECIAL ALLOWANCES. 
Section 438 (20 U.S.C. 1087–1) is amended— 
(1) in subsection (b)(2)(I)— 
(A) in the subclause heading, by inserting ‘‘, AND 
BEFORE JULY 1, 2010’’ after ‘‘2000’’; 
(B) in clause (i), by inserting ‘‘and before July 1, 2010,’’ 
after ‘‘2000,’’; 
(C) in clause (ii)(II), by inserting ‘‘and before July 
1, 2010,’’ after ‘‘2006,’’; 
(D) in clause (iii), by inserting ‘‘and before July 1, 
2010,’’ after ‘‘2000,’’; 
(E) in clause (iv), by inserting ‘‘and that is disbursed 
before July 1, 2010,’’ after ‘‘2000,’’; 
(F) in clause (v)(I), by inserting ‘‘and before July 1, 
2010,’’ after ‘‘2006,’’; and 
(G) in clause (vi)— 
(i) in the clause heading, by inserting ‘‘, AND 
BEFORE JULY 1, 2010’’ after ‘‘2007’’; and 
(ii) in the matter preceding subclause (I), by 
inserting ‘‘and before July 1, 2010,’’ after ‘‘2007,’’; 
(2) in subsection (c)— 
(A) in paragraph (2)(B)— 
(i) in clause (iii), by inserting ‘‘and’’ after the semi-
colon; 
(ii) in clause (iv), by striking ‘‘; and’’ and inserting 
a period; and 
(iii) by striking clause (v); and 
(B) in paragraph (6), by inserting ‘‘and first disbursed 
before July 1, 2010,’’ after ‘‘1992,’’; and 
(3) in subsection (d)(2)(B), by inserting ‘‘, and before July 
1, 2010’’ after ‘‘2007’’. 
SEC. 2209. ORIGINATION OF DIRECT LOANS AT INSTITUTIONS OUTSIDE 
THE UNITED STATES. 
(a) LOANS FOR STUDENTS ATTENDING INSTITUTIONS OUTSIDE 
THE UNITED STATES.—Section 452 (20 U.S.C. 1087b) is amended 
by adding at the end the following: 
‘‘(d) INSTITUTIONS OUTSIDE THE UNITED STATES.—Loan funds 
for students (and parents of students) attending institutions outside 
the United States shall be disbursed through a financial institution 
located or operating in the United States and designated by the 
Secretary to serve as the agent of such institutions with respect 
to the receipt of the disbursements of such loan funds and the 
transfer of such funds to such institutions. To be eligible to receive 
funds under this part, an institution outside the United States 
shall make arrangements with the agent designated by the Sec-
retary under this subsection to receive funds under this part.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) AMENDMENTS.—Section 102 (20 U.S.C. 1002), as 
amended by section 102 of the Higher Education Opportunity 
Act (Public Law 110–315) and section 101 of Public Law 111– 
39, is amended— 
(A) by striking ‘‘part B’’ each place the term appears 
and inserting ‘‘part D’’; 
(B) in subsection (a)(1)(C), by inserting ‘‘, consistent 
with the requirements of section 452(d)’’ before the period 
at the end; and