577 
‘‘(b) TREATMENT UPON REDEMPTION OR FINAL MA-
TURITY.—The increase in redemption value of a United 
States savings bond (to the extent not previously included 
in gross income) in excess of the adjusted basis of such 
bond shall be included in gross income in the earlier of 
the taxable year in which the bond is redeemed or in the 
taxable year of final maturity. 
‘‘(c) CROSS REFERENCES.— 
‘‘(1) For exception from current inclusion of 
original issue discount, see section 1272(a)(2)(B). 
‘‘(2) For exception from market discