H. R. 2014—4
Sec. 966. Associations of holders of timeshare interests to be taxed like other home-
owners associations.
Sec. 967. Additional advance refunding of certain Virgin Island bonds.
Sec. 968. Nonrecognition of gain on sale of stock to certain farmers’ cooperatives.
Sec. 969. Increased deductibility of business meal expenses for individuals subject
to Federal hours of service.
Sec. 970. Clarification of de minimis fringe benefit rules to no-charge employee
meals.
Sec. 971. Exemption of the incremental cost of a clean fuel vehicle from the limits
on depreciation for vehicles.
Sec. 972. Temporary suspension of taxable income limit on percentage depletion for
marginal production.
Sec. 973. Increase in standard mileage rate expense deduction for charitable use of
passenger automobile.
Sec. 974. Clarification of treatment of certain receivables purchased by cooperative
hospital service organizations.
Sec. 975. Deduction in computing adjusted gross income for expenses in connection
with service performed by certain officials.
Sec. 976. Combined employment tax reporting demonstration project.
Sec. 977. Elective carryback of existing carryovers of National Railroad Passenger
Corporation.
Subtitle H—Extension of Duty-Free Treatment Under Generalized System of
Preferences
Sec. 981. Generalized System of Preferences.
TITLE X—REVENUES
Subtitle A—Financial Products
Sec. 1001. Constructive sales treatment for appreciated financial positions.
Sec. 1002. Limitation on exception for investment companies under section 351.
Sec. 1003. Gains and losses from certain terminations with respect to property.
Sec. 1004. Determination of original issue discount where pooled debt obligations
subject to acceleration.
Sec. 1005. Denial of interest deductions on certain debt instruments.
Subtitle B—Corporate Organizations and Reorganizations
Sec. 1011. Tax treatment of certain extraordinary dividends.
Sec. 1012. Application of section 355 to distributions in connection with acquisi-
tions and to intragroup transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Certain preferred stock treated as boot.
Sec. 1015. Modification of holding period applicable to dividends received deduc-
tion.
Subtitle C—Administrative Provisions
Sec. 1021. Reporting of certain payments made to attorneys.
Sec. 1022. Decrease of threshold for reporting payments to corporations performing
services for Federal agencies.
Sec. 1023. Disclosure of return information for administration of certain veterans
programs.
Sec. 1024. Continuous levy on certain payments.
Sec. 1025. Modification of levy exemption.
Sec. 1026. Confidentiality and disclosure of returns and return information.
Sec. 1027. Returns of beneficiaries of estates and trusts required to file returns con-
sistent with estate or trust return or to notify Secretary of inconsist-
ency.
Sec. 1028. Registration and other provisions relating to confidential corporate tax
shelters.
Subtitle D—Excise and Employment Tax Provisions
Sec. 1031. Extension and modification of taxes funding Airport and Airway Trust
Fund; increased deposits into such Fund.
Sec. 1032. Kerosene taxed as diesel fuel.
Sec. 1033. Restoration of Leaking Underground Storage Tank Trust Fund taxes.
Sec. 1034. Application of communications tax to prepaid telephone cards.
Sec. 1035. Extension of temporary unemployment tax.
Subtitle E—Provisions Relating to Tax-Exempt Entities
Sec. 1041. Expansion of look-thru rule for interest, annuities, royalties, and rents
derived by subsidiaries of tax-exempt organizations.
H. R. 2014—5
Sec. 1042. Termination of certain exceptions from rules relating to exempt organi-
zations which provide commercial-type insurance.
Subtitle F—Foreign Provisions
Sec. 1051. Definition of foreign personal holding company income.
Sec. 1052. Personal property used predominantly in the United States treated as
not property of a like kind with respect to property used predominantly
outside the United States.
Sec. 1053. Holding period requirement for certain foreign taxes.
Sec. 1054. Denial of treaty benefits for certain payments through hybrid entities.
Sec. 1055. Interest on underpayments not reduced by foreign tax credit carrybacks.
Sec. 1056. Clarification of period of limitations on claim for credit or refund attrib-
utable to foreign tax credit carryforward.
Sec. 1057. Repeal of exception to alternative minimum foreign tax credit limit.
Subtitle G—Partnership Provisions
Sec. 1061. Allocation of basis among properties distributed by partnership.
Sec. 1062. Repeal of requirement that inventory be substantially appreciated with
respect to sale or exchange of partnership interest.
Sec. 1063. Extension of time for taxing precontribution gain.
Subtitle H—Pension Provisions
Sec. 1071. Pension accrued benefit distributable without consent increased to
$5,000.
Sec. 1072. Election to receive taxable cash compensation in lieu of nontaxable park-
ing benefits.
Sec. 1073. Repeal of excess distribution and excess retirement accumulation tax.
Sec. 1074. Increase in tax on prohibited transactions.
Sec. 1075. Basis recovery rules for annuities over more than one life.
Subtitle I—Other Revenue Provisions
Sec. 1081. Termination of suspense accounts for family corporations required to use
accrual method of accounting.
Sec. 1082. Modification of taxable years to which net operating losses may be car-
ried.
Sec. 1083. Modifications to taxable years to which unused credits may be carried.
Sec. 1084. Expansion of denial of deduction for certain amounts paid in connection
with insurance.
Sec. 1085. Improved enforcement of the application of the earned income credit.
Sec. 1086. Limitation on property for which income forecast method may be used.
Sec. 1087. Expansion of requirement that involuntarily converted property be re-
placed with property acquired from an unrelated person.
Sec. 1088. Treatment of exception from installment sales rules for sales of property
by a manufacturer to a dealer.
Sec. 1089. Limitations on charitable remainder trust eligibility for certain trusts.
Sec. 1090. Expanded SSA records for tax enforcement.
Sec. 1091. Modification of estimated tax safe harbors.
TITLE XI—SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
Subtitle A—General Provisions
Sec. 1101. Certain individuals exempt from foreign tax credit limitation.
Sec. 1102. Exchange rate used in translating foreign taxes.
Sec. 1103. Election to use simplified section 904 limitation for alternative minimum
tax.
Sec. 1104. Treatment of personal transactions by individuals under foreign cur-
rency rules.
Sec. 1105. Foreign tax credit treatment of dividends from noncontrolled section 902
corporations.
Subtitle B—Treatment of Controlled Foreign Corporations
Sec. 1111. Gain on certain stock sales by controlled foreign corporations treated as
dividends.
Sec. 1112. Miscellaneous modifications to subpart F.
Sec. 1113. Indirect foreign tax credit allowed for certain lower tier companies.
Subtitle C—Treatment of Passive Foreign Investment Companies
Sec. 1121. United States shareholders of controlled foreign corporations not subject
to PFIC inclusion.
Sec. 1122. Election of mark to market for marketable stock in passive foreign in-
vestment company.
H. R. 2014—6
Sec. 1123. Valuation of assets for passive foreign investment company determina-
tion.
Sec. 1124. Effective date.
Subtitle D—Repeal of Excise Tax on Transfers to Foreign Entities
Sec. 1131. Repeal of excise tax on transfers to foreign entities; recognition of gain
on certain transfers to foreign trusts and estates.
Subtitle E—Information Reporting
Sec. 1141. Clarification of application of return requirement to foreign partner-
ships.
Sec. 1142. Controlled foreign partnerships subject to information reporting com-
parable to information reporting for controlled foreign corporations.
Sec. 1143. Modifications relating to returns required to be filed by reason of
changes in ownership interests in foreign partnership.
Sec. 1144. Transfers of property to foreign partnerships subject to information re-
porting comparable to information reporting for such transfers to foreign
corporations.
Sec. 1145. Extension of statute of limitations for foreign transfers.
Sec. 1146. Increase in filing thresholds for returns as to organization of foreign cor-
porations and acquisitions of stock in such corporations.
Subtitle F—Determination of Foreign or Domestic Status of Partnerships
Sec. 1151. Determination of foreign or domestic status of partnerships.
Subtitle G—Other Simplification Provisions
Sec. 1161. Transition rule for certain trusts.
Sec. 1162. Repeal of stock and securities safe harbor requirement that principal of-
fice be outside the United States.
Sec. 1163. Miscellaneous clarifications.
Subtitle H—Other Provisions
Sec. 1171. Treatment of computer software as FSC export property.
Sec. 1172. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1173. United States property not to include certain assets acquired by dealers
in ordinary course of trade or business.
Sec. 1174. Treatment of nonresident aliens engaged in international transportation
services.
Sec. 1175. Exemption for active financing income.
TITLE XII—SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND
BUSINESSES
Subtitle A—Provisions Relating to Individuals
Sec. 1201. Basic standard deduction and minimum tax exemption amount for cer-
tain dependents.
Sec. 1202. Increase in amount of tax exempt from estimated tax requirements.
Sec. 1203. Treatment of certain reimbursed expenses of rural mail carriers.
Sec. 1204. Treatment of traveling expenses of certain Federal employees engaged
in criminal investigations.
Sec. 1205. Payment of tax by commercially acceptable means.
Subtitle B—Provisions Relating to Businesses Generally
Sec. 1211. Modifications to look-back method for long-term contracts.
Sec. 1212. Minimum tax treatment of certain property and casualty insurance com-
panies.
Sec. 1213. Qualified lessee construction allowances for short-term leases.
Subtitle C—Simplification Relating to Electing Large Partnerships
PART I—GENERAL PROVISIONS
Sec. 1221. Simplified flow-through for electing large partnerships.
Sec. 1222. Simplified audit procedures for electing large partnerships.
Sec. 1223. Due date for furnishing information to partners of electing large part-
nerships.
Sec. 1224. Returns required on magnetic media.
Sec. 1225. Treatment of partnership items of individual retirement accounts.
Sec. 1226. Effective date.
PART II—PROVISIONS RELATED TO TEFRA PARTNERSHIP PROCEEDINGS
Sec. 1231. Treatment of partnership items in deficiency proceedings.
H. R. 2014—7
Sec. 1232. Partnership return to be determinative of audit procedures to be fol-
lowed.
Sec. 1233. Provisions relating to statute of limitations.
Sec. 1234. Expansion of small partnership exception.
Sec. 1235. Exclusion of partial settlements from 1-year limitation on assessment.
Sec. 1236. Extension of time for filing a request for administrative adjustment.
Sec. 1237. Availability of innocent spouse relief in context of partnership proceed-
ings.
Sec. 1238. Determination of penalties at partnership level.
Sec. 1239. Provisions relating to court jurisdiction, etc.
Sec. 1240. Treatment of premature petitions filed by notice partners or 5-percent
groups.
Sec. 1241. Bonds in case of appeals from certain proceeding.
Sec. 1242. Suspension of interest where delay in computational adjustment result-
ing from certain settlements.
Sec. 1243. Special rules for administrative adjustment requests with respect to bad
debts or worthless securities.
PART III—PROVISION RELATING TO CLOSING OF PARTNERSHIP TAXABLE YEAR WITH
RESPECT TO DECEASED PARTNER, ETC.
Sec. 1246. Closing of partnership taxable year with respect to deceased partner,
etc.
Subtitle D—Provisions Relating to Real Estate Investment Trusts
Sec. 1251. Clarification of limitation on maximum number of shareholders.
Sec. 1252. De minimis rule for tenant services income.
Sec. 1253. Attribution rules applicable to stock ownership.
Sec. 1254. Credit for tax paid by REIT on retained capital gains.
Sec. 1255. Repeal of 30-percent gross income requirement.
Sec. 1256. Modification of earnings and profits rules for determining whether REIT
has earnings and profits from non-REIT year.
Sec. 1257. Treatment of foreclosure property.
Sec. 1258. Payments under hedging instruments.
Sec. 1259. Excess noncash income.
Sec. 1260. Prohibited transaction safe harbor.
Sec. 1261. Shared appreciation mortgages.
Sec. 1262. Wholly owned subsidiaries.
Sec. 1263. Effective date.
Subtitle E—Provisions Relating to Regulated Investment Companies
Sec. 1271. Repeal of 30-percent gross income limitation.
Subtitle F—Taxpayer Protections
Sec. 1281. Reasonable cause exception for certain penalties.
Sec. 1282. Clarification of period for filing claims for refunds.
Sec. 1283. Repeal of authority to disclose whether prospective juror has been au-
dited.
Sec. 1284. Clarification of statute of limitations.
Sec. 1285. Awarding of administrative costs.
TITLE XIII—SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT
TAXES
Sec. 1301. Gifts to charities exempt from gift tax filing requirements.
Sec. 1302. Clarification of waiver of certain rights of recovery.
Sec. 1303. Transitional rule under section 2056A.
Sec. 1304. Treatment for estate tax purposes of short-term obligations held by non-
resident aliens.
Sec. 1305. Certain revocable trusts treated as part of estate.
Sec. 1306. Distributions during first 65 days of taxable year of estate.
Sec. 1307. Separate share rules available to estates.
Sec. 1308. Executor of estate and beneficiaries treated as related persons for dis-
allowance of losses, etc.
Sec. 1309. Treatment of funeral trusts.
Sec. 1310. Adjustments for gifts within 3 years of decedent’s death.
Sec. 1311. Clarification of treatment of survivor annuities under qualified ter-
minable interest rules.
Sec. 1312. Treatment under qualified domestic trust rules of forms of ownership
which are not trusts.
Sec. 1313. Opportunity to correct certain failures under section 2032A.
Sec. 1314. Authority to waive requirement of United States trustee for qualified do-
mestic trusts.
H. R. 2014—8
TITLE XIV—SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES,
TAX-EXEMPT BONDS, AND OTHER MATTERS
Subtitle A—Excise Tax Simplification
PART I—EXCISE TAXES ON HEAVY TRUCKS AND LUXURY CARS
Sec. 1401. Increase in de minimis limit for after-market alterations for heavy
trucks and luxury cars.
Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires in computing
price.
PART II—PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER
Sec. 1411. Credit or refund for imported bottled distilled spirits returned to dis-
tilled spirits plant.
Sec. 1412. Authority to cancel or credit export bonds without submission of records.
Sec. 1413. Repeal of required maintenance of records on premises of distilled spirits
plant.
Sec. 1414. Fermented material from any brewery may be received at a distilled
spirits plant.
Sec. 1415. Repeal of requirement for wholesale dealers in liquors to post sign.
Sec. 1416. Refund of tax to wine returned to bond not limited to unmerchantable
wine.
Sec. 1417. Use of additional ameliorating material in certain wines.
Sec. 1418. Domestically produced beer may be withdrawn free of tax for use of for-
eign embassies, legations, etc.
Sec. 1419. Beer may be withdrawn free of tax for destruction.
Sec. 1420. Authority to allow drawback on exported beer without submission of
records.
Sec. 1421. Transfer to brewery of beer imported in bulk without payment of tax.
Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk without pay-
ment of tax.
PART III—OTHER EXCISE TAX PROVISIONS
Sec. 1431. Authority to grant exemptions from registration requirements.
Sec. 1432. Repeal of expired provisions.
Sec. 1433. Simplification of imposition of excise tax on arrows.
Sec. 1434. Modifications to retail tax on heavy trucks.
Sec. 1435. Skydiving flights exempt from tax on transportation of persons by air.
Sec. 1436. Allowance or credit of refund for tax-paid aviation fuel purchased by reg-
istered producer of aviation fuel.
Subtitle B—Tax-Exempt Bond Provisions
Sec. 1441. Repeal of $100,000 limitation on unspent proceeds under 1-year excep-
tion from rebate.
Sec. 1442. Exception from rebate for earnings on bona fide debt service fund under
construction bond rules.
Sec. 1443. Repeal of debt service-based limitation on investment in certain nonpur-
pose investments.
Sec. 1444. Repeal of expired provisions.
Sec. 1445. Effective date.
Subtitle C—Tax Court Procedures
Sec. 1451. Overpayment determinations of Tax Court.
Sec. 1452. Redetermination of interest pursuant to motion.
Sec. 1453. Application of net worth requirement for awards of litigation costs.
Sec. 1454. Proceedings for determination of employment status.
Subtitle D—Other Provisions
Sec. 1461. Extension of due date of first quarter estimated tax payment by private
foundations.
Sec. 1462. Clarification of authority to withhold Puerto Rico income taxes from sal-
aries of Federal employees.
Sec. 1463. Certain notices disregarded under provision increasing interest rate on
large corporate underpayments.
TITLE XV—PENSIONS AND EMPLOYEE BENEFITS
Subtitle A—Simplification
Sec. 1501. Matching contributions of self-employed individuals not treated as elec-
tive employer contributions.
H. R. 2014—9
Sec. 1502. Modification of prohibition of assignment or alienation.
Sec. 1503. Elimination of paperwork burdens on plans.
Sec. 1504. Modification of 403(b) exclusion allowance to conform to 415 modifica-
tions.
Sec. 1505. Extension of moratorium on application of certain nondiscrimination
rules to State and local governments.
Sec. 1506. Clarification of certain rules relating to employee stock ownership plans
of S corporations.
Sec. 1507. Modification of 10-percent tax for nondeductible contributions.
Sec. 1508. Modification of funding requirements for certain plans.
Sec. 1509. Clarification of disqualification rules relating to acceptance of rollover
contributions.
Sec. 1510. New technologies in retirement plans.
Subtitle B—Other Provisions Relating to Pensions and Employee Benefits
Sec. 1521. Increase in current liability funding limit.
Sec. 1522. Special rules for church plans.
Sec. 1523. Repeal of application of unrelated business income tax to ESOPs.
Sec. 1524. Diversification of section 401(k) plan investments.
Sec. 1525. Section 401(k) plans for certain irrigation and drainage entities.
Sec. 1526. Portability of permissive service credit under governmental pension
plans.
Sec. 1527. Removal of dollar limitation on benefit payments from a defined benefit
plan maintained for certain police and fire employees.
Sec. 1528. Survivor benefits for public safety officers killed in the line of duty.
Sec. 1529. Treatment of certain disability benefits received by former police officers
or firefighters.
Sec. 1530. Gratuitous transfers for the benefit of employees.
Subtitle C—Provisions Relating to Certain Health Acts
Sec. 1531. Amendments to the Internal Revenue Code of 1986 to implement the
Newborns’ and Mothers’ Health Protection Act of 1996 and the Mental
Health Parity Act of 1996.
Sec. 1532. Special rules relating to church plans.
Subtitle D—Provisions Relating to Plan Amendments
Sec. 1541. Provisions relating to plan amendments.
TITLE XVI—TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS
JOB PROTECTION ACT OF 1996 AND OTHER LEGISLATION
Sec. 1600. Coordination with other titles.
Sec. 1601. Amendments related to Small Business Job Protection Act of 1996.
Sec. 1602. Amendments related to Health Insurance Portability and Accountability
Act of 1996.
Sec. 1603. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1604. Miscellaneous provisions.
TITLE XVII—IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO
LINE ITEM VETO
Sec. 1701. Identification of limited tax benefits subject to line item veto.
TITLE I—CHILD TAX CREDIT
SEC. 101. CHILD TAX CREDIT.
(a) IN GENERAL.—Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits) is amended
by inserting after section 23 the following new section:
‘‘SEC. 24. CHILD TAX CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year with
respect to each qualifying child of the taxpayer an amount equal
to $500 ($400 in the case of taxable years beginning in 1998).
‘‘(b) LIMITATION BASED ON ADJUSTED GROSS INCOME.—
‘‘(1) IN GENERAL.—The amount of the credit allowable under
subsection (a) shall be reduced (but not below zero) by $50
H. R. 2014—10
for each $1,000 (or fraction thereof) by which the taxpayer’s
modified adjusted gross income exceeds the threshold amount.
For purposes of the preceding sentence, the term ‘modified
adjusted gross income’ means adjusted gross income increased
by any amount excluded from gross income under section 911,
931, or 933.
‘‘(2) THRESHOLD AMOUNT.—For purposes of paragraph (1),
the term ‘threshold amount’ means—
‘‘(A) $110,000 in the case of a joint return,
‘‘(B) $75,000 in the case of an individual who is not
married, and
‘‘(C) $55,000 in the case of a married individual filing
a separate return.
For purposes of this paragraph, marital status shall be deter-
mined under section 7703.
‘‘(c) QUALIFYING CHILD.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualifying child’ means any
individual if—
‘‘(A) the taxpayer is allowed a deduction under section
151 with respect to such individual for the taxable year,
‘‘(B) such individual has not attained the age of 17
as of the close of the calendar year in which the taxable
year of the taxpayer begins, and
‘‘(C) such individual bears a relationship to the tax-
payer described in section 32(c)(3)(B).
‘‘(2) EXCEPTION
FOR
CERTAIN
NONCITIZENS.—The term
‘qualifying child’ shall not include any individual who would
not be a dependent if the first sentence of section 152(b)(3)
were applied without regard to all that follows ‘resident of
the United States’.
‘‘(d) ADDITIONAL CREDIT FOR FAMILIES WITH 3 OR MORE CHIL-
DREN.—
‘‘(1) IN GENERAL.—In the case of a taxpayer with 3 or
more qualifying children for any taxable year, the amount
of the credit allowed under this section shall be equal to the
greater of—
‘‘(A) the amount of the credit allowed under this section
(without regard to this subsection and after application
of the limitation under section 26), or
‘‘(B) the alternative credit amount determined under
paragraph (2).
‘‘(2) ALTERNATIVE CREDIT AMOUNT.—For purposes of this
subsection, the alternative credit amount is the amount of
the credit which would be allowed under this section if the
limitation under paragraph (3) were applied in lieu of the
limitation under section 26.
‘‘(3) LIMITATION.—The limitation under this paragraph for
any taxable year is the limitation under section 26 (without
regard to this subsection)—
‘‘(A) increased by the taxpayer’s social security taxes
for such taxable year, and
‘‘(B) reduced by the sum of—
‘‘(i) the credits allowed under this part other than
under subpart C or this section, and
‘‘(ii) the credit allowed under section 32 without
regard to subsection (m) thereof.
H. R. 2014—11
‘‘(4) UNUSED CREDIT TO BE REFUNDABLE.—If the amount
of the credit under paragraph (1)(B) exceeds the amount of
the credit under paragraph (1)(A), such excess shall be treated
as a credit to which subpart C applies. The rule of section
32(h) shall apply to such excess.
‘‘(5) SOCIAL SECURITY TAXES.—For purposes of paragraph
(3)—
‘‘(A) IN
GENERAL.—The term ‘social security taxes’
means, with respect to any taxpayer for any taxable year—
‘‘(i) the amount of the taxes imposed by sections
3101 and 3201(a) on amounts received by the taxpayer
during the calendar year in which the taxable year
begins,
‘‘(ii) 50 percent of the taxes imposed by section
1401 on the self-employment income of the taxpayer
for the taxable year, and
‘‘(iii) 50 percent of the taxes imposed by section
3211(a)(1) on amounts received by the taxpayer during
the calendar year in which the taxable year begins.
‘‘(B) COORDINATION WITH SPECIAL REFUND OF SOCIAL
SECURITY TAXES.—The term ‘social security taxes’ shall not
include any taxes to the extent the taxpayer is entitled
to a special refund of such taxes under section 6413(c).
‘‘(C) SPECIAL RULE.—Any amounts paid pursuant to
an agreement under section 3121(l) (relating to agreements
entered into by American employers with respect to foreign
affiliates) which are equivalent to the taxes referred to
in subparagraph (A)(i) shall be treated as taxes referred
to in such subparagraph.
‘‘(e) IDENTIFICATION REQUIREMENT.—No credit shall be allowed
under this section to a taxpayer with respect to any qualifying
child unless the taxpayer includes the name and taxpayer identifica-
tion number of such qualifying child on the return of tax for the
taxable year.
‘‘(f) TAXABLE YEAR MUST BE FULL TAXABLE YEAR.—Except
in the case of a taxable year closed by reason of the death of
the taxpayer, no credit shall be allowable under this section in
the case of a taxable year covering a period of less than 12 months.’’.
(b) SUPPLEMENTAL CREDIT.—Section 32 is amended by adding
at the end the following new subsection:
‘‘(m) SUPPLEMENTAL CHILD CREDIT.—
‘‘(1) IN GENERAL.—In the case of a taxpayer with respect
to whom a credit is allowed under section 24 for the taxable
year, there shall be allowed as a credit under this section
an amount equal to the supplemental child credit (if any)
determined for such taxpayer for such taxable year under para-
graph (2). Such credit shall be in addition to the credit allowed
under subsection (a).
‘‘(2) SUPPLEMENTAL CHILD CREDIT.—For purposes of this
subsection, the supplemental child credit is an amount equal
to the excess (if any) of—
‘‘(A) the amount determined under section 24(d)(1)(A),
over
‘‘(B) the amount determined under section 24(d)(1)(B).
The amounts referred to in subparagraphs (A) and (B) shall
be determined as if section 24(d) applied to all taxpayers.
H. R. 2014—12
‘‘(3) COORDINATION WITH SECTION 24.—The amount of the
credit under section 24 shall be reduced by the amount of
the credit allowed under this subsection.’’.
(c) HIGH RISK POOLS PERMITTED TO COVER SPOUSES
AND
DEPENDENTS OF HIGH RISK INDIVIDUALS.—Paragraph (26) of section
501(c) is amended by adding at the end the following flush sentence:
‘‘A spouse and any qualifying child (as defined in section 24(c))
of an individual described in subparagraph (B) (without regard
to this sentence) shall be treated as described in subparagraph
(B).’’.
(d) CONFORMING AMENDMENTS.—
(1) Section 1324(b)(2) of title 31, United States Code, is
amended by inserting before the period at the end ‘‘, or enacted
by the Taxpayer Relief Act of 1997’’.
(2) Paragraph (2) of section 6213(g) (relating to the defini-
tion of mathematical or clerical errors) is amended by striking
‘‘and’’ at the end of subparagraph (G), by striking the period
at the end of subparagraph (H) and inserting ‘‘, and’’, and
by inserting after subparagraph (H) the following new subpara-
graph:
‘‘(I) an omission of a correct TIN required under section
24(e) (relating to child tax credit) to be included on a
return.’’.
(3) The table of sections for subpart A of part IV of sub-
chapter A of chapter 1 is amended by inserting after the item
relating to section 23 the following new item:
‘‘Sec. 24. Child tax credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
TITLE II—EDUCATION INCENTIVES
Subtitle A—Tax Benefits Relating to
Education Expenses
SEC. 201. HOPE AND LIFETIME LEARNING CREDITS.
(a) IN GENERAL.—Subpart A of part IV of subchapter A of
chapter 1 (relating to nonrefundable personal credits) is amended
by inserting after section 25 the following new section:
‘‘SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year the amount equal to the sum of—
‘‘(1) the Hope Scholarship Credit, plus
‘‘(2) the Lifetime Learning Credit.
‘‘(b) HOPE SCHOLARSHIP CREDIT.—
‘‘(1) PER STUDENT CREDIT.—In the case of any eligible stu-
dent for whom an election is in effect under this section for
any taxable year, the Hope Scholarship Credit is an amount
equal to the sum of—
‘‘(A) 100 percent of so much of the qualified tuition
and related expenses paid by the taxpayer during the tax-
able year (for education furnished to the eligible student
H. R. 2014—13
during any academic period beginning in such taxable year)
as does not exceed $1,000, plus
‘‘(B) 50 percent of such expenses so paid as exceeds
$1,000 but does not exceed the applicable limit.
‘‘(2) LIMITATIONS
APPLICABLE
TO
HOPE
SCHOLARSHIP
CREDIT.—
‘‘(A) CREDIT ALLOWED ONLY FOR 2 TAXABLE YEARS.—
An election to have this section apply with respect to any
eligible student for purposes of the Hope Scholarship Credit
under subsection (a)(1) may not be made for any taxable
year if such an election (by the taxpayer or any other
individual) is in effect with respect to such student for
any 2 prior taxable years.
‘‘(B) CREDIT ALLOWED FOR YEAR ONLY IF INDIVIDUAL
IS
AT
LEAST
1⁄2
TIME
STUDENT
FOR
PORTION
OF
YEAR.—
The Hope Scholarship Credit under subsection (a)(1) shall
not be allowed for a taxable year with respect to the quali-
fied tuition and related expenses of an individual unless
such individual is an eligible student for at least one aca-
demic period which begins during such year.
‘‘(C) CREDIT ALLOWED ONLY FOR FIRST 2 YEARS OF POST-
SECONDARY
EDUCATION.—The Hope Scholarship Credit
under subsection (a)(1) shall not be allowed for a taxable
year with respect to the qualified tuition and related
expenses of an eligible student if the student has completed
(before the beginning of such taxable year) the first 2
years of postsecondary education at an eligible educational
institution.
‘‘(D) DENIAL OF CREDIT IF STUDENT CONVICTED OF A
FELONY
DRUG
OFFENSE.—The Hope Scholarship Credit
under subsection (a)(1) shall not be allowed for qualified
tuition and related expenses for the enrollment or attend-
ance of a student for any academic period if such student
has been convicted of a Federal or State felony offense
consisting of the possession or distribution of a controlled
substance before the end of the taxable year with or within
which such period ends.
‘‘(3) ELIGIBLE STUDENT.—For purposes of this subsection,
the term ‘eligible student’ means, with respect to any academic
period, a student who—
‘‘(A) meets the requirements of section 484(a)(1) of
the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)),
as in effect on the date of the enactment of this section,
and
‘‘(B) is carrying at least 1⁄2 the normal full-time work
load for the course of study the student is pursuing.
‘‘(4) APPLICABLE LIMIT.—For purposes of paragraph (1)(B),
the applicable limit for any taxable year is an amount equal
to 2 times the dollar amount in effect under paragraph (1)(A)
for such taxable year.
‘‘(c) LIFETIME LEARNING CREDIT.—
‘‘(1) PER TAXPAYER CREDIT.—The Lifetime Learning Credit
for any taxpayer for any taxable year is an amount equal
to 20 percent of so much of the qualified tuition and related
expenses paid by the taxpayer during the taxable year (for
education furnished during any academic period beginning in
H. R. 2014—14
such taxable year) as does not exceed $10,000 ($5,000 in the
case of taxable years beginning before January 1, 2003).
‘‘(2) SPECIAL RULES FOR DETERMINING EXPENSES.—
‘‘(A) COORDINATION
WITH
HOPE
SCHOLARSHIP.—The
qualified tuition and related expenses with respect to an
individual who is an eligible student for whom a Hope
Scholarship Credit under subsection (a)(1) is allowed for
the taxable year shall not be taken into account under
this subsection.
‘‘(B) EXPENSES
ELIGIBLE
FOR
LIFETIME
LEARNING
CREDIT.—For purposes of paragraph (1), qualified tuition
and related expenses shall include expenses described in
subsection (f)(1) with respect to any course of instruction
at an eligible educational institution to acquire or improve
job skills of the individual.
‘‘(d) LIMITATION
BASED
ON
MODIFIED
ADJUSTED
GROSS
INCOME.—
‘‘(1) IN GENERAL.—The amount which would (but for this
subsection) be taken into account under subsection (a) for the
taxable year shall be reduced (but not below zero) by the
amount determined under paragraph (2).
‘‘(2) AMOUNT
OF
REDUCTION.—The amount determined
under this paragraph is the amount which bears the same
ratio to the amount which would be so taken into account
as—
‘‘(A) the excess of—
‘‘(i) the taxpayer’s modified adjusted gross income
for such taxable year, over
‘‘(ii) $40,000 ($80,000 in the case of a joint return),
bears to
‘‘(B) $10,000 ($20,000 in the case of a joint return).
‘‘(3) MODIFIED ADJUSTED GROSS INCOME.—The term ‘modi-
fied adjusted gross income’ means the adjusted gross income
of the taxpayer for the taxable year increased by any amount
excluded from gross income under section 911, 931, or 933.
‘‘(e) ELECTION TO HAVE SECTION APPLY.—
‘‘(1) IN GENERAL.—No credit shall be allowed under sub-
section (a) for a taxable year with respect to the qualified
tuition and related expenses of an individual unless the tax-
payer elects to have this section apply with respect to such
individual for such year.
‘‘(2) COORDINATION WITH EXCLUSIONS.—An election under
this subsection shall not take effect with respect to an individ-
ual for any taxable year if any portion of any distribution
during such taxable year from an education individual retire-
ment account is excluded from gross income under section
530(d)(2).
‘‘(f) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED TUITION AND RELATED EXPENSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified tuition and
related expenses’ means tuition and fees required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) any dependent of the taxpayer with respect
to whom the taxpayer is allowed a deduction under
section 151,
H. R. 2014—15
at an eligible educational institution for courses of instruc-
tion of such individual at such institution.
‘‘(B) EXCEPTION
FOR
EDUCATION
INVOLVING
SPORTS,
ETC.—Such term does not include expenses with respect
to any course or other education involving sports, games,
or hobbies, unless such course or other education is part
of the individual’s degree program.
‘‘(C) EXCEPTION FOR NONACADEMIC FEES.—Such term
does not include student activity fees, athletic fees, insur-
ance expenses, or other expenses unrelated to an individ-
ual’s academic course of instruction.
‘‘(2) 
ELIGIBLE
EDUCATIONAL
INSTITUTION.—The 
term
‘eligible educational institution’ means an institution—
‘‘(A) which is described in section 481 of the Higher
Education Act of 1965 (20 U.S.C. 1088), as in effect on
the date of the enactment of this section, and
‘‘(B) which is eligible to participate in a program under
title IV of such Act.
‘‘(g) SPECIAL RULES.—
‘‘(1) IDENTIFICATION
REQUIREMENT.—No credit shall be
allowed under subsection (a) to a taxpayer with respect to
the qualified tuition and related expenses of an individual
unless the taxpayer includes the name and taxpayer identifica-
tion number of such individual on the return of tax for the
taxable year.
‘‘(2) ADJUSTMENT FOR CERTAIN SCHOLARSHIPS, ETC.—The
amount of qualified tuition and related expenses otherwise
taken into account under subsection (a) with respect to an
individual for an academic period shall be reduced (before the
application of subsections (b), (c), and (d)) by the sum of any
amounts paid for the benefit of such individual which are
allocable to such period as—
‘‘(A) a qualified scholarship which is excludable from
gross income under section 117,
‘‘(B) an educational assistance allowance under chapter
30, 31, 32, 34, or 35 of title 38, United States Code, or
under chapter 1606 of title 10, United States Code, and
‘‘(C) a payment (other than a gift, bequest, devise,
or inheritance within the meaning of section 102(a)) for
such individual’s educational expenses, or attributable to
such individual’s enrollment at an eligible educational
institution, which is excludable from gross income under
any law of the United States.
‘‘(3) TREATMENT OF EXPENSES PAID BY DEPENDENT.—If a
deduction under section 151 with respect to an individual is
allowed to another taxpayer for a taxable year beginning in
the calendar year in which such individual’s taxable year
begins—
‘‘(A) no credit shall be allowed under subsection (a)
to such individual for such individual’s taxable year, and
‘‘(B) qualified tuition and related expenses paid by
such individual during such individual’s taxable year shall
be treated for purposes of this section as paid by such
other taxpayer.
‘‘(4) TREATMENT
OF
CERTAIN
PREPAYMENTS.—If qualified
tuition and related expenses are paid by the taxpayer during
a taxable year for an academic period which begins during
H. R. 2014—16
the first 3 months following such taxable year, such academic
period shall be treated for purposes of this section as beginning
during such taxable year.
‘‘(5) DENIAL
OF
DOUBLE
BENEFIT.—No credit shall be
allowed under this section for any expense for which a deduction
is allowed under any other provision of this chapter.
‘‘(6) NO CREDIT FOR MARRIED INDIVIDUALS FILING SEPARATE
RETURNS.—If the taxpayer is a married individual (within the
meaning of section 7703), this section shall apply only if the
taxpayer and the taxpayer’s spouse file a joint return for the
taxable year.
‘‘(7) NONRESIDENT ALIENS.—If the taxpayer is a nonresident
alien individual for any portion of the taxable year, this section
shall apply only if such individual is treated as a resident
alien of the United States for purposes of this chapter by
reason of an election under subsection (g) or (h) of section
6013.
‘‘(h) INFLATION ADJUSTMENTS.—
‘‘(1) DOLLAR LIMITATION ON AMOUNT OF CREDIT.—
‘‘(A) IN GENERAL.—In the case of a taxable year begin-
ning after 2001, each of the $1,000 amounts under sub-
section (b)(1) shall be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
‘calendar year 2000’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
‘‘(B) ROUNDING.—If any amount as adjusted under
subparagraph (A) is not a multiple of $100, such amount
shall be rounded to the next lowest multiple of $100.
‘‘(2) INCOME LIMITS.—
‘‘(A) IN GENERAL.—In the case of a taxable year begin-
ning after 2001, the $40,000 and $80,000 amounts in sub-
section (d)(2) shall each be increased by an amount equal
to—
‘‘(i) such dollar amount, multiplied by
‘‘(ii) the cost-of-living adjustment determined
under section 1(f)(3) for the calendar year in which
the taxable year begins, determined by substituting
‘calendar year 2000’ for ‘calendar year 1992’ in
subparagraph (B) thereof.
‘‘(B) ROUNDING.—If any amount as adjusted under
subparagraph (A) is not a multiple of $1,000, such amount
shall be rounded to the next lowest multiple of $1,000.
‘‘(i) REGULATIONS.—The Secretary may prescribe such regula-
tions as may be necessary or appropriate to carry out this section,
including regulations providing for a recapture of the credit allowed
under this section in cases where there is a refund in a subsequent
taxable year of any amount which was taken into account in deter-
mining the amount of such credit.’’.
(b) EXTENSION OF PROCEDURES APPLICABLE TO MATHEMATICAL
OR CLERICAL ERRORS.—Paragraph (2) of section 6213(g) (relating
to the definition of mathematical or clerical errors), as amended
by section 101, is amended by striking ‘‘and’’ at the end of subpara-
graph (H), by striking the period at the end of subparagraph (I)
H. R. 2014—17
and inserting ‘‘, and’’, and by inserting after subparagraph (I) the
following new subparagraph:
‘‘(J) an omission of a correct TIN required under section
25A(g)(1) (relating to higher education tuition and related
expenses) to be included on a return.’’.
(c) RETURNS RELATING TO TUITION AND RELATED EXPENSES.—
(1) IN GENERAL.—Subpart B of part III of subchapter A
of chapter 61 (relating to information concerning transactions
with other persons) is amended by inserting after section 6050R
the following new section:
‘‘SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION
AND RELATED EXPENSES.
‘‘(a) IN GENERAL.—Any person—
‘‘(1) which is an eligible educational institution which
receives payments for qualified tuition and related expenses
with respect to any individual for any calendar year, or
‘‘(2) which is engaged in a trade or business and which,
in the course of such trade or business, makes payments during
any calendar year to any individual which constitute reimburse-
ments or refunds (or similar amounts) of qualified tuition and
related expenses of such individual,
shall make the return described in subsection (b) with respect
to the individual at such time as the Secretary may by regulations
prescribe.
‘‘(b) FORM AND MANNER OF RETURNS.—A return is described
in this subsection if such return—
‘‘(1) is in such form as the Secretary may prescribe,
‘‘(2) contains—
‘‘(A) the name, address, and TIN of the individual
with respect to whom payments described in subsection
(a) were received from (or were paid to),
‘‘(B) the name, address, and TIN of any individual
certified by the individual described in subparagraph (A)
as the taxpayer who will claim the individual as a depend-
ent for purposes of the deduction allowable under section
151 for any taxable year ending with or within the calendar
year, and
‘‘(C) the—
‘‘(i) aggregate amount of payments for qualified
tuition and related expenses received with respect to
the individual described in subparagraph (A) during
the calendar year, and
‘‘(ii) aggregate amount of reimbursements or
refunds (or similar amounts) paid to such individual
during the calendar year, and
‘‘(D) such other information as the Secretary may pre-
scribe.
‘‘(c) APPLICATION TO GOVERNMENTAL UNITS.—For purposes of
this section—
‘‘(1) a governmental unit or any agency or instrumentality
thereof shall be treated as a person, and
‘‘(2) any return required under subsection (a) by such
governmental entity shall be made by the officer or employee
appropriately designated for the purpose of making such return.
‘‘(d) STATEMENTS TO BE FURNISHED
TO INDIVIDUALS WITH
RESPECT
TO WHOM INFORMATION IS REQUIRED.—Every person
H. R. 2014—18
required to make a return under subsection (a) shall furnish to
each individual whose name is required to be set forth in such
return under subparagraph (A) or (B) of subsection (b)(2) a written
statement showing—
‘‘(1) the name, address, and phone number of the informa-
tion contact of the person required to make such return, and
‘‘(2) the aggregate amounts described in subparagraph (C)
of subsection (b)(2).
The written statement required under the preceding sentence shall
be furnished on or before January 31 of the year following the
calendar year for which the return under subsection (a) was
required to be made.
‘‘(e) DEFINITIONS.—For purposes of this section, the terms
‘eligible educational institution’ and ‘qualified tuition and related
expenses’ have the meanings given such terms by section 25A.
‘‘(f) RETURNS WHICH WOULD BE REQUIRED TO BE MADE BY
2 OR MORE PERSONS.—Except to the extent provided in regulations
prescribed by the Secretary, in the case of any amount received
by any person on behalf of another person, only the person first
receiving such amount shall be required to make the return under
subsection (a).
‘‘(g) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the provisions of this section.
No penalties shall be imposed under part II of subchapter B of
chapter 68 with respect to any return or statement required under
this section until such time as such regulations are issued.’’.
(2) ASSESSABLE PENALTIES.—
(A) Subparagraph (B) of section 6724(d)(1) (relating
to definitions) is amended by redesignating clauses (ix)
through (xiv) as clauses (x) through (xv), respectively, and
by inserting after clause (viii) the following new clause:
‘‘(ix) section 6050S (relating to returns relating
to 
payments 
for 
qualified 
tuition 
and 
related
expenses),’’.
(B) Paragraph (2) of section 6724(d) is amended by
striking ‘‘or’’ at the end of the next to last subparagraph,
by striking the period at the end of the last subparagraph
and inserting ‘‘, or’’, and by adding at the end the following
new subparagraph:
‘‘(Z) section 6050S(d) (relating to returns relating to
qualified tuition and related expenses).’’.
(3) CLERICAL AMENDMENT.—The table of sections for sub-
part B of part III of subchapter A of chapter 61 is amended
by inserting after the item relating to section 6050R the follow-
ing new item:
‘‘Sec. 6050S. Returns relating to higher education tuition and related ex-
penses.’’.
(d) COORDINATION WITH SECTION 135.—Subsection (d) of section
135 is amended by redesignating paragraphs (2) and (3) as para-
graphs (3) and (4), respectively, and by inserting after paragraph
(1) the following new paragraph:
‘‘(2) COORDINATION WITH HIGHER EDUCATION CREDIT.—The
amount of the qualified higher education expenses otherwise
taken into account under subsection (a) with respect to the
education of an individual shall be reduced (before the applica-
tion of subsection (b)) by the amount of such expenses which
are taken into account in determining the credit allowable
H. R. 2014—19
to the taxpayer or any other person under section 25A with
respect to such expenses.’’.
(e) CLERICAL AMENDMENT.—The table of sections for subpart
A of part IV of subchapter A of chapter 1 is amended by inserting
after the item relating to section 25 the following new item:
‘‘Sec. 25A. Higher education tuition and related expenses.’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by this section
shall apply to expenses paid after December 31, 1997 (in taxable
years ending after such date), for education furnished in aca-
demic periods beginning after such date.
(2) LIFETIME LEARNING CREDIT.—Section 25A(a)(2) of the
Internal Revenue Code of 1986 shall apply to expenses paid
after June 30, 1998 (in taxable years ending after such date),
for education furnished in academic periods beginning after
such dates.
SEC. 202. DEDUCTION FOR INTEREST ON EDUCATION LOANS.
(a) IN GENERAL.—Part VII of subchapter B of chapter 1 (relating
to additional itemized deductions for individuals) is amended by
redesignating section 221 as section 222 and by inserting after
section 220 the following new section:
‘‘SEC. 221. INTEREST ON EDUCATION LOANS.
‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an individual,
there shall be allowed as a deduction for the taxable year an
amount equal to the interest paid by the taxpayer during the
taxable year on any qualified education loan.
‘‘(b) MAXIMUM DEDUCTION.—
‘‘(1) IN GENERAL.—Except as provided in paragraph (2),
the deduction allowed by subsection (a) for the taxable year
shall not exceed the amount determined in accordance with
the following table:
‘‘In the case of taxable years
The dollar
beginning in:
amount is:
1998 .......................................................................................
$1,000
1999 .......................................................................................
$1,500
2000 .......................................................................................
$2,000
2001 or thereafter ................................................................
$2,500.
‘‘(2) LIMITATION
BASED
ON
MODIFIED
ADJUSTED
GROSS
INCOME.—
‘‘(A) IN GENERAL.—The amount which would (but for
this paragraph) be allowable as a deduction under this
section shall be reduced (but not below zero) by the amount
determined under subparagraph (B).
‘‘(B) AMOUNT OF REDUCTION.—The amount determined
under this subparagraph is the amount which bears the
same ratio to the amount which would be so taken into
account as—
‘‘(i) the excess of—
‘‘(I) the taxpayer’s modified adjusted gross
income for such taxable year, over
‘‘(II) $40,000 ($60,000 in the case of a joint
return), bears to
‘‘(ii) $15,000.
H. R. 2014—20
‘‘(C) MODIFIED
ADJUSTED
GROSS
INCOME.—The term
‘modified adjusted gross income’ means adjusted gross
income determined—
‘‘(i) without regard to this section and sections
135, 137, 911, 931, and 933, and
‘‘(ii) after application of sections 86, 219, and 469.
For purposes of sections 86, 135, 137, 219, and 469,
adjusted gross income shall be determined without regard
to the deduction allowed under this section.
‘‘(c) DEPENDENTS NOT ELIGIBLE FOR DEDUCTION.—No deduction
shall be allowed by this section to an individual for the taxable
year if a deduction under section 151 with respect to such individual
is allowed to another taxpayer for the taxable year beginning in
the calendar year in which such individual’s taxable year begins.
‘‘(d) LIMIT ON PERIOD DEDUCTION ALLOWED.—A deduction shall
be allowed under this section only with respect to interest paid
on any qualified education loan during the first 60 months (whether
or not consecutive) in which interest payments are required. For
purposes of this paragraph, any loan and all refinancings of such
loan shall be treated as 1 loan.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED EDUCATION LOAN.—The term ‘qualified edu-
cation loan’ means any indebtedness incurred to pay qualified
higher education expenses—
‘‘(A) which are incurred on behalf of the taxpayer,
the taxpayer’s spouse, or any dependent of the taxpayer
as of the time the indebtedness was incurred,
‘‘(B) which are paid or incurred within a reasonable
period of time before or after the indebtedness is incurred,
and
‘‘(C) which are attributable to education furnished dur-
ing a period during which the recipient was an eligible
student.
Such term includes indebtedness used to refinance indebtedness
which qualifies as a qualified education loan. The term ‘quali-
fied education loan’ shall not include any indebtedness owed
to a person who is related (within the meaning of section
267(b) or 707(b)(1)) to the taxpayer.
‘‘(2) QUALIFIED HIGHER EDUCATION EXPENSES.—The term
‘qualified higher education expenses’ means the cost of attend-
ance (as defined in section 472 of the Higher Education Act
of 1965, 20 U.S.C. 1087ll, as in effect on the day before the
date of the enactment of this Act) at an eligible educational
institution, reduced by the sum of—
‘‘(A) the amount excluded from gross income under
section 127, 135, or 530 by reason of such expenses, and
‘‘(B) the amount of any scholarship, allowance, or pay-
ment described in section 25A(g)(2).
For purposes of the preceding sentence, the term ‘eligible edu-
cational institution’ has the same meaning given such term
by section 25A(f)(2), except that such term shall also include
an institution conducting an internship or residency program
leading to a degree or certificate awarded by an institution
of higher education, a hospital, or a health care facility which
offers postgraduate training.
‘‘(3) ELIGIBLE STUDENT.—The term ‘eligible student’ has
the meaning given such term by section 25A(b)(3).
H. R. 2014—21
‘‘(4) DEPENDENT.—The term ‘dependent’ has the meaning
given such term by section 152.
‘‘(f) SPECIAL RULES.—
‘‘(1) DENIAL OF DOUBLE BENEFIT.—No deduction shall be
allowed under this section for any amount for which a deduction
is allowable under any other provision of this chapter.
‘‘(2) MARRIED COUPLES MUST FILE JOINT RETURN.—If the
taxpayer is married at the close of the taxable year, the deduc-
tion shall be allowed under subsection (a) only if the taxpayer
and the taxpayer’s spouse file a joint return for the taxable
year.
‘‘(3) MARITAL STATUS.—Marital status shall be determined
in accordance with section 7703.
‘‘(g) INFLATION ADJUSTMENTS.—
‘‘(1) IN GENERAL.—In the case of a taxable year beginning
after 2002, the $40,000 and $60,000 amounts in subsection
(b)(2) shall each be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting ‘calendar year
2001’ for ‘calendar year 1992’ in subparagraph (B) thereof.
‘‘(2) ROUNDING.—If any amount as adjusted under para-
graph (1) is not a multiple of $5,000, such amount shall be
rounded to the next lowest multiple of $5,000.’’.
(b) DEDUCTION ALLOWED WHETHER OR NOT TAXPAYER ITEMIZES
OTHER DEDUCTIONS.—Subsection (a) of section 62 is amended by
inserting after paragraph (16) the following new paragraph:
‘‘(17) INTEREST
ON
EDUCATION
LOANS.—The deduction
allowed by section 221.’’.
(c) REPORTING REQUIREMENT.—
(1) IN GENERAL.—Section 6050S(a)(2) (relating to returns
relating to higher education tuition and related expenses) is
amended to read as follows:
‘‘(2) which is engaged in a trade or business and which,
in the course of such trade or business—
‘‘(A) makes payments during any calendar year to any
individual which constitutes reimbursements or refunds
(or similar amounts) of qualified tuition and related
expenses of such individual, or
‘‘(B) except as provided in regulations, receives from
any individual interest aggregating $600 or more for any
calendar year on 1 or more qualified education loans,’’.
(2) INFORMATION.—Section 6050S(b)(2) is amended—
(A) by inserting ‘‘or interest’’ after ‘‘payments’’ in
subparagraph (A), and
(B) in subparagraph (C), by striking ‘‘and’’ at the end
of clause (i), by inserting ‘‘and’’ at the end of clause (ii),
and by inserting after clause (ii) the following:
‘‘(iii) aggregate amount of interest received for the
calendar year from such individual,’’.
(3) DEFINITION.—Section 6050S(e) is amended by inserting
‘‘, and except as provided in regulations, the term ‘qualified
education loan’ has the meaning given such term by section
221(e)(1)’’ after ‘‘section 25A’’.
H. R. 2014—22
(d) CLERICAL AMENDMENT.—The table of sections for part VII
of subchapter B of chapter 1 is amended by striking the last
item and inserting the following new items:
‘‘Sec. 221. Interest on education loans.
‘‘Sec. 222. Cross reference.’’.
(e) EFFECTIVE DATE.—The amendments made by this section
shall apply to any qualified education loan (as defined in section
221(e)(1) of the Internal Revenue Code of 1986, as added by this
section) incurred on, before, or after the date of the enactment
of this Act, but only with respect to—
(1) any loan interest payment due and paid after December
31, 1997, and
(2) the portion of the 60-month period referred to in section
221(d) of the Internal Revenue Code of 1986 (as added by
this section) after December 31, 1997.
SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIRE-
MENT PLANS FOR HIGHER EDUCATION EXPENSES.
(a) IN GENERAL.—Paragraph (2) of section 72(t) (relating to
exceptions to 10-percent additional tax on early distributions from
qualified retirement plans) is amended by adding at the end the
following new subparagraph:
‘‘(E) DISTRIBUTIONS
FROM
INDIVIDUAL
RETIREMENT
PLANS FOR HIGHER EDUCATION EXPENSES.—Distributions to
an individual from an individual retirement plan to the
extent such distributions do not exceed the qualified higher
education expenses (as defined in paragraph (7)) of the
taxpayer for the taxable year. Distributions shall not be
taken into account under the preceding sentence if such
distributions are described in subparagraph (A), (C), or
(D) or to the extent paragraph (1) does not apply to such
distributions by reason of subparagraph (B).’’.
(b) DEFINITION.—Section 72(t) is amended by adding at the
end the following new paragraph:
‘‘(7) QUALIFIED
HIGHER
EDUCATION
EXPENSES.—For pur-
poses of paragraph (2)(E)—
‘‘(A) IN GENERAL.—The term ‘qualified higher education
expenses’ means qualified higher education expenses (as
defined in section 529(e)(3)) for education furnished to—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) any child (as defined in section 151(c)(3))
or grandchild of the taxpayer or the taxpayer’s spouse,
at an eligible educational institution (as defined in section
529(e)(5)).
‘‘(B) 
COORDINATION
WITH
OTHER
BENEFITS.—The
amount of qualified higher education expenses for any tax-
able year shall be reduced as provided in section 25A(g)(2).’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to distributions after December 31, 1997, with respect
to expenses paid after such date (in taxable years ending after
such date), for education furnished in academic periods beginning
after such date.
H. R. 2014—23
Subtitle B—Expanded Education
Investment Savings Opportunities
PART I—QUALIFIED TUITION PROGRAMS
SEC. 211. MODIFICATIONS OF QUALIFIED STATE TUITION PROGRAMS.
(a) QUALIFIED HIGHER EDUCATION EXPENSES TO INCLUDE ROOM
AND BOARD.—Paragraph (3) of section 529(e) (defining qualified
higher education expenses) is amended to read as follows:
‘‘(3) QUALIFIED HIGHER EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified higher education
expenses’ means tuition, fees, books, supplies, and equip-
ment required for the enrollment or attendance of a des-
ignated beneficiary at an eligible educational institution.
‘‘(B) ROOM AND BOARD INCLUDED FOR STUDENTS UNDER
GUARANTEED PLANS WHO ARE AT LEAST HALF-TIME.—
‘‘(i) IN GENERAL.—In the case of an individual who
is an eligible student (as defined in section 25A(b)(3))
for any academic period, such term shall also include
reasonable costs for such period (as determined under
the qualified State tuition program) incurred by the
designated beneficiary for room and board while
attending such institution. For purposes of subsection
(b)(7), a designated beneficiary shall be treated as
meeting the requirements of this clause.
‘‘(ii) LIMITATION.—The amount treated as qualified
higher education expenses by reason of the preceding
sentence shall not exceed the minimum amount
(applicable to the student) included for room and board
for such period in the cost of attendance (as defined
in section 472 of the Higher Education Act of 1965,
20 U.S.C. 1087ll, as in effect on the date of the enact-
ment of this paragraph) for the eligible educational
institution for such period.’’.
(b) ADDITIONAL MODIFICATIONS.—
(1) MEMBER OF FAMILY.—Paragraph (2) of section 529(e)
(relating to other definitions and special rules) is amended
to read as follows:
‘‘(2) MEMBER OF FAMILY.—The term ‘member of the family’
means—
‘‘(A) an individual who bears a relationship to another
individual which is a relationship described in paragraphs
(1) through (8) of section 152(a), and
‘‘(B) the spouse of any individual described in subpara-
graph (A).’’.
(2) ELIGIBLE EDUCATIONAL INSTITUTION.—Section 529(e) is
amended by adding at the end the following:
‘‘(5) 
ELIGIBLE
EDUCATIONAL
INSTITUTION.—The 
term
‘eligible educational institution’ means an institution—
‘‘(A) which is described in section 481 of the Higher
Education Act of 1965 (20 U.S.C. 1088), as in effect on
the date of the enactment of this paragraph, and
‘‘(B) which is eligible to participate in a program under
title IV of such Act.’’.
(3) ESTATE AND GIFT TAX TREATMENT.—
(A) GIFT TAX TREATMENT.—
H. R. 2014—24
(i) Paragraph (2) of section 529(c) is amended to
read as follows:
‘‘(2) GIFT TAX TREATMENT OF CONTRIBUTIONS.—For purposes
of chapters 12 and 13—
‘‘(A) IN GENERAL.—Any contribution to a qualified tui-
tion program on behalf of any designated beneficiary—
‘‘(i) shall be treated as a completed gift to such
beneficiary which is not a future interest in property,
and
‘‘(ii) shall not be treated as a qualified transfer
under section 2503(e).
‘‘(B) TREATMENT
OF
EXCESS
CONTRIBUTIONS.—If the
aggregate amount of contributions described in subpara-
graph (A) during the calendar year by a donor exceeds
the limitation for such year under section 2503(b), such
aggregate amount shall, at the election of the donor, be
taken into account for purposes of such section ratably
over the 5-year period beginning with such calendar year.’’.
(ii) Paragraph (5) of section 529(c) is amended
to read as follows:
‘‘(5) OTHER GIFT TAX RULES.—For purposes of chapters 12
and 13—
‘‘(A) TREATMENT
OF
DISTRIBUTIONS.—Except as pro-
vided in subparagraph (B), in no event shall a distribution
from a qualified tuition program be treated as a taxable
gift.
‘‘(B) TREATMENT
OF
DESIGNATION
OF
NEW
BENE-
FICIARY.—The taxes imposed by chapters 12 and 13 shall
apply to a transfer by reason of a change in the designated
beneficiary under the program (or a rollover to the account
of a new beneficiary) only if the new beneficiary is a genera-
tion below the generation of the old beneficiary (determined
in accordance with section 2651).’’.
(B) ESTATE TAX TREATMENT.—Paragraph (4) of section
529(c) is amended to read as follows:
‘‘(4) ESTATE TAX TREATMENT.—
‘‘(A) IN GENERAL.—No amount shall be includible in
the gross estate of any individual for purposes of chapter
11 by reason of an interest in a qualified tuition program.
‘‘(B) AMOUNTS INCLUDIBLE IN ESTATE OF DESIGNATED
BENEFICIARY IN CERTAIN CASES.—Subparagraph (A) shall
not apply to amounts distributed on account of the death
of a beneficiary.
‘‘(C) AMOUNTS INCLUDIBLE IN ESTATE OF DONOR MAKING
EXCESS CONTRIBUTIONS.—In the case of a donor who makes
the election described in paragraph (2)(B) and who dies
before the close of the 5-year period referred to in such
paragraph, notwithstanding subparagraph (A), the gross
estate of the donor shall include the portion of such con-
tributions properly allocable to periods after the date of
death of the donor.’’.
(4) PROHIBITION AGAINST INVESTMENT DIRECTION.—Section
529(b)(5) is amended by inserting ‘‘directly or indirectly’’ after
‘‘may not’’.
(c) COORDINATION WITH EDUCATION SAVINGS BOND.—Section
135(c)(2) (defining qualified higher education expenses) is amended
by adding at the end the following:
H. R. 2014—25
‘‘(C) CONTRIBUTIONS TO QUALIFIED STATE TUITION PRO-
GRAM.—Such term shall include any contribution to a quali-
fied State tuition program (as defined in section 529) on
behalf of a designated beneficiary (as defined in such sec-
tion) who is an individual described in subparagraph (A);
but there shall be no increase in the investment in the
contract for purposes of applying section 529(c)(3)(A) by
reason of any portion of such contribution which is not
includible in gross income by reason of this subparagraph.’’.
(d) CLARIFICATION OF TAXATION OF DISTRIBUTIONS.—Subpara-
graph (A) of section 529(c)(3) is amended by striking ‘‘section 72’’
and inserting ‘‘section 72(b)’’.
(e) TECHNICAL AMENDMENTS.—
(1)(A) The heading for part VIII of subchapter F of chapter
1 is amended to read as follows:
‘‘PART VIII—HIGHER EDUCATION SAVINGS
ENTITIES’’.
(B) The table of parts for subchapter F of chapter 1 is
amended by striking the item relating to part VIII and insert-
ing:
‘‘Part VIII. Higher education savings entities.’’.
(2)(A) Section 529(d) is amended to read as follows:
‘‘(d) REPORTS.—Each officer or employee having control of the
qualified State tuition program or their designee shall make such
reports regarding such program to the Secretary and to designated
beneficiaries with respect to contributions, distributions, and such
other matters as the Secretary may require. The reports required
by this subsection shall be filed at such time and in such manner
and furnished to such individuals at such time and in such manner
as may be required by the Secretary.’’.
(B) Paragraph (2) of section 6693(a) (relating to failure
to provide reports on individual retirement accounts or annu-
ities) is amended by striking ‘‘and’’ at the end of subparagraph
(A), by striking the period at the end of subparagraph (B)
and inserting ‘‘, and’’, and by adding at the end the following
new subparagraph:
‘‘(C) Section 529(d) (relating to qualified State tuition
programs).’’.
(C) The section heading for section 6693 is amended by
striking ‘‘INDIVIDUAL RETIREMENT’’ and inserting ‘‘CERTAIN TAX-
FAVORED’’.
(D) The item relating to section 6693 in the table of sections
for part I of subchapter B of chapter 68 is amended by striking
‘‘individual retirement’’ and inserting ‘‘certain tax-favored’’.
(f) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as otherwise provided in this sub-
section, the amendments made by this section shall take effect
on January 1, 1998.
(2) EXPENSES TO INCLUDE ROOM AND BOARD.—The amend-
ment made by subsection (a) shall take effect as if included
in the amendments made by section 1806 of the Small Business
Job Protection Act of 1996.
(3) ELIGIBLE EDUCATIONAL INSTITUTION.—The amendment
made by subsection (b)(2) shall apply to distributions after
H. R. 2014—26
December 31, 1997, with respect to expenses paid after such
date (in taxable years ending after such date), for education
furnished in academic periods beginning after such date.
(4) COORDINATION WITH EDUCATION SAVINGS BONDS.—The
amendment made by subsection (c) shall apply to taxable years
beginning after December 31, 1997.
(5) ESTATE AND GIFT TAX CHANGES.—
(A) GIFT TAX CHANGES.—Paragraphs (2) and (5) of sec-
tion 529(c) of the Internal Revenue Code of 1986, as amend-
ed by this section, shall apply to transfers (including des-
ignations of new beneficiaries) made after the date of the
enactment of this Act.
(B) ESTATE TAX CHANGES.—Paragraph (4) of such sec-
tion 529(c) shall apply to estates of decedents dying after
June 8, 1997.
(6) TRANSITION RULE FOR PRE-AUGUST 20, 1996 CONTRACTS.—
In the case of any contract issued prior to August 20, 1996,
section 529(c)(3)(C) of the Internal Revenue Code of 1986 shall
be applied for taxable years ending after August 20, 1996,
without regard to the requirement that a distribution be trans-
ferred to a member of the family or the requirement that
a change in beneficiaries may be made only to a member
of the family.
PART II—EDUCATION INDIVIDUAL
RETIREMENT ACCOUNTS
SEC. 213. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) IN GENERAL.—Part VIII of subchapter F of chapter 1 (relat-
ing to qualified State tuition programs) is amended by adding
at the end the following new section:
‘‘SEC. 530. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
‘‘(a) GENERAL
RULE.—An education individual retirement
account shall be exempt from taxation under this subtitle. Notwith-
standing the preceding sentence, the education individual retire-
ment account shall be subject to the taxes imposed by section
511 (relating to imposition of tax on unrelated business income
of charitable organizations).
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) EDUCATION
INDIVIDUAL
RETIREMENT
ACCOUNT.—The
term ‘education individual retirement account’ means a trust
created or organized in the United States exclusively for the
purpose of paying the qualified higher education expenses of
the designated beneficiary of the trust (and designated as an
education individual retirement account at the time created
or organized), but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) No contribution will be accepted—
‘‘(i) unless it is in cash,
‘‘(ii) after the date on which such beneficiary
attains age 18, or
‘‘(iii) except in the case of rollover contributions,
if such contribution would result in aggregate contribu-
tions for the taxable year exceeding $500.
H. R. 2014—27
‘‘(B) The trustee is a bank (as defined in section 408(n))
or another person who demonstrates to the satisfaction
of the Secretary that the manner in which that person
will administer the trust will be consistent with the require-
ments of this section or who has so demonstrated with
respect to any individual retirement plan.
‘‘(C) No part of the trust assets will be invested in
life insurance contracts.
‘‘(D) The assets of the trust shall not be commingled
with other property except in a common trust fund or
common investment fund.
‘‘(E) Upon the death of the designated beneficiary, any
balance to the credit of the beneficiary shall be distributed
within 30 days after the date of death to the estate of
such beneficiary.
‘‘(2) QUALIFIED HIGHER EDUCATION EXPENSES.—
‘‘(A) IN GENERAL.—The term ‘qualified higher education
expenses’ has the meaning given such term by section
529(e)(3), reduced as provided in section 25A(g)(2).
‘‘(B) QUALIFIED STATE TUITION PROGRAMS.—Such term
shall include amounts paid or incurred to purchase tuition
credits or certificates, or to make contributions to an
account, under a qualified State tuition program (as defined
in section 529(b)) for the benefit of the beneficiary of the
account.
‘‘(3) 
ELIGIBLE
EDUCATIONAL
INSTITUTION.—The 
term
‘eligible educational institution’ has the meaning given such
term by section 529(e)(5).
‘‘(c) REDUCTION
IN
PERMITTED
CONTRIBUTIONS
BASED
ON
ADJUSTED GROSS INCOME.—
‘‘(1) IN GENERAL.—The maximum amount which a contribu-
tor could otherwise make to an account under this section
shall be reduced by an amount which bears the same ratio
to such maximum amount as—
‘‘(A) the excess of—
‘‘(i) the contributor’s modified adjusted gross
income for such taxable year, over
‘‘(ii) $95,000 ($150,000 in the case of a joint return),
bears to
‘‘(B) $15,000 ($10,000 in the case of a joint return).
‘‘(2) MODIFIED ADJUSTED GROSS INCOME.—For purposes of
paragraph (1), the term ‘modified adjusted gross income’ means
the adjusted gross income of the taxpayer for the taxable year
increased by any amount excluded from gross income under
section 911, 931, or 933.
‘‘(d) TAX TREATMENT OF DISTRIBUTIONS.—
‘‘(1) IN GENERAL.—Any distribution shall be includible in
the gross income of the distributee in the manner as provided
in section 72(b).
‘‘(2) DISTRIBUTIONS
FOR
QUALIFIED
HIGHER
EDUCATION
EXPENSES.—
‘‘(A) IN GENERAL.—No amount shall be includible in
gross income under paragraph (1) if the qualified higher
education expenses of the designated beneficiary during
the taxable year are not less than the aggregate distribu-
tions during the taxable year.
H. R. 2014—28
‘‘(B) DISTRIBUTIONS IN EXCESS OF EXPENSES.—If such
aggregate distributions exceed such expenses during the
taxable year, the amount otherwise includible in gross
income under paragraph (1) shall be reduced by the amount
which bears the same ratio to the amount which would
be includible in gross income under paragraph (1) (without
regard to this subparagraph) as the qualified higher edu-
cation expenses bear to such aggregate distributions.
‘‘(C) ELECTION TO WAIVE EXCLUSION.—A taxpayer may
elect to waive the application of this paragraph for any
taxable year.
‘‘(3) SPECIAL RULES FOR APPLYING ESTATE AND GIFT TAXES
WITH RESPECT TO ACCOUNT.—Rules similar to the rules of para-
graphs (2), (4), and (5) of section 529(c) shall apply for purposes
of this section.
‘‘(4) ADDITIONAL
TAX
FOR
DISTRIBUTIONS
NOT
USED
FOR
EDUCATIONAL EXPENSES.—
‘‘(A) IN GENERAL.—The tax imposed by this chapter
for any taxable year on any taxpayer who receives a pay-
ment or distribution from an education individual retire-
ment account which is includible in gross income shall
be increased by 10 percent of the amount which is so
includible.
‘‘(B) EXCEPTIONS.—Subparagraph (A) shall not apply
if the payment or distribution is—
‘‘(i) made to a beneficiary (or to the estate of the
designated beneficiary) on or after the death of the
designated beneficiary,
‘‘(ii) attributable to the designated beneficiary’s
being disabled (within the meaning of section 72(m)(7)),
or
‘‘(iii) made on account of a scholarship, allowance,
or payment described in section 25A(g)(2) received by
the account holder to the extent the amount of the
payment or distribution does not exceed the amount
of the scholarship, allowance, or payment.
‘‘(C) EXCESS
CONTRIBUTIONS
RETURNED
BEFORE
DUE
DATE OF RETURN.—Subparagraph (A) shall not apply to
the distribution of any contribution made during a taxable
year on behalf of a designated beneficiary to the extent
that such contribution exceeds $500 if—
‘‘(i) such distribution is received on or before the
day prescribed by law (including extensions of time)
for filing such contributor’s return for such taxable
year, and
‘‘(ii) such distribution is accompanied by the
amount of net income attributable to such excess con-
tribution.
Any net income described in clause (ii) shall be included
in gross income for the taxable year in which such excess
contribution was made.
‘‘(5) ROLLOVER CONTRIBUTIONS.—Paragraph (1) shall not
apply to any amount paid or distributed from an education
individual retirement account to the extent that the amount
received is paid into another education individual retirement
account for the benefit of the same beneficiary or a member
of the family (within the meaning of section 529(e)(2)) of such
H. R. 2014—29
beneficiary not later than the 60th day after the date of such
payment or distribution. The preceding sentence shall not apply
to any payment or distribution if it applied to any prior payment
or distribution during the 12-month period ending on the date
of the payment or distribution.
‘‘(6) CHANGE IN BENEFICIARY.—Any change in the bene-
ficiary of an education individual retirement account shall not
be treated as a distribution for purposes of paragraph (1) if
the new beneficiary is a member of the family (as so defined)
of the old beneficiary.
‘‘(7) SPECIAL RULES FOR DEATH AND DIVORCE.—Rules similar
to the rules of paragraphs (7) and (8) of section 220(f) shall
apply.
‘‘(e) TAX TREATMENT OF ACCOUNTS.—Rules similar to the rules
of paragraphs (2) and (4) of section 408(e) shall apply to any
education individual retirement account.
‘‘(f) COMMUNITY PROPERTY LAWS.—This section shall be applied
without regard to any community property laws.
‘‘(g) CUSTODIAL ACCOUNTS.—For purposes of this section, a
custodial account shall be treated as a trust if the assets of such
account are held by a bank (as defined in section 408(n)) or another
person who demonstrates, to the satisfaction of the Secretary, that
the manner in which he will administer the account will be consist-
ent with the requirements of this section, and if the custodial
account would, except for the fact that it is not a trust, constitute
an account described in subsection (b)(1). For purposes of this
title, in the case of a custodial account treated as a trust by
reason of the preceding sentence, the custodian of such account
shall be treated as the trustee thereof.
‘‘(h) REPORTS.—The trustee of an education individual retire-
ment account shall make such reports regarding such account to
the Secretary and to the beneficiary of the account with respect
to contributions, distributions, and such other matters as the Sec-
retary may require. The reports required by this subsection shall
be filed at such time and in such manner and furnished to such
individuals at such time and in such manner as may be required.’’.
(b) TAX ON PROHIBITED TRANSACTIONS.—
(1) IN GENERAL.—Paragraph (1) of section 4975(e) (relating
to prohibited transactions) is amended by striking ‘‘or’’ at the
end of subparagraph (D), by redesignating subparagraph (E)
as subparagraph (F), and by inserting after subparagraph (D)
the following new subparagraph:
‘‘(E) an education individual retirement account
described in section 530, or’’.
(2) SPECIAL RULE.—Subsection (c) of section 4975 is amend-
ed by adding at the end of subsection (c) the following new
paragraph:
‘‘(5) SPECIAL RULE FOR EDUCATION INDIVIDUAL RETIREMENT
ACCOUNTS.—An individual for whose benefit an education
individual retirement account is established and any contribu-
tor to such account shall be exempt from the tax imposed
by this section with respect to any transaction concerning such
account (which would otherwise be taxable under this section)
if section 530(d) applies with respect to such transaction.’’.
(c) FAILURE TO PROVIDE REPORTS ON EDUCATION INDIVIDUAL
RETIREMENT ACCOUNTS.—Paragraph (2) of section 6693(a) (relating
to failure to provide reports on individual retirement accounts or
H. R. 2014—30
annuities) is amended by striking ‘‘and’’ at the end of subparagraph
(B), by striking the period at the end of subparagraph (C) and
inserting ‘‘, and’’, and by adding at the end the following new
subparagraph:
‘‘(D) Section 530(h) (relating to education individual
retirement accounts).’’.
(d) TAX ON EXCESS CONTRIBUTIONS.—
(1) IN GENERAL.—Subsection (a) of section 4973 is amended
by striking ‘‘or’’ at the end of paragraph (2), by adding ‘‘or’’
at the end of paragraph (3), and by inserting after paragraph
(3) the following new paragraph:
‘‘(4) an education individual retirement account (as defined
in section 530),’’.
(2) EXCESS
CONTRIBUTIONS
DEFINED.—Section 4973 is
amended by adding at the end the following new subsection:
‘‘(e) EXCESS CONTRIBUTIONS TO EDUCATION INDIVIDUAL RETIRE-
MENT ACCOUNTS.—For purposes of this section—
‘‘(1) IN GENERAL.—In the case of education individual retire-
ment accounts maintained for the benefit of any 1 beneficiary,
the term ‘excess contributions’ means—
‘‘(A) the amount by which the amount contributed for
the taxable year to such accounts exceeds $500, and
‘‘(B) any amount contributed to such accounts for any
taxable year if any amount is contributed during such
year to a qualified State tuition program for the benefit
of such beneficiary.
‘‘(2) SPECIAL RULES.—For purposes of paragraph (1), the
following contributions shall not be taken into account:
‘‘(A) Any contribution which is distributed out of the
education individual retirement account in a distribution
to which section 530(d)(4)(C) applies.
‘‘(B) Any contribution described in section 530(b)(2)(B)
to a qualified State tuition program.
‘‘(C) Any rollover contribution.’’.
(e) TECHNICAL AMENDMENTS.—
(1) Section 26(b)(2) is amended by redesignating subpara-
graphs (E) through (P) as subparagraphs (F) through (Q),
respectively, and by inserting after subparagraph (D) the follow-
ing new subparagraph:
‘‘(E) section 530(d)(3) (relating to additional tax on
certain distributions from education individual retirement
accounts),’’.
(2) Subparagraph (C) of section 135(c)(2), as added by the
preceding section, is amended by inserting ‘‘, or to an education
individual retirement account (as defined in section 530) on
behalf of an account beneficiary,’’ after ‘‘(as defined in such
section)’’.
(3) The table of sections for part VIII of subchapter F
of chapter 1 is amended by adding at the end the following
new item:
‘‘Sec. 530. Education individual retirement accounts.’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
H. R. 2014—31
Subtitle C—Other Education Initiatives
SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDU-
CATIONAL ASSISTANCE.
(a) IN GENERAL.—Subsection (d) of section 127 (relating to
educational assistance programs) is amended to read as follows:
‘‘(d) TERMINATION.—This section shall not apply to expenses
paid with respect to courses beginning after May 31, 2000.’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1996.
SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(c)(3) BONDS
OTHER THAN HOSPITAL BONDS.
Section 145(b) (relating to qualified 501(c)(3) bond) is amended
by adding at the end the following new paragraph:
‘‘(5) TERMINATION
OF
LIMITATION.—This subsection shall
not apply with respect to bonds issued after the date of the
enactment of this paragraph as part of an issue 95 percent
or more of the net proceeds of which are to be used to finance
capital expenditures incurred after such date.’’.
SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERN-
MENTAL BONDS USED TO FINANCE EDUCATION FACILI-
TIES.
(a) IN GENERAL.—Section 148(f)(4)(D) (relating to exception for
governmental units issuing $5,000,000 or less of bonds) is amended
by adding at the end the following new clause:
‘‘(vii) INCREASE IN EXCEPTION FOR BONDS FINANC-
ING PUBLIC SCHOOL CAPITAL EXPENDITURES.—Each of
the $5,000,000 amounts in the preceding provisions
of this subparagraph shall be increased by the lesser
of $5,000,000 or so much of the aggregate face amount
of the bonds as are attributable to financing the
construction (within the meaning of subparagraph
(C)(iv)) of public school facilities.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to bonds issued after December 31, 1997.
SEC. 224. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIP-
MENT FOR ELEMENTARY OR SECONDARY SCHOOL PUR-
POSES.
(a) CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT
FOR ELEMENTARY OR SECONDARY SCHOOL PURPOSES.—Subsection
(e) of section 170 is amended by adding at the end the following
new paragraph:
‘‘(6) SPECIAL RULE FOR CONTRIBUTIONS OF COMPUTER TECH-
NOLOGY
AND
EQUIPMENT
FOR
ELEMENTARY
OR
SECONDARY
SCHOOL PURPOSES.—
‘‘(A) LIMIT ON REDUCTION.—In the case of a qualified
elementary or secondary educational contribution, the
reduction under paragraph (1)(A) shall be no greater than
the amount determined under paragraph (3)(B).
‘‘(B) QUALIFIED
ELEMENTARY
OR
SECONDARY
EDU-
CATIONAL CONTRIBUTION.—For purposes of this paragraph,
the term ‘qualified elementary or secondary educational
H. R. 2014—32
contribution’ means a charitable contribution by a corpora-
tion of any computer technology or equipment, but only
if—
‘‘(i) the contribution is to—
‘‘(I) an educational organization described in
subsection (b)(1)(A)(ii), or
‘‘(II) an entity described in section 501(c)(3)
and exempt from tax under section 501(a) (other
than an entity described in subclause (I)) that
is organized primarily for purposes of supporting
elementary and secondary education,
‘‘(ii) the contribution is made not later than 2
years after the date the taxpayer acquired the property
(or in the case of property constructed by the taxpayer,
the date the construction of the property is substan-
tially completed),
‘‘(iii) the original use of the property is by the
donor or the donee,
‘‘(iv) substantially all of the use of the property
by the donee is for use within the United States for
educational purposes in any of the grades K–12 that
are related to the purpose or function of the organiza-
tion or entity,
‘‘(v) the property is not transferred by the donee
in exchange for money, other property, or services,
except for shipping, installation and transfer costs,
‘‘(vi) the property will fit productively into the
entity’s education plan, and
‘‘(vii) the entity’s use and disposition of the prop-
erty will be in accordance with the provisions of clauses
(iv) and (v).
‘‘(C) CONTRIBUTION TO PRIVATE FOUNDATION.—A con-
tribution by a corporation of any computer technology or
equipment to a private foundation (as defined in section
509) shall be treated as a qualified elementary or secondary
educational contribution for purposes of this paragraph
if—
‘‘(i) the contribution to the private foundation satis-
fies the requirements of clauses (ii) and (v) of subpara-
graph (B), and
‘‘(ii) within 30 days after such contribution, the
private foundation—
‘‘(I) contributes the property to an entity
described in clause (i) of subparagraph (B) that
satisfies the requirements of clauses (iv) through
(vii) of subparagraph (B), and
‘‘(II) notifies the donor of such contribution.
‘‘(D) SPECIAL
RULE
RELATING
TO
CONSTRUCTION
OF
PROPERTY.—For the purposes of this paragraph, the rules
of paragraph (4)(C) shall apply.
‘‘(E) DEFINITIONS.—For the purposes of this para-
graph—
‘‘(i) COMPUTER TECHNOLOGY OR EQUIPMENT.—The
term ‘computer technology or equipment’ means com-
puter software (as defined by section 197(e)(3)(B)), com-
puter or peripheral equipment (as defined by section
H. R. 2014—33
168(i)(2)(B)), and fiber optic cable related to computer
use.
‘‘(ii) CORPORATION.—The term ‘corporation’ has the
meaning given to such term by paragraph (4)(D).
‘‘(F) TERMINATION.—This paragraph shall not apply
to any contribution made during any taxable year begin-
ning after December 31, 1999.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT
LOANS.
(a) CERTAIN LOANS BY EXEMPT ORGANIZATIONS.—
(1) IN GENERAL.—Paragraph (2) of section 108(f) (defining
student loan) is amended by striking ‘‘or’’ at the end of subpara-
graph (B) and by striking subparagraph (D) and inserting the
following:
‘‘(D) any educational organization described in section
170(b)(1)(A)(ii) if such loan is made—
‘‘(i) pursuant to an agreement with any entity
described in subparagraph (A), (B), or (C) under which
the funds from which the loan was made were provided
to such educational organization, or
‘‘(ii) pursuant to a program of such educational
organization which is designed to encourage its stu-
dents to serve in occupations with unmet needs or
in areas with unmet needs and under which the serv-
ices provided by the students (or former students) are
for or under the direction of a governmental unit or
an organization described in section 501(c)(3) and
exempt from tax under section 501(a).
The term ‘student loan’ includes any loan made by an edu-
cational organization so described or by an organization exempt
from tax under section 501(a) to refinance a loan meeting
the requirements of the preceding sentence.’’.
(2) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES
PERFORMED FOR CERTAIN LENDERS.—Subsection (f) of section
108 is amended by adding at the end the following new para-
graph:
‘‘(3) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES
PERFORMED FOR CERTAIN LENDERS.—Paragraph (1) shall not
apply to the discharge of a loan made by an organization
described in paragraph (2)(D) (or by an organization described
in paragraph (2)(E) from funds provided by an organization
described in paragraph (2)(D)) if the discharge is on account
of services performed for either such organization.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to discharges of indebtedness after the date of the
enactment of this Act.
SEC. 226. INCENTIVES FOR EDUCATION ZONES.
(a) IN GENERAL.—Subchapter U of chapter 1 (relating to addi-
tional incentives for empowerment zones) is amended by redesignat-
ing part IV as part V, by redesignating section 1397E as section
1397F, and by inserting after part III the following new part:
H. R. 2014—34
‘‘PART IV—INCENTIVES FOR EDUCATION
ZONES
‘‘Sec. 1397E. Credit to holders of qualified zone academy bonds.’’.
‘‘SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY
BONDS.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an eligible taxpayer
who holds a qualified zone academy bond on the credit allowance
date of such bond which occurs during the taxable year, there
shall be allowed as a credit against the tax imposed by this chapter
for such taxable year the amount determined under subsection
(b).
‘‘(b) AMOUNT OF CREDIT.—
‘‘(1) IN GENERAL.—The amount of the credit determined
under this subsection with respect to any qualified zone acad-
emy bond is the amount equal to the product of—
‘‘(A) the credit rate determined by the Secretary under
paragraph (2) for the month in which such bond was issued,
multiplied by
‘‘(B) the face amount of the bond held by the taxpayer
on the credit allowance date.
‘‘(2) DETERMINATION.—During each calendar month, the
Secretary shall determine a credit rate which shall apply to
bonds issued during the following calendar month. The credit
rate for any month is the percentage which the Secretary
estimates will permit the issuance of qualified zone academy
bonds without discount and without interest cost to the issuer.
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed
under subsection (a) for any taxable year shall not exceed the
excess of—
‘‘(1) the sum of the regular tax liability (as defined in
section 26(b)) plus the tax imposed by section 55, over
‘‘(2) the sum of the credits allowable under part IV of
subchapter A (other than subpart C thereof, relating to refund-
able credits).
‘‘(d) QUALIFIED ZONE ACADEMY BOND.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified zone academy bond’
means any bond issued as part of an issue if—
‘‘(A) 95 percent or more of the proceeds of such issue
are to be used for a qualified purpose with respect to
a qualified zone academy established by an eligible local
education agency,
‘‘(B) the bond is issued by a State or local government
within the jurisdiction of which such academy is located,
‘‘(C) the issuer—
‘‘(i) designates such bond for purposes of this sec-
tion,
‘‘(ii) certifies that it has written assurances that
the private business contribution requirement of para-
graph (2) will be met with respect to such academy,
and
‘‘(iii) certifies that it has the written approval of
the eligible local education agency for such bond issu-
ance, and
H. R. 2014—35
‘‘(D) the term of each bond which is part of such
issue does not exceed the maximum term permitted under
paragraph (3).
‘‘(2) PRIVATE BUSINESS CONTRIBUTION REQUIREMENT.—
‘‘(A) IN GENERAL.—For purposes of paragraph (1), the
private business contribution requirement of this para-
graph is met with respect to any issue if the eligible local
education agency that established the qualified zone acad-
emy has written commitments from private entities to
make qualified contributions having a present value (as
of the date of issuance of the issue) of not less than 10
percent of the proceeds of the issue.
‘‘(B) QUALIFIED
CONTRIBUTIONS.—For purposes of
subparagraph (A), the term ‘qualified contribution’ means
any contribution (of a type and quality acceptable to the
eligible local education agency) of—
‘‘(i) equipment for use in the qualified zone acad-
emy (including state-of-the-art technology and voca-
tional equipment),
‘‘(ii) technical assistance in developing curriculum
or in training teachers in order to promote appropriate
market driven technology in the classroom,
‘‘(iii) services of employees as volunteer mentors,
‘‘(iv) internships, field trips, or other educational
opportunities outside the academy for students, or
‘‘(v) any other property or service specified by the
eligible local education agency.
‘‘(3) TERM
REQUIREMENT.—During each calendar month,
the Secretary shall determine the maximum term permitted
under this paragraph for bonds issued during the following
calendar month. Such maximum term shall be the term which
the Secretary estimates will result in the present value of
the obligation to repay the principal on the bond being equal
to 50 percent of the face amount of the bond. Such present
value shall be determined using as a discount rate the average
annual interest rate of tax-exempt obligations having a term
of 10 years or more which are issued during the month. If
the term as so determined is not a multiple of a whole year,
such term shall be rounded to the next highest whole year.
‘‘(4) QUALIFIED ZONE ACADEMY.—
‘‘(A) IN GENERAL.—The term ‘qualified zone academy’
means any public school (or academic program within a
public school) which is established by and operated under
the supervision of an eligible local education agency to
provide education or training below the postsecondary level
if—
‘‘(i) such public school or program (as the case
may be) is designed in cooperation with business to
enhance the academic curriculum, increase graduation
and employment rates, and better prepare students
for the rigors of college and the increasingly complex
workforce,
‘‘(ii) students in such public school or program
(as the case may be) will be subject to the same aca-
demic standards and assessments as other students
educated by the eligible local education agency,
H. R. 2014—36
‘‘(iii) the comprehensive education plan of such
public school or program is approved by the eligible
local education agency, and
‘‘(iv)(I) such public school is located in an
empowerment zone or enterprise community (including
any such zone or community designated after the date
of the enactment of this section), or
‘‘(II) there is a reasonable expectation (as of the
date of issuance of the bonds) that at least 35 percent
of the students attending such school or participating
in such program (as the case may be) will be eligible
for free or reduced-cost lunches under the school lunch
program established under the National School Lunch
Act.
‘‘(B) ELIGIBLE LOCAL EDUCATION AGENCY.—The term
‘eligible local education agency’ means any local education
agency as defined in section 14101 of the Elementary and
Secondary Education Act of 1965.
‘‘(5) QUALIFIED
PURPOSE.—The term ‘qualified purpose’
means, with respect to any qualified zone academy—
‘‘(A) rehabilitating or repairing the public school facility
in which the academy is established,
‘‘(B) providing equipment for use at such academy,
‘‘(C) developing course materials for education to be
provided at such academy, and
‘‘(D) training teachers and other school personnel in
such academy.
‘‘(6) ELIGIBLE
TAXPAYER.—The term ‘eligible taxpayer’
means—
‘‘(A) a bank (within the meaning of section 581),
‘‘(B) an insurance company to which subchapter L
applies, and
‘‘(C) a corporation actively engaged in the business
of lending money.
‘‘(e) LIMITATION ON AMOUNT OF BONDS DESIGNATED.—
‘‘(1) NATIONAL LIMITATION.—There is a national zone acad-
emy bond limitation for each calendar year. Such limitation
is $400,000,000 for 1998 and 1999, and, except as provided
in paragraph (4), zero thereafter.
‘‘(2) ALLOCATION OF LIMITATION.—The national zone acad-
emy bond limitation for a calendar year shall be allocated
by the Secretary among the States on the basis of their respec-
tive populations of individuals below the poverty line (as defined
by the Office of Management and Budget). The limitation
amount allocated to a State under the preceding sentence shall
be allocated by the State education agency to qualified zone
academies within such State.
‘‘(3) DESIGNATION SUBJECT TO LIMITATION AMOUNT.—The
maximum aggregate face amount of bonds issued during any
calendar year which may be designated under subsection (d)(1)
with respect to any qualified zone academy shall not exceed
the limitation amount allocated to such academy under para-
graph (2) for such calendar year.
‘‘(4) CARRYOVER OF UNUSED LIMITATION.—If for any cal-
endar year—
‘‘(A) the limitation amount for any State, exceeds
H. R. 2014—37
‘‘(B) the amount of bonds issued during such year
which are designated under subsection (d)(1) with respect
to qualified zone academies within such State,
the limitation amount for such State for the following calendar
year shall be increased by the amount of such excess.
‘‘(f) OTHER DEFINITIONS.—For purposes of this section—
‘‘(1) CREDIT ALLOWANCE DATE.—The term ‘credit allowance
date’ means, with respect to any issue, the last day of the
1-year period beginning on the date of issuance of such issue
and the last day of each successive 1-year period thereafter.
‘‘(2) BOND.—The term ‘bond’ includes any obligation.
‘‘(3) STATE.—The term ‘State’ includes the District of
Columbia and any possession of the United States.
‘‘(g) CREDIT
INCLUDED
IN
GROSS
INCOME.—Gross income
includes the amount of the credit allowed to the taxpayer under
this section.’’.
(b) CONFORMING AMENDMENTS.—
(1) The table of parts for subchapter U of chapter 1 is
amended by striking the last item and inserting the following:
‘‘Part IV. Incentives for education zones.
‘‘Part V. Regulations.’’.
(2) The table of sections for part V, as so redesignated,
is amended to read as follows:
‘‘Sec. 1397F. Regulations.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to obligations issued after December 31, 1997.
TITLE III—SAVINGS AND INVESTMENT
INCENTIVES
Subtitle A—Retirement Savings
SEC. 301. RESTORATION OF IRA DEDUCTION FOR CERTAIN TAX-
PAYERS.
(a) INCREASE IN INCOME LIMITS APPLICABLE TO ACTIVE PARTICI-
PANTS.—
(1) IN
GENERAL.—Subparagraph (B) of section 219(g)(3)
(relating to applicable dollar amount) is amended to read as
follows:
‘‘(B) 
APPLICABLE
DOLLAR
AMOUNT.—The 
term
‘applicable dollar amount’ means the following:
‘‘(i) In the case of a taxpayer filing a joint return:
The
applicable
‘‘For taxable years beginning in:
dollar amount
is:
1998 ...................................................................................................
$50,000
1999 ...................................................................................................
$51,000
2000 ...................................................................................................
$52,000
2001 ...................................................................................................
$53,000
2002 ...................................................................................................
$54,000
2003 ...................................................................................................
$60,000
2004 ...................................................................................................
$65,000
2005 ...................................................................................................
$70,000
2006 ...................................................................................................
$75,000
2007 and thereafter ..........................................................................
$80,000.
H. R. 2014—38
‘‘(ii) In the case of any other taxpayer (other than
a married individual filing a separate return):
The
applicable
‘‘For taxable years beginning in:
dollar amount
is:
1998 ...................................................................................................
$30,000
1999 ...................................................................................................
$31,000
2000 ...................................................................................................
$32,000
2001 ...................................................................................................
$33,000
2002 ...................................................................................................
$34,000
2003 ...................................................................................................
$40,000
2004 ...................................................................................................
$45,000
2005 and thereafter ..........................................................................
$50,000.
‘‘(iii) In the case of a married individual filing
a separate return, zero.’’.
(2) INCREASE IN PHASE-OUT RANGE FOR JOINT RETURNS.—
Clause (ii) of section 219(g)(2)(A) is amended by inserting
‘‘($20,000 in the case of a joint return for a taxable year begin-
ning after December 31, 2006)’’.
(b) LIMITATIONS
FOR ACTIVE PARTICIPATION NOT BASED
ON
SPOUSE’S PARTICIPATION.—Section 219(g) (relating to limitation on
deduction for active participants in certain pension plans) is amend-
ed—
(1) by striking ‘‘or the individual’s spouse’’ in paragraph
(1), and
(2) by adding at the end the following new paragraph:
‘‘(7) SPECIAL RULE FOR CERTAIN SPOUSES.—In the case of
an individual who is an active participant at no time during
any plan year ending with or within the taxable year but
whose spouse is an active participant for any part of any
such plan year—
‘‘(A) the applicable dollar amount under paragraph
(3)(B)(i) with respect to the taxpayer shall be $150,000,
and
‘‘(B) the amount applicable under paragraph (2)(A)(ii)
shall be $10,000.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 302. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVID-
UAL RETIREMENT ACCOUNTS.
(a) IN GENERAL.—Subpart A of part I of subchapter D of chapter
1 (relating to pension, profit-sharing, stock bonus plans, etc.) is
amended by inserting after section 408 the following new section:
‘‘SEC. 408A. ROTH IRAS.
‘‘(a) GENERAL RULE.—Except as provided in this section, a
Roth IRA shall be treated for purposes of this title in the same
manner as an individual retirement plan.
‘‘(b) ROTH IRA.—For purposes of this title, the term ‘Roth
IRA’ means an individual retirement plan (as defined in section
7701(a)(37)) which is designated (in such manner as the Secretary
may prescribe) at the time of establishment of the plan as a Roth
IRA. Such designation shall be made in such manner as the Sec-
retary may prescribe.
‘‘(c) TREATMENT OF CONTRIBUTIONS.—
‘‘(1) NO
DEDUCTION
ALLOWED.—No deduction shall be
allowed under section 219 for a contribution to a Roth IRA.
H. R. 2014—39
‘‘(2) CONTRIBUTION LIMIT.—The aggregate amount of con-
tributions for any taxable year to all Roth IRAs maintained
for the benefit of an individual shall not exceed the excess
(if any) of—
‘‘(A) the maximum amount allowable as a deduction
under section 219 with respect to such individual for such
taxable year (computed without regard to subsection (d)(1)
or (g) of such section), over
‘‘(B) the aggregate amount of contributions for such
taxable year to all other individual retirement plans (other
than Roth IRAs) maintained for the benefit of the individ-
ual.
‘‘(3) LIMITS BASED ON MODIFIED ADJUSTED GROSS INCOME.—
‘‘(A) DOLLAR
LIMIT.—The amount determined under
paragraph (2) for any taxable year shall be reduced (but
not below zero) by the amount which bears the same ratio
to such amount as—
‘‘(i) the excess of—
‘‘(I) the taxpayer’s adjusted gross income for
such taxable year, over
‘‘(II) the applicable dollar amount, bears to
‘‘(ii) $15,000 ($10,000 in the case of a joint return).
The rules of subparagraphs (B) and (C) of section 219(g)(2)
shall apply to any reduction under this subparagraph.
‘‘(B) ROLLOVER
FROM
IRA.—A taxpayer shall not be
allowed to make a qualified rollover contribution to a Roth
IRA from an individual retirement plan other than a Roth
IRA during any taxable year if—
‘‘(i) the taxpayer’s adjusted gross income for such
taxable year exceeds $100,000, or
‘‘(ii) the taxpayer is a married individual filing
a separate return.
‘‘(C) DEFINITIONS.—For purposes of this paragraph—
‘‘(i) adjusted gross income shall be determined in
the same manner as under section 219(g)(3), except
that any amount included in gross income under sub-
section (d)(3) shall not be taken into account and the
deduction under section 219 shall be taken into
account, and
‘‘(ii) the applicable dollar amount is—
‘‘(I) in the case of a taxpayer filing a joint
return, $150,000,
‘‘(II) in the case of any other taxpayer (other
than a married individual filing a separate return),
$95,000, and
‘‘(III) in the case of a married individual filing
a separate return, zero.
‘‘(D) MARITAL STATUS.—Section 219(g)(4) shall apply
for purposes of this paragraph.
‘‘(4) CONTRIBUTIONS PERMITTED AFTER AGE 701⁄2.—Contribu-
tions to a Roth IRA may be made even after the individual
for whom the account is maintained has attained age 701⁄2.
‘‘(5) MANDATORY DISTRIBUTION RULES NOT TO APPLY BEFORE
DEATH.—Notwithstanding subsections (a)(6) and (b)(3) of section
408 (relating to required distributions), the following provisions
shall not apply to any Roth IRA:
‘‘(A) Section 401(a)(9)(A).
H. R. 2014—40
‘‘(B) The incidental death benefit requirements of sec-
tion 401(a).
‘‘(6) ROLLOVER CONTRIBUTIONS.—
‘‘(A) IN
GENERAL.—No rollover contribution may be
made to a Roth IRA unless it is a qualified rollover con-
tribution.
‘‘(B) COORDINATION WITH LIMIT.—A qualified rollover
contribution shall not be taken into account for purposes
of paragraph (2).
‘‘(7) TIME WHEN CONTRIBUTIONS MADE.—For purposes of
this section, the rule of section 219(f)(3) shall apply.
‘‘(d) DISTRIBUTION RULES.—For purposes of this title—
‘‘(1) GENERAL RULES.—
‘‘(A) EXCLUSIONS FROM GROSS INCOME.—Any qualified
distribution from a Roth IRA shall not be includible in
gross income.
‘‘(B) NONQUALIFIED DISTRIBUTIONS.—In applying sec-
tion 72 to any distribution from a Roth IRA which is
not a qualified distribution, such distribution shall be treat-
ed as made from contributions to the Roth IRA to the
extent that such distribution, when added to all previous
distributions from the Roth IRA, does not exceed the aggre-
gate amount of contributions to the Roth IRA.
‘‘(2) QUALIFIED DISTRIBUTION.—For purposes of this sub-
section—
‘‘(A) IN
GENERAL.—The term ‘qualified distribution’
means any payment or distribution—
‘‘(i) made on or after the date on which the individ-
ual attains age 591⁄2,
‘‘(ii) made to a beneficiary (or to the estate of
the individual) on or after the death of the individual,
‘‘(iii) attributable to the individual’s being disabled
(within the meaning of section 72(m)(7)), or
‘‘(iv) which is a qualified special purpose distribu-
tion.
‘‘(B) CERTAIN DISTRIBUTIONS WITHIN 5 YEARS.—A pay-
ment or distribution shall not be treated as a qualified
distribution under subparagraph (A) if—
‘‘(i) it is made within the 5-taxable year period
beginning with the 1st taxable year for which the
individual made a contribution to a Roth IRA (or such
individual’s spouse made a contribution to a Roth IRA)
established for such individual, or
‘‘(ii) in the case of a payment or distribution prop-
erly allocable (as determined in the manner prescribed
by the Secretary) to a qualified rollover contribution
from an individual retirement plan other than a Roth
IRA (or income allocable thereto), it is made within
the 5-taxable year period beginning with the taxable
year in which the rollover contribution was made.
‘‘(3) ROLLOVERS FROM AN IRA OTHER THAN A ROTH IRA.—
‘‘(A) IN GENERAL.—Notwithstanding section 408(d)(3),
in the case of any distribution to which this paragraph
applies—
‘‘(i) there shall be included in gross income any
amount which would be includible were it not part
of a qualified rollover contribution,
H. R. 2014—41
‘‘(ii) section 72(t) shall not apply, and
‘‘(iii) in the case of a distribution before January
1, 1999, any amount required to be included in gross
income by reason of this paragraph shall be so included
ratably over the 4-taxable year period beginning with
the taxable year in which the payment or distribution
is made.
‘‘(B) DISTRIBUTIONS TO WHICH PARAGRAPH APPLIES.—
This paragraph shall apply to a distribution from an
individual retirement plan (other than a Roth IRA) main-
tained for the benefit of an individual which is contributed
to a Roth IRA maintained for the benefit of such individual
in a qualified rollover contribution.
‘‘(C) CONVERSIONS.—The conversion of an individual
retirement plan (other than a Roth IRA) to a Roth IRA
shall be treated for purposes of this paragraph as a dis-
tribution to which this paragraph applies.
‘‘(D) CONVERSION OF EXCESS CONTRIBUTIONS.—If, no
later than the due date for filing the return of tax for
any taxable year (without regard to extensions), an individ-
ual transfers, from an individual retirement plan (other
than a Roth IRA), contributions for such taxable year (and
any earnings allocable thereto) to a Roth IRA, no such
amount shall be includible in gross income to the extent
no deduction was allowed with respect to such amount.
‘‘(E) ADDITIONAL REPORTING REQUIREMENTS.—Trustees
of Roth IRAs, trustees of individual retirement plans, or
both, whichever is appropriate, shall include such addi-
tional information in reports required under section 408(i)
as the Secretary may require to ensure that amounts
required to be included in gross income under subpara-
graph (A) are so included.
‘‘(4) 
COORDINATION
WITH
INDIVIDUAL
RETIREMENT
ACCOUNTS.—Section 408(d)(2) shall be applied separately with
respect to Roth IRAs and other individual retirement plans.
‘‘(5) QUALIFIED SPECIAL PURPOSE DISTRIBUTION.—For pur-
poses of this section, the term ‘qualified special purpose dis-
tribution’ means any distribution to which subparagraph (F)
of section 72(t)(2) applies.
‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.—For purposes of this
section, the term ‘qualified rollover contribution’ means a rollover
contribution to a Roth IRA from another such account, or from
an individual retirement plan, but only if such rollover contribution
meets the requirements of section 408(d)(3). For purposes of section
408(d)(3)(B), there shall be disregarded any qualified rollover con-
tribution from an individual retirement plan (other than a Roth
IRA) to a Roth IRA.’’.
(b) EXCESS CONTRIBUTIONS.—Section 4973(b), as amended by
title II, is amended by adding at the end the following new sub-
section:
‘‘(f) EXCESS CONTRIBUTIONS TO ROTH IRAS.—For purposes of
this section, in the case of contributions to a Roth IRA (within
the meaning of section 408A(b)), the term ‘excess contributions’
means the sum of—
‘‘(1) the excess (if any) of—
H. R. 2014—42
‘‘(A) the amount contributed for the taxable year to
such accounts (other than a qualified rollover contribution
described in section 408A(e)), over
‘‘(B) the amount allowable as a contribution under
sections 408A (c)(2) and (c)(3), and
‘‘(2) the amount determined under this subsection for the
preceding taxable year, reduced by the sum of—
‘‘(A) the distributions out of the accounts for the taxable
year, and
‘‘(B) the excess (if any) of the maximum amount allow-
able as a contribution under sections 408A (c)(2) and (c)(3)
for the taxable year over the amount contributed to the
accounts for the taxable year.
For purposes of this subsection, any contribution which is distrib-
uted from a Roth IRA in a distribution described in section 408(d)(4)
shall be treated as an amount not contributed.’’.
(c) SPOUSAL IRA.—Clause (ii) of section 219(c)(1)(B) is amended
to read as follows:
‘‘(ii) the compensation includible in the gross
income of such individual’s spouse for the taxable year
reduced by—
‘‘(I) the amount allowed as a deduction under
subsection (a) to such spouse for such taxable year,
and
‘‘(II) the amount of any contribution on behalf
of such spouse to a Roth IRA under section 408A
for such taxable year.’’.
(d) AUTHORITY TO PRESCRIBE NECESSARY REPORTING.—Section
408(i) is amended—
(1) by striking ‘‘under regulations’’, and
(2) by striking ‘‘in such regulations’’ each place it appears.
(e) CONFORMING AMENDMENT.—The table of sections for subpart
A of part I of subchapter D of chapter 1 is amended by inserting
after the item relating to section 408 the following new item:
‘‘Sec. 408A. Roth IRAs.’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 303. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITH-
OUT PENALTY TO PURCHASE FIRST HOMES.
(a) IN GENERAL.—Paragraph (2) of section 72(t) (relating to
exceptions to 10-percent additional tax on early distributions from
qualified retirement plans), as amended by section 203, is amended
by adding at the end the following new subparagraph:
‘‘(F) DISTRIBUTIONS
FROM
CERTAIN
PLANS
FOR
FIRST
HOME PURCHASES.—Distributions to an individual from an
individual retirement plan which are qualified first-time
homebuyer distributions (as defined in paragraph (8)). Dis-
tributions shall not be taken into account under the preced-
ing sentence if such distributions are described in subpara-
graph (A), (C), (D), or (E) or to the extent paragraph
(1) does not apply to such distributions by reason of
subparagraph (B).’’.
(b) DEFINITIONS.—Section 72(t), as amended by section 203,
is amended by adding at the end the following new paragraphs:
‘‘(8) QUALIFIED
FIRST-TIME
HOMEBUYER
DISTRIBUTIONS.—
For purposes of paragraph (2)(F)—
H. R. 2014—43
‘‘(A) IN GENERAL.—The term ‘qualified first-time home-
buyer distribution’ means any payment or distribution
received by an individual to the extent such payment or
distribution is used by the individual before the close of
the 120th day after the day on which such payment or
distribution is received to pay qualified acquisition costs
with respect to a principal residence of a first-time home-
buyer who is such individual, the spouse of such individual,
or any child, grandchild, or ancestor of such individual
or the individual’s spouse.
‘‘(B) LIFETIME
DOLLAR
LIMITATION.—The aggregate
amount of payments or distributions received by an individ-
ual which may be treated as qualified first-time homebuyer
distributions for any taxable year shall not exceed the
excess (if any) of—
‘‘(i) $10,000, over
‘‘(ii) the aggregate amounts treated as qualified
first-time homebuyer distributions with respect to such
individual for all prior taxable years.
‘‘(C) QUALIFIED ACQUISITION COSTS.—For purposes of
this paragraph, the term ‘qualified acquisition costs’ means
the costs of acquiring, constructing, or reconstructing a
residence. Such term includes any usual or reasonable
settlement, financing, or other closing costs.
‘‘(D) FIRST-TIME HOMEBUYER; OTHER DEFINITIONS.—For
purposes of this paragraph—
‘‘(i) FIRST-TIME HOMEBUYER.—The term ‘first-time
homebuyer’ means any individual if—
‘‘(I) such individual (and if married, such
individual’s spouse) had no present ownership
interest in a principal residence during the 2-year
period ending on the date of acquisition of the
principal residence to which this paragraph
applies, and
‘‘(II) subsection (h) or (k) of section 1034 (as
in effect on the day before the date of the enact-
ment of this paragraph) did not suspend the run-
ning of any period of time specified in section
1034 (as so in effect) with respect to such individ-
ual on the day before the date the distribution
is applied pursuant to subparagraph (A).
‘‘(ii) PRINCIPAL
RESIDENCE.—The term ‘principal
residence’ has the same meaning as when used in
section 121.
‘‘(iii) DATE
OF
ACQUISITION.—The term ‘date of
acquisition’ means the date—
‘‘(I) on which a binding contract to acquire
the principal residence to which subparagraph (A)
applies is entered into, or
‘‘(II) on which construction or reconstruction
of such a principal residence is commenced.
‘‘(E) SPECIAL
RULE
WHERE
DELAY
IN
ACQUISITION.—
If any distribution from any individual retirement plan
fails to meet the requirements of subparagraph (A) solely
by reason of a delay or cancellation of the purchase or
construction of the residence, the amount of the distribution
may be contributed to an individual retirement plan as
H. R. 2014—44
provided in section 408(d)(3)(A)(i) (determined by substitut-
ing ‘120 days’ for ‘60 days’ in such section), except that—
‘‘(i) section 408(d)(3)(B) shall not be applied to
such contribution, and
‘‘(ii) such amount shall not be taken into account
in determining whether section 408(d)(3)(B) applies to
any other amount.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to payments and distributions in taxable years beginning
after December 31, 1997.
SEC. 304. CERTAIN BULLION NOT TREATED AS COLLECTIBLES.
(a) IN GENERAL.—Paragraph (3) of section 408(m) (relating
to exception for certain coins) is amended to read as follows:
‘‘(3) EXCEPTION FOR CERTAIN COINS AND BULLION.—For pur-
poses of this subsection, the term ‘collectible’ shall not include—
‘‘(A) any coin which is—
‘‘(i) a gold coin described in paragraph (7), (8),
(9), or (10) of section 5112(a) of title 31, United States
Code,
‘‘(ii) a silver coin described in section 5112(e) of
title 31, United States Code,
‘‘(iii) a platinum coin described in section 5112(k)
of title 31, United States Code, or
‘‘(iv) a coin issued under the laws of any State,
or
‘‘(B) any gold, silver, platinum, or palladium bullion
of a fineness equal to or exceeding the minimum fineness
that a contract market (as described in section 7 of the
Commodity Exchange Act, 7 U.S.C. 7) requires for metals
which may be delivered in satisfaction of a regulated
futures contract,
if such bullion is in the physical possession of a trustee
described under subsection (a) of this section.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
Subtitle B—Capital Gains
SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.
(a) IN GENERAL.—Subsection (h) of section 1 (relating to maxi-
mum capital gains rate) is amended to read as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—
‘‘(1) IN GENERAL.—If a taxpayer has a net capital gain
for any taxable year, the tax imposed by this section for such
taxable year shall not exceed the sum of—
‘‘(A) a tax computed at the rates and in the same
manner as if this subsection had not been enacted on
the greater of—
‘‘(i) taxable income reduced by the net capital gain,
or
‘‘(ii) the lesser of—
‘‘(I) the amount of taxable income taxed at
a rate below 28 percent, or
‘‘(II) taxable income reduced by the adjusted
net capital gain, plus
H. R. 2014—45
‘‘(B) 25 percent of the excess (if any) of—
‘‘(i) the unrecaptured section 1250 gain (or, if less,
the net capital gain), over
‘‘(ii) the excess (if any) of—
‘‘(I) the sum of the amount on which tax is
determined under subparagraph (A) plus the net
capital gain, over
‘‘(II) taxable income, plus
‘‘(C) 28 percent of the amount of taxable income in
excess of the sum of—
‘‘(i) the adjusted net capital gain, plus
‘‘(ii) the sum of the amounts on which tax is deter-
mined under subparagraphs (A) and (B), plus
‘‘(D) 10 percent of so much of the taxpayer’s adjusted
net capital gain (or, if less, taxable income) as does not
exceed the excess (if any) of—
‘‘(i) the amount of taxable income which would
(without regard to this paragraph) be taxed at a rate
below 28 percent, over
‘‘(ii) the taxable income reduced by the adjusted
net capital gain, plus
‘‘(E) 20 percent of the taxpayer’s adjusted net capital
gain (or, if less, taxable income) in excess of the amount
on which a tax is determined under subparagraph (D).
‘‘(2) REDUCED CAPITAL GAIN RATES FOR QUALIFIED 5-YEAR
GAIN.—
‘‘(A) REDUCTION IN 10-PERCENT RATE.—In the case of
any taxable year beginning after December 31, 2000, the
rate under paragraph (1)(D) shall be 8 percent with respect
to so much of the amount to which the 10-percent rate
would otherwise apply as does not exceed qualified 5-year
gain, and 10 percent with respect to the remainder of
such amount.
‘‘(B) REDUCTION IN 20-PERCENT RATE.—The rate under
paragraph (1)(E) shall be 18 percent with respect to so
much of the amount to which the 20-percent rate would
otherwise apply as does not exceed the lesser of—
‘‘(i) the excess of qualified 5-year gain over the
amount of such gain taken into account under subpara-
graph (A) of this paragraph, or
‘‘(ii) the amount of qualified 5-year gain (deter-
mined by taking into account only property the holding
period for which begins after December 31, 2000),
and 20 percent with respect to the remainder of such
amount. For purposes of determining under the preceding
sentence whether the holding period of property begins
after December 31, 2000, the holding period of property
acquired pursuant to the exercise of an option (or other
right or obligation to acquire property) shall include the
period such option (or other right or obligation) was held.
‘‘(3) NET CAPITAL GAIN TAKEN INTO ACCOUNT AS INVESTMENT
INCOME.—For purposes of this subsection, the net capital gain
for any taxable year shall be reduced (but not below zero)
by the amount which the taxpayer takes into account as invest-
ment income under section 163(d)(4)(B)(iii).
H. R. 2014—46
‘‘(4) ADJUSTED NET CAPITAL GAIN.—For purposes of this
subsection, the term ‘adjusted net capital gain’ means net cap-
ital gain determined without regard to—
‘‘(A) collectibles gain,
‘‘(B) unrecaptured section 1250 gain,
‘‘(C) section 1202 gain, and
‘‘(D) mid-term gain.
‘‘(5) COLLECTIBLES GAIN.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘collectibles gain’ means
gain from the sale or exchange of a collectible (as defined
in section 408(m) without regard to paragraph (3) thereof)
which is a capital asset held for more than 1 year but
only to the extent such gain is taken into account in
computing gross income.
‘‘(B) PARTNERSHIPS, ETC.—For purposes of subpara-
graph (A), any gain from the sale of an interest in a
partnership, S corporation, or trust which is attributable
to unrealized appreciation in the value of collectibles shall
be treated as gain from the sale or exchange of a collectible.
Rules similar to the rules of section 751 shall apply for
purposes of the preceding sentence.
‘‘(6) UNRECAPTURED SECTION 1250 GAIN.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘unrecaptured section
1250 gain’ means the amount of long-term capital gain
which would be treated as ordinary income if—
‘‘(i) section 1250(b)(1) included all depreciation and
the applicable percentage under section 1250(a) were
100 percent, and
‘‘(ii) in the case of gain properly taken into account
after July 28, 1997, only gain from section 1250 prop-
erty held for more than 18 months were taken into
account.
‘‘(B) LIMITATION WITH RESPECT TO SECTION 1231 PROP-
ERTY.—The amount of unrecaptured section 1250 gain from
sales, exchanges, and conversions described in section
1231(a)(3)(A) for any taxable year shall not exceed the
excess of the net section 1231 gain (as defined in section
1231(c)(3)) for such year over the amount treated as ordi-
nary income under section 1231(c)(1) for such year.
‘‘(C) PRE-MAY 7, 1997, GAIN.—In the case of a taxable
year which includes May 7, 1997, subparagraph (A) shall
be applied by taking into account only the gain properly
taken into account for the portion of the taxable year
after May 6, 1997.
‘‘(7) SECTION 1202 GAIN.—For purposes of this subsection,
the term ‘section 1202 gain’ means an amount equal to the
gain excluded from gross income under section 1202(a).
‘‘(8) MID-TERM GAIN.—For purposes of this subsection, the
term ‘mid-term gain’ means the amount which would be
adjusted net capital gain for the taxable year if—
‘‘(A) adjusted net capital gain were determined by tak-
ing into account only the gain or loss properly taken into
account after July 28, 1997, from property held for more
than 1 year but not more than 18 months, and
‘‘(B) paragraph (3) and section 1212 did not apply.
H. R. 2014—47
‘‘(9) QUALIFIED
5-YEAR
GAIN.—For purposes of this sub-
section, the term ‘qualified 5-year gain’ means the amount
of long-term capital gain which would be computed for the
taxable year if only gains from the sale or exchange of property
held by the taxpayer for more than 5 years were taken into
account. The determination under the preceding sentence shall
be made without regard to collectibles gain, unrecaptured sec-
tion 1250 gain (determined without regard to subparagraph
(B) of paragraph (6)), section 1202 gain, or mid-term gain.
‘‘(10) PRE-EFFECTIVE DATE GAIN.—
‘‘(A) IN GENERAL.—In the case of a taxable year which
includes May 7, 1997, gains and losses properly taken
into account for the portion of the taxable year before
May 7, 1997, shall be taken into account in determining
mid-term gain as if such gains and losses were described
in paragraph (8)(A).
‘‘(B) SPECIAL
RULES
FOR
PASS-THRU
ENTITIES.—In
applying subparagraph (A) with respect to any pass-thru
entity, the determination of when gains and loss are prop-
erly taken into account shall be made at the entity level.
‘‘(C) PASS-THRU
ENTITY
DEFINED.—For purposes of
subparagraph (B), the term ‘pass-thru entity’ means—
‘‘(i) a regulated investment company,
‘‘(ii) a real estate investment trust,
‘‘(iii) an S corporation,
‘‘(iv) a partnership,
‘‘(v) an estate or trust, and
‘‘(vi) a common trust fund.
‘‘(11) TREATMENT OF PASS-THRU ENTITIES.—The Secretary
may prescribe such regulations as are appropriate (including
regulations requiring reporting) to apply this subsection in
the case of sales and exchanges by pass-thru entities (as defined
in paragraph (10)(C)) and of interests in such entities.’’.
(b) MINIMUM TAX.—
(1) IN GENERAL.—Subsection (b) of section 55 is amended
by adding at the end the following new paragraph:
‘‘(3) MAXIMUM RATE OF TAX ON NET CAPITAL GAIN OF NON-
CORPORATE
TAXPAYERS.—The amount determined under the
first sentence of paragraph (1)(A)(i) shall not exceed the sum
of—
‘‘(A) the amount determined under such first sentence
computed at the rates and in the same manner as if this
paragraph had not been enacted on the taxable excess
reduced by the lesser of—
‘‘(i) the net capital gain, or
‘‘(ii) the sum of—
‘‘(I) the adjusted net capital gain, plus
‘‘(II) the unrecaptured section 1250 gain, plus
‘‘(B) 25 percent of the lesser of—
‘‘(i) the unrecaptured section 1250 gain, or
‘‘(ii) the amount of taxable excess in excess of
the sum of—
‘‘(I) the adjusted net capital gain, plus
‘‘(II) the amount on which a tax is determined
under subparagraph (A), plus
‘‘(C) 10 percent of so much of the taxpayer’s adjusted
net capital gain (or, if less, taxable excess) as does not
H. R. 2014—48
exceed the amount on which a tax is determined under
section 1(h)(1)(D), plus
‘‘(D) 20 percent of the taxpayer’s adjusted net capital
gain (or, if less, taxable excess) in excess of the amount
on which tax is determined under subparagraph (C).
In the case of taxable years beginning after December 31,
2000, rules similar to the rules of section 1(h)(2) shall apply
for purposes of subparagraphs (C) and (D). Terms used in
this paragraph which are also used in section 1(h) shall have
the respective meanings given such terms by section 1(h).’’.
(2) CONFORMING AMENDMENTS.—
(A) Clause (ii) of section 55(b)(1)(A) is amended by
striking ‘‘clause (i)’’ and inserting ‘‘this subsection’’.
(B) Paragraph (7) of section 57(a) is amended by strik-
ing ‘‘one-half’’ and inserting ‘‘42 percent’’.
(c) OTHER CONFORMING AMENDMENTS.—
(1) Paragraph (1) of section 1445(e) is amended by striking
‘‘28 percent’’ and inserting ‘‘20 percent’’.
(2) The second sentence of section 7518(g)(6)(A), and the
second sentence of section 607(h)(6)(A) of the Merchant Marine
Act, 1936, are each amended by striking ‘‘28 percent’’ and
inserting ‘‘20 percent’’.
(3) Paragraph (2) of section 904(b) is amended by adding
at the end the following new subparagraph:
‘‘(C) COORDINATION WITH CAPITAL GAINS RATES.—The
Secretary may by regulations modify the application of
this paragraph and paragraph (3) to the extent necessary
to properly reflect any capital gain rate differential under
section 1(h) or 1201(a) and the computation of net capital
gain.’’.
(d) EFFECTIVE DATES.—
(1) IN GENERAL.—Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after May 6, 1997.
(2) WITHHOLDING.—The amendment made by subsection
(c)(1) shall apply only to amounts paid after the date of the
enactment of this Act.
(e) ELECTION TO RECOGNIZE GAIN ON ASSETS HELD ON JANUARY
1, 2001.—For purposes of the Internal Revenue Code of 1986—
(1) IN GENERAL.—A taxpayer other than a corporation may
elect to treat—
(A) any readily tradable stock (which is a capital asset)
held by such taxpayer on January 1, 2001, and not sold
before the next business day after such date, as having
been sold on such next business day for an amount equal
to its closing market price on such next business day (and
as having been reacquired on such next business day for
an amount equal to such closing market price), and
(B) any other capital asset or property used in the
trade or business (as defined in section 1231(b) of the
Internal Revenue Code of 1986) held by the taxpayer on
January 1, 2001, as having been sold on such date for
an amount equal to its fair market value on such date
(and as having been reacquired on such date for an amount
equal to such fair market value).
(2) TREATMENT OF GAIN OR LOSS.—
H. R. 2014—49
(A) Any gain resulting from an election under para-
graph (1) shall be treated as received or accrued on the
date the asset is treated as sold under paragraph (1) and
shall be recognized notwithstanding any provision of the
Internal Revenue Code of 1986.
(B) Any loss resulting from an election under para-
graph (1) shall not be allowed for any taxable year.
(3) ELECTION.—An election under paragraph (1) shall be
made in such manner as the Secretary of the Treasury or
his delegate may prescribe and shall specify the assets for
which such election is made. Such an election, once made
with respect to any asset, shall be irrevocable.
(4) READILY TRADABLE STOCK.—For purposes of this sub-
section, the term ‘‘readily tradable stock’’ means any stock
which, as of January 1, 2001, is readily tradable on an estab-
lished securities market or otherwise.
SEC. 312. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL
RESIDENCE.
(a) IN GENERAL.—Section 121 (relating to one-time exclusion
of gain from sale of principal residence by individual who has
attained age 55) is amended to read as follows:
‘‘SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.
‘‘(a) EXCLUSION.—Gross income shall not include gain from
the sale or exchange of property if, during the 5-year period ending
on the date of the sale or exchange, such property has been owned
and used by the taxpayer as the taxpayer’s principal residence
for periods aggregating 2 years or more.
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The amount of gain excluded from gross
income under subsection (a) with respect to any sale or
exchange shall not exceed $250,000.
‘‘(2) $500,000 LIMITATION FOR CERTAIN JOINT RETURNS.—
Paragraph (1) shall be applied by substituting ‘$500,000’ for
‘$250,000’ if—
‘‘(A) a husband and wife make a joint return for the
taxable year of the sale or exchange of the property,
‘‘(B) either spouse meets the ownership requirements
of subsection (a) with respect to such property,
‘‘(C) both spouses meet the use requirements of sub-
section (a) with respect to such property, and
‘‘(D) neither spouse is ineligible for the benefits of
subsection (a) with respect to such property by reason
of paragraph (3).
‘‘(3) APPLICATION
TO
ONLY
SALE
OR
EXCHANGE
EVERY
2 YEARS.—
‘‘(A) IN GENERAL.—Subsection (a) shall not apply to
any sale or exchange by the taxpayer if, during the 2-
year period ending on the date of such sale or exchange,
there was any other sale or exchange by the taxpayer
to which subsection (a) applied.
‘‘(B) 
PRE-MAY
7, 
1997, 
SALES
NOT
TAKEN
INTO
ACCOUNT.—Subparagraph (A) shall be applied without
regard to any sale or exchange before May 7, 1997.
‘‘(c) EXCLUSION
FOR TAXPAYERS FAILING TO MEET CERTAIN
REQUIREMENTS.—
H. R. 2014—50
‘‘(1) IN GENERAL.—In the case of a sale or exchange to
which this subsection applies, the ownership and use require-
ments of subsection (a) shall not apply and subsection (b)(3)
shall not apply; but the amount of gain excluded from gross
income under subsection (a) with respect to such sale or
exchange shall not exceed—
‘‘(A) the amount which bears the same ratio to the
amount which would be so excluded under this section
if such requirements had been met, as
‘‘(B) the shorter of—
‘‘(i) the aggregate periods, during the 5-year period
ending on the date of such sale or exchange, such
property has been owned and used by the taxpayer
as the taxpayer’s principal residence, or
‘‘(ii) the period after the date of the most recent
prior sale or exchange by the taxpayer to which sub-
section (a) applied and before the date of such sale
or exchange,
bears to 2 years.
‘‘(2) 
SALES
AND
EXCHANGES
TO
WHICH
SUBSECTION
APPLIES.—This subsection shall apply to any sale or exchange
if—
‘‘(A) subsection (a) would not (but for this subsection)
apply to such sale or exchange by reason of—
‘‘(i) a failure to meet the ownership and use
requirements of subsection (a), or
‘‘(ii) subsection (b)(3), and
‘‘(B) such sale or exchange is by reason of a change
in place of employment, health, or, to the extent provided
in regulations, unforeseen circumstances.
‘‘(d) SPECIAL RULES.—
‘‘(1) JOINT RETURNS.—If a husband and wife make a joint
return for the taxable year of the sale or exchange of the
property, subsections (a) and (c) shall apply if either spouse
meets the ownership and use requirements of subsection (a)
with respect to such property.
‘‘(2) PROPERTY OF DECEASED SPOUSE.—For purposes of this
section, in the case of an unmarried individual whose spouse
is deceased on the date of the sale or exchange of property,
the period such unmarried individual owned and used such
property shall include the period such deceased spouse owned
and used such property before death.
‘‘(3) PROPERTY OWNED BY SPOUSE OR FORMER SPOUSE.—
For purposes of this section—
‘‘(A) PROPERTY
TRANSFERRED
TO
INDIVIDUAL
FROM
SPOUSE OR FORMER SPOUSE.—In the case of an individual
holding property transferred to such individual in a trans-
action described in section 1041(a), the period such individ-
ual owns such property shall include the period the trans-
feror owned the property.
‘‘(B) PROPERTY USED BY FORMER SPOUSE PURSUANT TO
DIVORCE DECREE, ETC.—Solely for purposes of this section,
an individual shall be treated as using property as such
individual’s principal residence during any period of owner-
ship while such individual’s spouse or former spouse is
granted use of the property under a divorce or separation
instrument (as defined in section 71(b)(2)).
H. R. 2014—51
‘‘(4) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING COR-
PORATION.—For purposes of this section, if the taxpayer holds
stock as a tenant-stockholder (as defined in section 216) in
a cooperative housing corporation (as defined in such section),
then—
‘‘(A) the holding requirements of subsection (a) shall
be applied to the holding of such stock, and
‘‘(B) the use requirements of subsection (a) shall be
applied to the house or apartment which the taxpayer
was entitled to occupy as such stockholder.
‘‘(5) INVOLUNTARY CONVERSIONS.—
‘‘(A) IN GENERAL.—For purposes of this section, the
destruction, theft, seizure, requisition, or condemnation of
property shall be treated as the sale of such property.
‘‘(B) APPLICATION OF SECTION 1033.—In applying section
1033 (relating to involuntary conversions), the amount
realized from the sale or exchange of property shall be
treated as being the amount determined without regard
to this section, reduced by the amount of gain not included
in gross income pursuant to this section.
‘‘(C) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVER-
SION.—If the basis of the property sold or exchanged is
determined (in whole or in part) under section 1033(b)
(relating to basis of property acquired through involuntary
conversion), then the holding and use by the taxpayer
of the converted property shall be treated as holding and
use by the taxpayer of the property sold or exchanged.
‘‘(6) RECOGNITION
OF
GAIN
ATTRIBUTABLE
TO
DEPRECIA-
TION.—Subsection (a) shall not apply to so much of the gain
from the sale of any property as does not exceed the portion
of the depreciation adjustments (as defined in section
1250(b)(3)) attributable to periods after May 6, 1997, in respect
of such property.
‘‘(7) DETERMINATION OF USE DURING PERIODS OF OUT-OF-
RESIDENCE CARE.—In the case of a taxpayer who—
‘‘(A) becomes physically or mentally incapable of self-
care, and
‘‘(B) owns property and uses such property as the tax-
payer’s principal residence during the 5-year period
described in subsection (a) for periods aggregating at least
1 year,
then the taxpayer shall be treated as using such property
as the taxpayer’s principal residence during any time during
such 5-year period in which the taxpayer owns the property
and resides in any facility (including a nursing home) licensed
by a State or political subdivision to care for an individual
in the taxpayer’s condition.
‘‘(8) SALES OF REMAINDER INTERESTS.—For purposes of this
section—
‘‘(A) IN GENERAL.—At the election of the taxpayer, this
section shall not fail to apply to the sale or exchange
of an interest in a principal residence by reason of such
interest being a remainder interest in such residence, but
this section shall not apply to any other interest in such
residence which is sold or exchanged separately.
‘‘(B) EXCEPTION
FOR
SALES
TO
RELATED
PARTIES.—
Subparagraph (A) shall not apply to any sale to, or
H. R. 2014—52
exchange with, any person who bears a relationship to
the taxpayer which is described in section 267(b) or 707(b).
‘‘(e) DENIAL
OF EXCLUSION
FOR EXPATRIATES.—This section
shall not apply to any sale or exchange by an individual if the
treatment provided by section 877(a)(1) applies to such individual.
‘‘(f) ELECTION TO HAVE SECTION NOT APPLY.—This section shall
not apply to any sale or exchange with respect to which the taxpayer
elects not to have this section apply.
‘‘(g) RESIDENCES ACQUIRED
IN ROLLOVERS UNDER SECTION
1034.—For purposes of this section, in the case of property the
acquisition of which by the taxpayer resulted under section 1034
(as in effect on the day before the date of the enactment of this
section) in the nonrecognition of any part of the gain realized
on the sale or exchange of another residence, in determining the
period for which the taxpayer has owned and used such property
as the taxpayer’s principal residence, there shall be included the
aggregate periods for which such other residence (and each prior
residence taken into account under section 1223(7) in determining
the holding period of such property) had been so owned and used.’’.
(b) REPEAL
OF NONRECOGNITION
OF GAIN
ON ROLLOVER
OF
PRINCIPAL RESIDENCE.—Section 1034 (relating to rollover of gain
on sale of principal residence) is hereby repealed.
(c) EXCEPTION FROM REPORTING.—Subsection (e) of section 6045
(relating to return required in the case of real estate transactions)
is amended by adding at the end the following new paragraph:
‘‘(5) EXCEPTION FOR SALES OR EXCHANGES OF CERTAIN PRIN-
CIPAL RESIDENCES.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
any sale or exchange of a residence for $250,000 or less
if the person referred to in paragraph (2) receives written
assurance in a form acceptable to the Secretary from the
seller that—
‘‘(i) such residence is the principal residence
(within the meaning of section 121) of the seller,
‘‘(ii) if the Secretary requires the inclusion on the
return under subsection (a) of information as to
whether there is federally subsidized mortgage financ-
ing assistance with respect to the mortgage on resi-
dences, that there is no such assistance with respect
to the mortgage on such residence, and
‘‘(iii) the full amount of the gain on such sale
or exchange is excludable from gross income under
section 121.
If such assurance includes an assurance that the seller
is married, the preceding sentence shall be applied by
substituting ‘$500,000’ for ‘$250,000’.
The Secretary may by regulation increase the dollar amounts
under this subparagraph if the Secretary determines that such
an increase will not materially reduce revenues to the Treasury.
‘‘(B) SELLER.—For purposes of this paragraph, the term
‘seller’ includes the person relinquishing the residence in
an exchange.’’.
(d) CONFORMING AMENDMENTS.—
(1) The following provisions of the Internal Revenue Code
of 1986 are each amended by striking ‘‘section 1034’’ and insert-
ing ‘‘section 121’’: sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i),
H. R. 2014—53
143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 464(f)(3)(B)(i),
1033(h)(4), 1274(c)(3)(B), 6334(a)(13), and 7872(f)(11)(A).
(2) Paragraph (4) of section 32(c) is amended by striking
‘‘(as defined in section 1034(h)(3))’’ and by adding at the end
the following new sentence: ‘‘For purposes of the preceding
sentence, the term ‘extended active duty’ means any period
of active duty pursuant to a call or order to such duty for
a period in excess of 90 days or for an indefinite period.’’.
(3) Subparagraph (A) of 143(m)(6) is amended by inserting
‘‘(as in effect on the day before the date of the enactment
of the Taxpayer Relief Act of 1997)’’ after ‘‘1034(e)’’.
(4) Subsection (e) of section 216 is amended by striking
‘‘such exchange qualifies for nonrecognition of gain under sec-
tion 1034(f)’’ and inserting ‘‘such dwelling unit is used as his
principal residence (within the meaning of section 121)’’.
(5) Section 512(a)(3)(D) is amended by inserting ‘‘(as in
effect on the day before the date of the enactment of the
Taxpayer Relief Act of 1997)’’ after ‘‘1034’’.
(6) Paragraph (7) of section 1016(a) is amended by inserting
‘‘(as in effect on the day before the date of the enactment
of the Taxpayer Relief Act of 1997)’’ after ‘‘1034’’ and by insert-
ing ‘‘(as so in effect)’’ after ‘‘1034(e)’’.
(7) Paragraph (3) of section 1033(k) is amended to read
as follows:
‘‘(3) For exclusion from gross income of gain from involun-
tary conversion of principal residence, see section 121.’’.
(8) Subsection (e) of section 1038 is amended to read as
follows:
‘‘(e) PRINCIPAL RESIDENCES.—If—
‘‘(1) subsection (a) applies to a reacquisition of real property
with respect to the sale of which gain was not recognized
under section 121 (relating to gain on sale of principal resi-
dence); and
‘‘(2) within 1 year after the date of the reacquisition of
such property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsections
(b), (c), and (d) of this section shall not apply to the reacquisition
of such property and, for purposes of applying section 121, the
resale of such property shall be treated as a part of the transaction
constituting the original sale of such property.’’.
(9) Paragraph (7) of section 1223 is amended by inserting
‘‘(as in effect on the day before the date of the enactment
of the Taxpayer Relief Act of 1997)’’ after ‘‘1034’’.
(10)(A) Subsection (d) of section 1250 is amended by strik-
ing paragraph (7) and by redesignating paragraphs (9) and
(10) as paragraphs (7) and (8), respectively.
(B) Subsection (e) of section 1250 is amended by striking
paragraph (3).
(11) Subsection (c) of section 6012 is amended by striking
‘‘(relating to one-time exclusion of gain from sale of principal
residence by individual who has attained age 55)’’ and inserting
‘‘(relating to gain from sale of principal residence)’’.
(12) Paragraph (2) of section 6212(c) is amended by striking
subparagraph (C) and by redesignating the succeeding subpara-
graphs accordingly.
(13) Section 6504 is amended by striking paragraph (4)
and by redesignating the succeeding paragraphs accordingly.
H. R. 2014—54
(14) The item relating to section 121 in the table of sections
for part III of subchapter B of chapter 1 is amended to read
as follows:
‘‘Sec. 121. Exclusion of gain from sale of principal residence.’’.
(15) The table of sections for part III of subchapter O
of chapter 1 is amended by striking the item relating to section
1034.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to sales and exchanges after May 6, 1997.
(2) SALES BEFORE DATE OF ENACTMENT.—At the election
of the taxpayer, the amendments made by this section shall
not apply to any sale or exchange before the date of the enact-
ment of this Act.
(3) CERTAIN SALES WITHIN 2 YEARS AFTER DATE OF ENACT-
MENT.—Section 121 of the Internal Revenue Code of 1986 (as
amended by this section) shall be applied without regard to
subsection (c)(2)(B) thereof in the case of any sale or exchange
of property during the 2-year period beginning on the date
of the enactment of this Act if the taxpayer held such property
on the date of the enactment of this Act and fails to meet
the ownership and use requirements of subsection (a) thereof
with respect to such property.
(4) BINDING CONTRACTS.—At the election of the taxpayer,
the amendments made by this section shall not apply to a
sale or exchange after the date of the enactment of this Act,
if—
(A) such sale or exchange is pursuant to a contract
which was binding on such date, or
(B) without regard to such amendments, gain would
not be recognized under section 1034 of the Internal Reve-
nue Code of 1986 (as in effect on the day before the date
of the enactment of this Act) on such sale or exchange
by reason of a new residence acquired on or before such
date or with respect to the acquisition of which by the
taxpayer a binding contract was in effect on such date.
This paragraph shall not apply to any sale or exchange by
an individual if the treatment provided by section 877(a)(1)
of the Internal Revenue Code of 1986 applies to such individual.
SEC. 313. ROLLOVER OF GAIN FROM SALE OF QUALIFIED STOCK.
(a) IN GENERAL.—Part III of subchapter O of chapter 1 is
amended by adding at the end the following new section:
‘‘SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL BUSINESS
STOCK 
TO 
ANOTHER 
QUALIFIED 
SMALL 
BUSINESS
STOCK.
‘‘(a) NONRECOGNITION OF GAIN.—In the case of any sale of
qualified small business stock held by an individual for more than
6 months and with respect to which such individual elects the
application of this section, gain from such sale shall be recognized
only to the extent that the amount realized on such sale exceeds—
‘‘(1) the cost of any qualified small business stock purchased
by the taxpayer during the 60-day period beginning on the
date of such sale, reduced by
‘‘(2) any portion of such cost previously taken into account
under this section.
H. R. 2014—55
This section shall not apply to any gain which is treated as ordinary
income for purposes of this title.
‘‘(b) DEFINITIONS AND SPECIAL RULES.—For purposes of this
section—
‘‘(1) QUALIFIED SMALL BUSINESS STOCK.—The term ‘quali-
fied small business stock’ has the meaning given such term
by section 1202(c).
‘‘(2) PURCHASE.—A taxpayer shall be treated as having
purchased any property if, but for paragraph (3), the unadjusted
basis of such property in the hands of the taxpayer would
be its cost (within the meaning of section 1012).
‘‘(3) BASIS
ADJUSTMENTS.—If gain from any sale is not
recognized by reason of subsection (a), such gain shall be
applied to reduce (in the order acquired) the basis for determin-
ing gain or loss of any qualified small business stock which
is purchased by the taxpayer during the 60-day period described
in subsection (a).
‘‘(4) HOLDING
PERIOD.—For purposes of determining
whether the nonrecognition of gain under subsection (a) applies
to stock which is sold—
‘‘(A) the taxpayer’s holding period for such stock and
the stock referred to in subsection (a)(1) shall be deter-
mined without regard to section 1223, and
‘‘(B) only the first 6 months of the taxpayer’s holding
period for the stock referred to in subsection (a)(1) shall
be taken into account for purposes of applying section
1202(c)(2).’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a)(23) is amended—
(A) by striking ‘‘or 1044’’ and inserting ‘‘, 1044, or
1045’’, and
(B) by striking ‘‘or 1044(d)’’ and inserting ‘‘, 1044(d),
or 1045(b)(4)’’.
(2) Section 1223 is amended by redesignating paragraph
(15) as paragraph (16) and by inserting after paragraph (14)
the following new paragraph:
‘‘(15) In determining the period for which the taxpayer
has held property the acquisition of which resulted under sec-
tion 1045 in the nonrecognition of any part of the gain realized
on the sale of other property, there shall be included the period
for which such other property has been held as of the date
of such sale.’’.
(3) The table of sections for part III of subchapter O of
chapter 1 is amended by adding at the end the following new
item:
‘‘Sec. 1045. Rollover of gain from qualified small business stock to another
qualified small business stock.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales after the date of enactment of this Act.
SEC. 314. AMOUNT OF NET CAPITAL GAIN TAKEN INTO ACCOUNT IN
COMPUTING ALTERNATIVE TAX ON CAPITAL GAINS FOR
CORPORATIONS NOT TO EXCEED TAXABLE INCOME OF
THE CORPORATION.
(a) IN GENERAL.—Paragraph (2) of section 1201(a) is amended
by inserting before the period ‘‘(or, if less, taxable income)’’.
H. R. 2014—56
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years ending after December 31, 1997.
TITLE IV—ALTERNATIVE MINIMUM TAX
REFORM
SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL
CORPORATIONS.
(a) IN GENERAL.—Section 55 (relating to alternative minimum
tax imposed) is amended by adding at the end the following new
subsection:
‘‘(e) EXEMPTION FOR SMALL CORPORATIONS.—
‘‘(1) IN GENERAL.—The tentative minimum tax of a corpora-
tion shall be zero for any taxable year if—
‘‘(A) such corporation met the $5,000,000 gross receipts
test of section 448(c) for its first taxable year beginning
after December 31, 1996, and
‘‘(B) such corporation would meet such test for the
taxable year and all prior taxable years beginning after
such first taxable year if such test were applied by
substituting ‘$7,500,000’ for ‘$5,000,000’.
‘‘(2) PROSPECTIVE APPLICATION OF MINIMUM TAX IF SMALL
CORPORATION CEASES TO BE SMALL.—In the case of a corporation
whose tentative minimum tax is zero for any prior taxable
year by reason of paragraph (1), the application of this part
for taxable years beginning with the first taxable year such
corporation ceases to be described in paragraph (1) shall be
determined with the following modifications:
‘‘(A) Section 56(a)(1) (relating to depreciation) and sec-
tion 56(a)(5) (relating to pollution control facilities) shall
apply only to property placed in service on or after the
change date.
‘‘(B) Section 56(a)(2) (relating to mining exploration
and development costs) shall apply only to costs paid or
incurred on or after the change date.
‘‘(C) Section 56(a)(3) (relating to treatment of long-
term contracts) shall apply only to contracts entered into
on or after the change date.
‘‘(D) Section 56(a)(4) (relating to alternative net operat-
ing loss deduction) shall apply in the same manner as
if, in section 56(d)(2), the change date were substituted
for ‘January 1, 1987’ and the day before the change date
were substituted for ‘December 31, 1986’ each place it
appears.
‘‘(E) Section 56(g)(2)(B) (relating to limitation on allow-
ance of negative adjustments based on adjusted current
earnings) shall apply only to prior taxable years beginning
on or after the change date.
‘‘(F) Section 56(g)(4)(A) (relating to adjustment for
depreciation to adjusted current earnings) shall not apply.
‘‘(G) Subparagraphs (D) and (F) of section 56(g)(4)
(relating to other earnings and profits adjustments and
depletion) shall apply in the same manner as if the day
before the change date were substituted for ‘December
31, 1989’ each place it appears therein.
H. R. 2014—57
‘‘(3) EXCEPTION.—The modifications in paragraph (2) shall
not apply to—
‘‘(A) any item acquired by the corporation in a trans-
action to which section 381 applies, and
‘‘(B) any property the basis of which in the hands
of the corporation is determined by reference to the basis
of the property in the hands of the transferor,
if such item or property was subject to any provision referred
to in paragraph (2) while held by the transferor.
‘‘(4) CHANGE DATE.—For purposes of paragraph (2), the
change date is the first day of the first taxable year for which
the taxpayer ceases to be described in paragraph (1).
‘‘(5) LIMITATION ON USE OF CREDIT FOR PRIOR YEAR MINIMUM
TAX LIABILITY.—In the case of a taxpayer whose tentative mini-
mum tax for any taxable year is zero by reason of paragraph
(1), section 53(c) shall be applied for such year by reducing
the amount otherwise taken into account under section 53(c)(1)
by 25 percent of so much of such amount as exceeds $25,000.
Rules similar to the rules of section 38(c)(3)(B) shall apply
for purposes of the preceding sentence.’’.
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to taxable years beginning after December 31, 1997.
SEC. 402. REPEAL OF SEPARATE DEPRECIATION LIVES FOR MINIMUM
TAX PURPOSES.
(a) IN GENERAL.—Clause (i) of section 56(a)(1)(A) is amended
by adding at the end the following new sentence: ‘‘In the case
of property placed in service after December 31, 1998, the preceding
sentence shall not apply but clause (ii) shall continue to apply.’’.
(b) POLLUTION CONTROL FACILITIES.—Paragraph (5) of section
56(a) is amended by adding at the end the following new sentence:
‘‘In the case of such a facility placed in service after December
31, 1998, such deduction shall be determined under section 168
using the straight line method.’’.
SEC. 403. MINIMUM TAX NOT TO APPLY TO FARMERS’ INSTALLMENT
SALES.
(a) IN GENERAL.—Subsection (a) of section 56 is amended by
striking paragraph (6) (relating to treatment of installment sales)
and by redesignating paragraphs (7) and (8) as paragraphs (6)
and (7), respectively.
(b) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendment made by this section
shall apply to dispositions in taxable years beginning after
December 31, 1987.
(2) SPECIAL RULE FOR 1987.—In the case of taxable years
beginning in 1987, the last sentence of section 56(a)(6) of the
Internal Revenue Code of 1986 (as in effect for such taxable
years) shall be applied by inserting ‘‘or in the case of a taxpayer
using the cash receipts and disbursements method of account-
ing, any disposition described in section 453C(e)(1)(B)(ii)’’ after
‘‘section 453C(e)(4)’’.
H. R. 2014—58
TITLE V—ESTATE, GIFT, AND GENERA-
TION-SKIPPING TAX PROVISIONS
Subtitle A—Estate and Gift Tax Provisions
SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND
GIFT TAX PROVISIONS.
(a) INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDIT.—
(1) ESTATE TAX CREDIT.—
(A) IN GENERAL.—Subsection (a) of section 2010 (relat-
ing to unified credit against estate tax) is amended by
striking ‘‘$192,800’’ and inserting ‘‘the applicable credit
amount’’.
(B) APPLICABLE
CREDIT
AMOUNT.—Section 2010 is
amended by redesignating subsection (c) as subsection (d)
and by inserting after subsection (b) the following new
subsection:
‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes of this section,
the applicable credit amount is the amount of the tentative tax
which would be determined under the rate schedule set forth in
section 2001(c) if the amount with respect to which such tentative
tax is to be computed were the applicable exclusion amount deter-
mined in accordance with the following table:
‘‘In the case of estates of decedents
The applicable
dying, and gifts made, during:
exclusion amount is:
1998 .......................................................................................
$ 625,000
1999 .......................................................................................
$ 650,000
2000 and 2001 ......................................................................
$ 675,000
2002 and 2003 ......................................................................
$ 700,000
2004 .......................................................................................
$ 850,000
2005 .......................................................................................
$ 950,000
2006 or thereafter ................................................................
$1,000,000.’’.
(C) ESTATE TAX RETURNS.—Paragraph (1) of section
6018(a) is amended by striking ‘‘$600,000’’ and inserting
‘‘the applicable exclusion amount in effect under section
2010(c) for the calendar year which includes the date of
death’’.
(D) PHASEOUT
OF
GRADUATED
RATES
AND
UNIFIED
CREDIT.—Paragraph (2) of section 2001(c) is amended by
striking ‘‘$21,040,000’’ and inserting ‘‘the amount at which
the average tax rate under this section is 55 percent’’.
(E) 
ESTATES
OF
NONRESIDENTS
NOT
CITIZENS.—
Subparagraph (A) of section 2102(c)(3) is amended by strik-
ing ‘‘$192,800’’ and inserting ‘‘the applicable credit amount
in effect under section 2010(c) for the calendar year which
includes the date of death’’.
(2) UNIFIED GIFT TAX CREDIT.—Paragraph (1) of section
2505(a) is amended by striking ‘‘$192,800’’ and inserting ‘‘the
applicable credit amount in effect under section 2010(c) for
such calendar year’’.
(b) ALTERNATE VALUATION OF CERTAIN FARM, ETC., REAL PROP-
ERTY.—Subsection (a) of section 2032A is amended by adding at
the end the following new paragraph:
‘‘(3) INFLATION
ADJUSTMENT.—In the case of estates of
decedents dying in a calendar year after 1998, the $750,000
H. R. 2014—59
amount contained in paragraph (2) shall be increased by an
amount equal to—
‘‘(A) $750,000, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting ‘cal-
endar year 1997’ for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sentence is
not a multiple of $10,000, such amount shall be rounded to
the next lowest multiple of $10,000.’’.
(c) ANNUAL GIFT TAX EXCLUSION.—Subsection (b) of section
2503 is amended—
(1) by striking the subsection heading and inserting the
following:
‘‘(b) EXCLUSIONS FROM GIFTS.—
‘‘(1) IN GENERAL.—’’,
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new paragraph:
‘‘(2) INFLATION ADJUSTMENT.—In the case of gifts made
in a calendar year after 1998, the $10,000 amount contained
in paragraph (1) shall be increased by an amount equal to—
‘‘(A) $10,000, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting ‘cal-
endar year 1997’ for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any amount as adjusted under the preceding sentence is
not a multiple of $1,000, such amount shall be rounded to
the next lowest multiple of $1,000.’’.
(d) EXEMPTION FROM GENERATION-SKIPPING TAX.—Section 2631
(relating to GST exemption) is amended by adding at the end
the following new subsection:
‘‘(c) INFLATION ADJUSTMENT.—In the case of an individual who
dies in any calendar year after 1998, the $1,000,000 amount con-
tained in subsection (a) shall be increased by an amount equal
to—
‘‘(1) $1,000,000, multiplied by
‘‘(2) the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting ‘calendar year
1997’ for ‘calendar year 1992’ in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not
a multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.’’.
(e) AMOUNT SUBJECT TO REDUCED RATE WHERE EXTENSION
OF TIME FOR PAYMENT OF ESTATE TAX ON CLOSELY HELD BUSI-
NESS.—Subsection (j) of section 6601 is amended by redesignating
paragraph (3) as paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) INFLATION
ADJUSTMENT.—In the case of estates of
decedents dying in a calendar year after 1998, the $1,000,000
amount contained in paragraph (2)(A) shall be increased by
an amount equal to—
‘‘(A) $1,000,000, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting ‘cal-
endar year 1997’ for ‘calendar year 1992’ in subparagraph
(B) thereof.
H. R. 2014—60
If any amount as adjusted under the preceding sentence is
not a multiple of $10,000, such amount shall be rounded to
the next lowest multiple of $10,000.’’.
(f) EFFECTIVE DATE.—The amendments made by this section
shall apply to the estates of decedents dying, and gifts made,
after December 31, 1997.
SEC. 502. FAMILY-OWNED BUSINESS EXCLUSION.
(a) IN GENERAL.—Part III of subchapter A of chapter 11 (relat-
ing to gross estate) is amended by inserting after section 2033
the following new section:
‘‘SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.
‘‘(a) IN GENERAL.—In the case of an estate of a decedent to
which this section applies, the value of the gross estate shall not
include the lesser of—
‘‘(1) the adjusted value of the qualified family-owned busi-
ness interests of the decedent otherwise includible in the estate,
or
‘‘(2) the excess of $1,300,000 over the applicable exclusion
amount under section 2010(c) with respect to such estate.
‘‘(b) ESTATES TO WHICH SECTION APPLIES.—
‘‘(1) IN GENERAL.—This section shall apply to an estate
if—
‘‘(A) the decedent was (at the date of the decedent’s
death) a citizen or resident of the United States,
‘‘(B) the executor elects the application of this section
and files the agreement referred to in subsection (h),
‘‘(C) the sum of—
‘‘(i) the adjusted value of the qualified family-
owned business interests described in paragraph (2),
plus
‘‘(ii) the amount of the gifts of such interests deter-
mined under paragraph (3),
exceeds 50 percent of the adjusted gross estate, and
‘‘(D) during the 8-year period ending on the date of
the decedent’s death there have been periods aggregating
5 years or more during which—
‘‘(i) such interests were owned by the decedent
or a member of the decedent’s family, and
‘‘(ii) there was material participation (within the
meaning of section 2032A(e)(6)) by the decedent or
a member of the decedent’s family in the operation
of the business to which such interests relate.
‘‘(2) 
INCLUDIBLE
QUALIFIED
FAMILY-OWNED
BUSINESS
INTERESTS.—The qualified family-owned business interests
described in this paragraph are the interests which—
‘‘(A) are included in determining the value of the gross
estate (without regard to this section), and
‘‘(B) are acquired by any qualified heir from, or passed
to any qualified heir from, the decedent (within the mean-
ing of section 2032A(e)(9)).
‘‘(3) INCLUDIBLE GIFTS OF INTERESTS.—The amount of the
gifts of qualified family-owned business interests determined
under this paragraph is the excess of—
‘‘(A) the sum of—
H. R. 2014—61
‘‘(i) the amount of such gifts from the decedent
to members of the decedent’s family taken into account
under subsection 2001(b)(1)(B), plus
‘‘(ii) the amount of such gifts otherwise excluded
under section 2503(b),
to the extent such interests are continuously held by mem-
bers of such family (other than the decedent’s spouse)
between the date of the gift and the date of the decedent’s
death, over
‘‘(B) the amount of such gifts from the decedent to
members of the decedent’s family otherwise included in
the gross estate.
‘‘(c) ADJUSTED GROSS ESTATE.—For purposes of this section,
the term ‘adjusted gross estate’ means the value of the gross estate
(determined without regard to this section)—
‘‘(1) reduced by any amount deductible under paragraph
(3) or (4) of section 2053(a), and
‘‘(2) increased by the excess of—
‘‘(A) the sum of—
‘‘(i) the amount of gifts determined under sub-
section (b)(3), plus
‘‘(ii) the amount (if more than de minimis) of other
transfers from the decedent to the decedent’s spouse
(at the time of the transfer) within 10 years of the
date of the decedent’s death, plus
‘‘(iii) the amount of other gifts (not included under
clause (i) or (ii)) from the decedent within 3 years
of such date, other than gifts to members of the
decedent’s family otherwise excluded under section
2503(b), over
‘‘(B) the sum of the amounts described in clauses (i),
(ii), and (iii) of subparagraph (A) which are otherwise
includible in the gross estate.
For purposes of the preceding sentence, the Secretary may provide
that de minimis gifts to persons other than members of the
decedent’s family shall not be taken into account.
‘‘(d) ADJUSTED VALUE OF THE QUALIFIED FAMILY-OWNED BUSI-
NESS INTERESTS.—For purposes of this section, the adjusted value
of any qualified family-owned business interest is the value of
such interest for purposes of this chapter (determined without
regard to this section), reduced by the excess of—
‘‘(1) any amount deductible under paragraph (3) or (4)
of section 2053(a), over
‘‘(2) the sum of—
‘‘(A) any indebtedness on any qualified residence of
the decedent the interest on which is deductible under
section 163(h)(3), plus
‘‘(B) any indebtedness to the extent the taxpayer estab-
lishes that the proceeds of such indebtedness were used
for the payment of educational and medical expenses of
the decedent, the decedent’s spouse, or the decedent’s
dependents (within the meaning of section 152), plus
‘‘(C) any indebtedness not described in subparagraph
(A) or (B), to the extent such indebtedness does not exceed
$10,000.
‘‘(e) QUALIFIED FAMILY-OWNED BUSINESS INTEREST.—
H. R. 2014—62
‘‘(1) IN GENERAL.—For purposes of this section, the term
‘qualified family-owned business interest’ means—
‘‘(A) an interest as a proprietor in a trade or business
carried on as a proprietorship, or
‘‘(B) an interest in an entity carrying on a trade or
business, if—
‘‘(i) at least—
‘‘(I) 50 percent of such entity is owned (directly
or indirectly) by the decedent and members of
the decedent’s family,
‘‘(II) 70 percent of such entity is so owned
by members of 2 families, or
‘‘(III) 90 percent of such entity is so owned
by members of 3 families, and
‘‘(ii) for purposes of subclause (II) or (III) of clause
(i), at least 30 percent of such entity is so owned
by the decedent and members of the decedent’s family.
‘‘(2) LIMITATION.—Such term shall not include—
‘‘(A) any interest in a trade or business the principal
place of business of which is not located in the United
States,
‘‘(B) any interest in an entity, if the stock or debt
of such entity or a controlled group (as defined in section
267(f)(1)) of which such entity was a member was readily
tradable on an established securities market or secondary
market (as defined by the Secretary) at any time within
3 years of the date of the decedent’s death,
‘‘(C) any interest in a trade or business not described
in section 542(c)(2), if more than 35 percent of the adjusted
ordinary gross income of such trade or business for the
taxable year which includes the date of the decedent’s
death would qualify as personal holding company income
(as defined in section 543(a)),
‘‘(D) that portion of an interest in a trade or business
that is attributable to—
‘‘(i) cash or marketable securities, or both, in excess
of the reasonably expected day-to-day working capital
needs of such trade or business, and
‘‘(ii) any other assets of the trade or business (other
than assets used in the active conduct of a trade or
business described in section 542(c)(2)), which produce,
or are held for the production of, income of which
is described in section 543(a) or in section 954(c)(1)
(determined without regard to subparagraph (A)
thereof and by substituting ‘trade or business’ for ‘con-
trolled foreign corporation’).
‘‘(3) RULES REGARDING OWNERSHIP.—
‘‘(A) OWNERSHIP OF ENTITIES.—For purposes of para-
graph (1)(B)—
‘‘(i) CORPORATIONS.—Ownership of a corporation
shall be determined by the holding of stock possessing
the appropriate percentage of the total combined voting
power of all classes of stock entitled to vote and the
appropriate percentage of the total value of shares
of all classes of stock.
H. R. 2014—63
‘‘(ii) PARTNERSHIPS.—Ownership of a partnership
shall be determined by the owning of the appropriate
percentage of the capital interest in such partnership.
‘‘(B) OWNERSHIP
OF
TIERED
ENTITIES.—For purposes
of this section, if by reason of holding an interest in a
trade or business, a decedent, any member of the decedent’s
family, any qualified heir, or any member of any qualified
heir’s family is treated as holding an interest in any other
trade or business—
‘‘(i) such ownership interest in the other trade
or business shall be disregarded in determining if the
ownership interest in the first trade or business is
a qualified family-owned business interest, and
‘‘(ii) this section shall be applied separately in
determining if such interest in any other trade or
business is a qualified family-owned business interest.
‘‘(C) INDIVIDUAL OWNERSHIP RULES.—For purposes of
this section, an interest owned, directly or indirectly, by
or for an entity described in paragraph (1)(B) shall be
considered as being owned proportionately by or for the
entity’s shareholders, partners, or beneficiaries. A person
shall be treated as a beneficiary of any trust only if such
person has a present interest in such trust.
‘‘(f) TAX TREATMENT OF FAILURE TO MATERIALLY PARTICIPATE
IN BUSINESS OR DISPOSITIONS OF INTERESTS.—
‘‘(1) IN GENERAL.—There is imposed an additional estate
tax if, within 10 years after the date of the decedent’s death
and before the date of the qualified heir’s death—
‘‘(A) the material participation requirements described
in section 2032A(c)(6)(B) are not met with respect to the
qualified family-owned business interest which was
acquired (or passed) from the decedent,
‘‘(B) the qualified heir disposes of any portion of a
qualified family-owned business interest (other than by
a disposition to a member of the qualified heir’s family
or through a qualified conservation contribution under sec-
tion 170(h)),
‘‘(C) the qualified heir loses United States citizenship
(within the meaning of section 877) or with respect to
whom an event described in subparagraph (A) or (B) of
section 877(e)(1) occurs, and such heir does not comply
with the requirements of subsection (g), or
‘‘(D) the principal place of business of a trade or busi-
ness of the qualified family-owned business interest ceases
to be located in the United States.
‘‘(2) ADDITIONAL ESTATE TAX.—
‘‘(A) IN GENERAL.—The amount of the additional estate
tax imposed by paragraph (1) shall be equal to—
‘‘(i) the applicable percentage of the adjusted tax
difference attributable to the qualified family-owned
business interest (as determined under rules similar
to the rules of section 2032A(c)(2)(B)), plus
‘‘(ii) interest on the amount determined under
clause (i) at the underpayment rate established under
section 6621 for the period beginning on the date the
estate tax liability was due under this chapter and
ending on the date such additional estate tax is due.
H. R. 2014—64
‘‘(B) APPLICABLE PERCENTAGE.—For purposes of this
paragraph, the applicable percentage shall be determined
under the following table:
‘‘If the event described in
paragraph (1) occurs in
the following year of
The applicable
material participation:
percentage is:
1 through 6 .......................................................................................
100
7 .........................................................................................................
8 .........................................................................................................
9 .........................................................................................................
10 .......................................................................................................
20.
‘‘(g) SECURITY
REQUIREMENTS
FOR
NONCITIZEN
QUALIFIED
HEIRS.—
‘‘(1) IN GENERAL.—Except upon the application of subpara-
graph (F) or (M) of subsection (i)(3), if a qualified heir is
not a citizen of the United States, any interest under this
section passing to or acquired by such heir (including any
interest held by such heir at a time described in subsection
(f)(1)(C)) shall be treated as a qualified family-owned business
interest only if the interest passes or is acquired (or is held)
in a qualified trust.
‘‘(2) QUALIFIED TRUST.—The term ‘qualified trust’ means
a trust—
‘‘(A) which is organized under, and governed by, the
laws of the United States or a State, and
‘‘(B) except as otherwise provided in regulations, with
respect to which the trust instrument requires that at
least 1 trustee of the trust be an individual citizen of
the United States or a domestic corporation.
‘‘(h) AGREEMENT.—The agreement referred to in this subsection
is a written agreement signed by each person in being who has
an interest (whether or not in possession) in any property des-
ignated in such agreement consenting to the application of sub-
section (f) with respect to such property.
‘‘(i) OTHER DEFINITIONS AND APPLICABLE RULES.—For purposes
of this section—
‘‘(1) QUALIFIED HEIR.—The term ‘qualified heir’—
‘‘(A) has the meaning given to such term by section
2032A(e)(1), and
‘‘(B) includes any active employee of the trade or busi-
ness to which the qualified family-owned business interest
relates if such employee has been employed by such trade
or business for a period of at least 10 years before the
date of the decedent’s death.
‘‘(2) MEMBER OF THE FAMILY.—The term ‘member of the
family’ has the meaning given to such term by section
2032A(e)(2).
‘‘(3) APPLICABLE
RULES.—Rules similar to the following
rules shall apply:
‘‘(A) Section 2032A(b)(4) (relating to decedents who
are retired or disabled).
‘‘(B) Section 2032A(b)(5) (relating to special rules for
surviving spouses).
‘‘(C) Section 2032A(c)(2)(D) (relating to partial disposi-
tions).
‘‘(D) Section 2032A(c)(3) (relating to only 1 additional
tax imposed with respect to any 1 portion).
H. R. 2014—65
‘‘(E) Section 2032A(c)(4) (relating to due date).
‘‘(F) Section 2032A(c)(5) (relating to liability for tax;
furnishing of bond).
‘‘(G) Section 2032A(c)(7) (relating to no tax if use begins
within 2 years; active management by eligible qualified
heir treated as material participation).
‘‘(H) Paragraphs (1) and (3) of section 2032A(d) (relat-
ing to election; agreement).
‘‘(I) Section 2032A(e)(10) (relating to community prop-
erty).
‘‘(J) Section 2032A(e)(14) (relating to treatment of
replacement property acquired in section 1031 or 1033
transactions).
‘‘(K) Section 2032A(f) (relating to statute of limitations).
‘‘(L) Section 6166(b)(3) (relating to farmhouses and cer-
tain other structures taken into account).
‘‘(M) Subparagraphs (B), (C), and (D) of section
6166(g)(1) (relating to acceleration of payment).
‘‘(N) Section 6324B (relating to special lien for addi-
tional estate tax).’’.
(b) CLERICAL AMENDMENT.—The table of sections for part III
of subchapter A of chapter 11 is amended by inserting after the
item relating to section 2033 the following new item:
‘‘Sec. 2033A. Family-owned business exclusion.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after December 31, 1997.
SEC. 503. MODIFICATIONS TO RATE OF INTEREST ON PORTION OF
ESTATE TAX EXTENDED UNDER SECTION 6166.
(a) IN GENERAL.—Paragraphs (1) and (2) of section 6601(j)
(relating to 4-percent rate on certain portion of estate tax extended
under section 6166) are amended to read as follows:
‘‘(1) IN GENERAL.—If the time for payment of an amount
of tax imposed by chapter 11 is extended as provided in section
6166, then in lieu of the annual rate provided by subsection
(a)—
‘‘(A) interest on the 2-percent portion of such amount
shall be paid at the rate of 2 percent, and
‘‘(B) interest on so much of such amount as exceeds
the 2-percent portion shall be paid at a rate equal to
45 percent of the annual rate provided by subsection (a).
For purposes of this subsection, the amount of any deficiency
which is prorated to installments payable under section 6166
shall be treated as an amount of tax payable in installments
under such section.
‘‘(2) 2-PERCENT PORTION.—For purposes of this subsection,
the term ‘2-percent portion’ means the lesser of—
‘‘(A)(i) the amount of the tentative tax which would
be determined under the rate schedule set forth in section
2001(c) if the amount with respect to which such tentative
tax is to be computed were the sum of $1,000,000 and
the applicable exclusion amount in effect under section
2010(c), reduced by
‘‘(ii) the applicable credit amount in effect under section
2010(c), or
‘‘(B) the amount of the tax imposed by chapter 11
which is extended as provided in section 6166.’’.
H. R. 2014—66
(b) DISALLOWANCE OF INTEREST DEDUCTION.—
(1) ESTATE TAX.—Paragraph (1) of section 2053(c) is amend-
ed by adding at the end the following new subparagraph:
‘‘(D) SECTION 6166 INTEREST.—No deduction shall be
allowed under this section for any interest payable under
section 6601 on any unpaid portion of the tax imposed
by section 2001 for the period during which an extension
of time for payment of such tax is in effect under section
6166.’’.
(2) INCOME TAX.—
(A) Section 163 is amended by redesignating subsection
(k) as subsection (l) and by inserting after subsection (j)
the following new subsection:
‘‘(k) SECTION 6166 INTEREST.—No deduction shall be allowed
under this section for any interest payable under section 6601
on any unpaid portion of the tax imposed by section 2001 for
the period during which an extension of time for payment of such
tax is in effect under section 6166.’’.
(B) Subparagraph (E) of section 163(h)(2) is amended
by striking ‘‘or 6166’’ and all that follows and inserting
a period.
(c) CONFORMING AMENDMENTS.—
(1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of section 6166(b)
are amended by striking ‘‘4-percent’’ each place it appears
(including the heading) and inserting ‘‘2-percent’’.
(2) Paragraph (4) of section 6601(j), as redesignated by
section 501(e), is amended by striking ‘‘4-percent’’ each place
it appears and inserting ‘‘2-percent’’.
(3) The subsection heading for section 6601(j) is amended
by striking ‘‘4-PERCENT’’ and inserting ‘‘2-PERCENT’’.
(d) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to estates of decedents dying after December 31,
1997.
(2) ELECTION.—In the case of the estate of any decedent
dying before January 1, 1998, with respect to which there
is an election under section 6166 of the Internal Revenue Code
of 1986, the executor of the estate may elect to have the
amendments made by this section apply with respect to install-
ments due after the effective date of the election; except that
the 2-percent portion of such installments shall be equal to
the amount which would be the 4-percent portion of such
installments without regard to such election. Such an election
shall be made before January 1, 1999 in the manner prescribed
by the Secretary of the Treasury and, once made, is irrevocable.
SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SEC-
TION 2032A TO LINEAL DESCENDANTS.
(a) GENERAL RULE.—Paragraph (7) of section 2032A(c) (relating
to special rules for tax treatment of dispositions and failures to
use for qualified use) is amended by adding at the end the following
new subparagraph:
‘‘(E) CERTAIN RENTS TREATED AS QUALIFIED USE.—For
purposes of this subsection, a surviving spouse or lineal
descendant of the decedent shall not be treated as failing
to use qualified real property in a qualified use solely
because such spouse or descendant rents such property
H. R. 2014—67
to a member of the family of such spouse or descendant
on a net cash basis. For purposes of the preceding sentence,
a legally adopted child of an individual shall be treated
as the child of such individual by blood.’’.
(b) 
CONFORMING
AMENDMENT.—Section 
2032A(b)(5)(A) 
is
amended by striking the last sentence.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to leases entered into after December
31, 1976.
SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR
EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX.
(a) IN GENERAL.—Part IV of subchapter C of chapter 76 of
the Internal Revenue Code of 1986 (relating to declaratory judg-
ments) is amended by adding at the end the following new section:
‘‘SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF
ESTATE WITH RESPECT TO INSTALLMENT PAYMENTS
UNDER SECTION 6166.
‘‘(a) CREATION OF REMEDY.—In a case of actual controversy
involving a determination by the Secretary of (or a failure by
the Secretary to make a determination with respect to)—
‘‘(1) whether an election may be made under section 6166
(relating to extension of time for payment of estate tax where
estate consists largely of interest in closely held business) with
respect to an estate, or
‘‘(2) whether the extension of time for payment of tax
provided in section 6166(a) has ceased to apply with respect
to an estate,
upon the filing of an appropriate pleading, the Tax Court may
make a declaration with respect to whether such election may
be made or whether such extension has ceased to apply. Any such
declaration shall have the force and effect of a decision of the
Tax Court and shall be reviewable as such.
‘‘(b) LIMITATIONS.—
‘‘(1) PETITIONER.—A pleading may be filed under this sec-
tion, with respect to any estate, only—
‘‘(A) by the executor of such estate, or
‘‘(B) by any person who has assumed an obligation
to make payments under section 6166 with respect to such
estate (but only if each other such person is joined as
a party).
‘‘(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.—The court
shall not issue a declaratory judgment or decree under this
section in any proceeding unless it determines that the peti-
tioner has exhausted all available administrative remedies
within the Internal Revenue Service. A petitioner shall be
deemed to have exhausted its administrative remedies with
respect to a failure of the Secretary to make a determination
at the expiration of 180 days after the date on which the
request for such determination was made if the petitioner has
taken, in a timely manner, all reasonable steps to secure such
determination.
‘‘(3) TIME FOR BRINGING ACTION.—If the Secretary sends
by certified or registered mail notice of his determination as
described in subsection (a) to the petitioner, no proceeding
may be initiated under this section unless the pleading is
filed before the 91st day after the date of such mailing.’’.
H. R. 2014—68
(b) CLERICAL AMENDMENT.—The table of sections for part IV
of subchapter C of chapter 76 of such Code is amended by adding
at the end the following new item:
‘‘Sec. 7479. Declaratory judgments relating to eligibility of estate with re-
spect to installment payments under section 6166.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES
AFTER EXPIRATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Section 2001 (relating to imposition and rate
of estate tax) is amended by adding at the end the following new
subsection:
‘‘(f) VALUATION OF GIFTS.—If—
‘‘(1) the time has expired within which a tax may be
assessed under chapter 12 (or under corresponding provisions
of prior laws) on the transfer of property by gift made during
a preceding calendar period (as defined in section 2502(b)),
and
‘‘(2) the value of such gift is shown on the return for
such preceding calendar period or is disclosed in such return,
or in a statement attached to the return, in a manner adequate
to apprise the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax
under this chapter, be the value of such gift as finally determined
for purposes of chapter 12.’’.
(b) MODIFICATION
OF APPLICATION
OF STATUTE
OF LIMITA-
TIONS.—Paragraph (9) of section 6501(c) is amended to read as
follows:
‘‘(9) GIFT TAX ON CERTAIN GIFTS NOT SHOWN ON RETURN.—
If any gift of property the value of which (or any increase
in taxable gifts required under section 2701(d) which) is
required to be shown on a return of tax imposed by chapter
12 (without regard to section 2503(b)), and is not shown on
such return, any tax imposed by chapter 12 on such gift may
be assessed, or a proceeding in court for the collection of such
tax may be begun without assessment, at any time. The preced-
ing sentence shall not apply to any item which is disclosed
in such return, or in a statement attached to the return, in
a manner adequate to apprise the Secretary of the nature
of such item. The value of any item which is so disclosed
may not be redetermined by the Secretary after the expiration
of the period under subsection (a).’’.
(c) DECLARATORY JUDGMENT PROCEDURE
FOR DETERMINING
VALUE OF GIFT.—
(1) IN GENERAL.—Part IV of subchapter C of chapter 76
is amended by inserting after section 7476 the following new
section:
‘‘SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CER-
TAIN GIFTS.
‘‘(a) CREATION OF REMEDY.—In a case of an actual controversy
involving a determination by the Secretary of the value of any
gift shown on the return of tax imposed by chapter 12 or disclosed
on such return or in any statement attached to such return, upon
the filing of an appropriate pleading, the Tax Court may make
H. R. 2014—69
a declaration of the value of such gift. Any such declaration shall
have the force and effect of a decision of the Tax Court and shall
be reviewable as such.
‘‘(b) LIMITATIONS.—
‘‘(1) PETITIONER.—A pleading may be filed under this sec-
tion only by the donor.
‘‘(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.—The court
shall not issue a declaratory judgment or decree under this
section in any proceeding unless it determines that the peti-
tioner has exhausted all available administrative remedies
within the Internal Revenue Service.
‘‘(3) TIME FOR BRINGING ACTION.—If the Secretary sends
by certified or registered mail notice of his determination as
described in subsection (a) to the petitioner, no proceeding
may be initiated under this section unless the pleading is
filed before the 91st day after the date of such mailing.’’.
(2) CLERICAL AMENDMENT.—The table of sections for such
part IV is amended by inserting after the item relating to
section 7476 the following new item:
‘‘Sec. 7477. Declaratory judgments relating to value of certain gifts.’’.
(d) CONFORMING AMENDMENT.—Subsection (c) of section 2504
is amended by striking ‘‘, and if a tax under this chapter or under
corresponding provisions of prior laws has been assessed or paid
for such preceding calendar period’’.
(e) EFFECTIVE DATES.—
(1) IN GENERAL.—The amendments made by subsections
(a) and (c) shall apply to gifts made after the date of the
enactment of this Act.
(2) SUBSECTION (b)—The amendment made by subsection
(b) shall apply to gifts made in calendar years ending after
the date of the enactment of this Act.
SEC. 507. REPEAL OF THROWBACK RULES APPLICABLE TO CERTAIN
DOMESTIC TRUSTS.
(a) ACCUMULATION DISTRIBUTIONS.—
(1) IN GENERAL.—Section 665 is amended by inserting after
subsection (b) the following new subsection:
‘‘(c) EXCEPTION FOR ACCUMULATION DISTRIBUTIONS FROM CER-
TAIN DOMESTIC TRUSTS.—For purposes of this subpart—
‘‘(1) IN GENERAL.—In the case of a qualified trust, any
distribution in any taxable year beginning after the date of
the enactment of this subsection shall be computed without
regard to any undistributed net income.
‘‘(2) QUALIFIED TRUST.—For purposes of this subsection,
the term ‘qualified trust’ means any trust other than—
‘‘(A) a foreign trust (or, except as provided in regula-
tions, a domestic trust which at any time was a foreign
trust), or
‘‘(B) a trust created before March 1, 1984, unless it
is established that the trust would not be aggregated with
other trusts under section 643(f) if such section applied
to such trust.’’.
(2) CONFORMING AMENDMENTS.—Subsection (b) of section
665 is amended by inserting ‘‘except as provided in subsection
(c),’’ after ‘‘subpart,’’.
(b) REPEAL OF TAX ON TRANSFERS TO TRUSTS AT LESS THAN
FAIR MARKET VALUE.—
H. R. 2014—70
(1) Subpart A of part I of subchapter J of chapter 1 is
amended by striking section 644 and by redesignating section
645 as section 644.
(2) Paragraph (5) of section 706(b) is amended by striking
‘‘section 645’’ and inserting ‘‘section 644’’.
(3) The table of sections for such subpart is amended by
striking the last 2 items and inserting the following new item:
‘‘Sec. 644. Taxable year of trusts.’’.
(c) EFFECTIVE DATES.—
(1) 
ACCUMULATION
DISTRIBUTIONS.—The 
amendments
made by subsection (a) shall apply to distributions in taxable
years beginning after the date of the enactment of this Act.
(2) TRANSFERRED PROPERTY.—The amendments made by
subsection (b) shall apply to sales or exchanges after the date
of the enactment of this Act.
SEC. 508. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVA-
TION EASEMENT.
(a) ESTATE TAX WITH RESPECT TO LAND SUBJECT TO A QUALI-
FIED CONSERVATION EASEMENT.—Section 2031 (relating to the defi-
nition of gross estate) is amended by redesignating subsection (c)
as subsection (d) and by inserting after subsection (b) the following
new subsection:
‘‘(c) ESTATE TAX WITH RESPECT TO LAND SUBJECT TO A QUALI-
FIED CONSERVATION EASEMENT.—
‘‘(1) IN
GENERAL.—If the executor makes the election
described in paragraph (6), then, except as otherwise provided
in this subsection, there shall be excluded from the gross estate
the lesser of—
‘‘(A) the applicable percentage of the value of land
subject to a qualified conservation easement, reduced by
the amount of any deduction under section 2055(f) with
respect to such land, or
‘‘(B) the exclusion limitation.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes of paragraph
(1), the term ‘applicable percentage’ means 40 percent reduced
(but not below zero) by 2 percentage points for each percentage
point (or fraction thereof) by which the value of the qualified
conservation easement is less than 30 percent of the value
of the land (determined without regard to the value of such
easement and reduced by the value of any retained development
right (as defined in paragraph (5)).
‘‘(3) EXCLUSION
LIMITATION.—For purposes of paragraph
(1), the exclusion limitation is the limitation determined in
accordance with the following table:
‘‘In the case of estates of
The exclusion
decedents dying during:
limitation is:
1998 .......................................................................................
$100,000
1999 .......................................................................................
$200,000
2000 .......................................................................................
$300,000
2001 .......................................................................................
$400,000
2002 or thereafter ................................................................
$500,000.
‘‘(4) TREATMENT OF CERTAIN INDEBTEDNESS.—
‘‘(A) IN GENERAL.—The exclusion provided in paragraph
(1) shall not apply to the extent that the land is debt-
financed property.
‘‘(B) DEFINITIONS.—For purposes of this paragraph—
H. R. 2014—71
‘‘(i) DEBT-FINANCED
PROPERTY.—The term ‘debt-
financed property’ means any property with respect
to which there is an acquisition indebtedness (as
defined in clause (ii)) on the date of the decedent’s
death.
‘‘(ii) 
ACQUISITION
INDEBTEDNESS.—The 
term
‘acquisition indebtedness’ means, with respect to debt-
financed property, the unpaid amount of—
‘‘(I) the indebtedness incurred by the donor
in acquiring such property,
‘‘(II) the indebtedness incurred before the
acquisition of such property if such indebtedness
would not have been incurred but for such acquisi-
tion,
‘‘(III) the indebtedness incurred after the
acquisition of such property if such indebtedness
would not have been incurred but for such acquisi-
tion and the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisi-
tion, and
‘‘(IV) the extension, renewal, or refinancing
of an acquisition indebtedness.
‘‘(5) TREATMENT OF RETAINED DEVELOPMENT RIGHT.—
‘‘(A) IN GENERAL.—Paragraph (1) shall not apply to
the value of any development right retained by the donor
in the conveyance of a qualified conservation easement.
‘‘(B) TERMINATION OF RETAINED DEVELOPMENT RIGHT.—
If every person in being who has an interest (whether
or not in possession) in the land executes an agreement
to extinguish permanently some or all of any development
rights (as defined in subparagraph (D)) retained by the
donor on or before the date for filing the return of the
tax imposed by section 2001, then any tax imposed by
section 2001 shall be reduced accordingly. Such agreement
shall be filed with the return of the tax imposed by section
2001. The agreement shall be in such form as the Secretary
shall prescribe.
‘‘(C) ADDITIONAL TAX.—Any failure to implement the
agreement described in subparagraph (B) not later than
the earlier of—
‘‘(i) the date which is 2 years after the date of
the decedent’s death, or
‘‘(ii) the date of the sale of such land subject to
the qualified conservation easement,
shall result in the imposition of an additional tax in the
amount of the tax which would have been due on the
retained development rights subject to such agreement.
Such additional tax shall be due and payable on the last
day of the 6th month following such date.
‘‘(D) DEVELOPMENT RIGHT DEFINED.—For purposes of
this paragraph, the term ‘development right’ means any
right to use the land subject to the qualified conservation
easement in which such right is retained for any commer-
cial purpose which is not subordinate to and directly
supportive of the use of such land as a farm for farming
purposes (within the meaning of section 2032A(e)(5)).
H. R. 2014—72
‘‘(6) ELECTION.—The election under this subsection shall
be made on the return of the tax imposed by section 2001.
Such an election, once made, shall be irrevocable.
‘‘(7) CALCULATION OF ESTATE TAX DUE.—An executor mak-
ing the election described in paragraph (6) shall, for purposes
of calculating the amount of tax imposed by section 2001,
include the value of any development right (as defined in para-
graph (5)) retained by the donor in the conveyance of such
qualified conservation easement. The computation of tax on
any retained development right prescribed in this paragraph
shall be done in such manner and on such forms as the Sec-
retary shall prescribe.
‘‘(8) DEFINITIONS.—For purposes of this subsection—
‘‘(A) LAND
SUBJECT
TO
A
QUALIFIED
CONSERVATION
EASEMENT.—The term ‘land subject to a qualified conserva-
tion easement’ means land—
‘‘(i) which is located—
‘‘(I) in or within 25 miles of an area which,
on the date of the decedent’s death, is a metropoli-
tan area (as defined by the Office of Management
and Budget),
‘‘(II) in or within 25 miles of an area which,
on the date of the decedent’s death, is a national
park or wilderness area designated as part of the
National Wilderness Preservation System (unless
it is determined by the Secretary that land in
or within 25 miles of such a park or wilderness
area is not under significant development pres-
sure), or
‘‘(III) in or within 10 miles of an area which,
on the date of the decedent’s death, is an Urban
National Forest (as designated by the Forest Serv-
ice),
‘‘(ii) which was owned by the decedent or a member
of the decedent’s family at all times during the 3-
year period ending on the date of the decedent’s death,
and
‘‘(iii) with respect to which a qualified conservation
easement has been made by an individual described
in subparagraph (C), as of the date of the election
described in paragraph (6).
‘‘(B) QUALIFIED CONSERVATION EASEMENT.—The term
‘qualified conservation easement’ means a qualified con-
servation contribution (as defined in section 170(h)(1)) of
a qualified real property interest (as defined in section
170(h)(2)(C)), except that clause (iv) of section 170(h)(4)(A)
shall not apply, and the restriction on the use of such
interest described in section 170(h)(2)(C) shall include a
prohibition on more than a de minimis use for a commercial
recreational activity.
‘‘(C) 
INDIVIDUAL
DESCRIBED.—An 
individual 
is
described in this subparagraph if such individual is—
‘‘(i) the decedent,
‘‘(ii) a member of the decedent’s family,
‘‘(iii) the executor of the decedent’s estate, or
H. R. 2014—73
‘‘(iv) the trustee of a trust the corpus of which
includes the land to be subject to the qualified con-
servation easement.
‘‘(D) MEMBER OF FAMILY.—The term ‘member of the
decedent’s family’ means any member of the family (as
defined in section 2032A(e)(2)) of the decedent.
‘‘(9) APPLICATION OF THIS SECTION TO INTERESTS IN PART-
NERSHIPS, CORPORATIONS, AND TRUSTS.—This section shall apply
to an interest in a partnership, corporation, or trust if at
least 30 percent of the entity is owned (directly or indirectly)
by the decedent, as determined under the rules described in
section 2033A(e)(3).’’.
(b) CARRYOVER BASIS.—Section 1014(a) (relating to basis of
property acquired from a decedent) is amended by striking ‘‘or’’
at the end of paragraphs (1) and (2), by striking the period at
the end of paragraph (3) and inserting ‘‘, or’’ and by adding at
the end the following new paragraph:
‘‘(4) to the extent of the applicability of the exclusion
described in section 2031(c), the basis in the hands of the
decedent.’’.
(c) QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DISPOSI-
TION.—Subsection (c) of section 2032A (relating to alternative valu-
ation method) is amended by adding at the end the following
new paragraph:
‘‘(8) QUALIFIED CONSERVATION CONTRIBUTION IS NOT A DIS-
POSITION.—A qualified conservation contribution (as defined
in section 170(h)) by gift or otherwise shall not be deemed
a disposition under subsection (c)(1)(A).’’.
(d) QUALIFIED CONSERVATION CONTRIBUTION WHERE SURFACE
AND MINERAL RIGHTS
ARE SEPARATED.—Section 170(h)(5)(B)(ii)
(relating to special rule) is amended to read as follows:
‘‘(ii) SPECIAL RULE.—With respect to any contribution of
property in which the ownership of the surface estate and
mineral interests has been and remains separated, subpara-
graph (A) shall be treated as met if the probability of surface
mining occurring on such property is so remote as to be neg-
ligible.’’.
(e) EFFECTIVE DATES.—
(1) EXCLUSION.—The amendments made by subsections (a)
and (b) shall apply to estates of decedents dying after December
31, 1997.
(2) EASEMENTS.—The amendments made by subsections
(c) and (d) shall apply to easements granted after December
31, 1997.
Subtitle B—Generation-Skipping Tax
Provision
SEC. 511. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING
TRANSFER TAX FOR TRANSFERS TO INDIVIDUALS WITH
DECEASED PARENTS.
(a) IN GENERAL.—Section 2651 (relating to generation assign-
ment) is amended by redesignating subsection (e) as subsection
(f) and by inserting after subsection (d) the following new subsection:
‘‘(e) SPECIAL RULE FOR PERSONS WITH A DECEASED PARENT.—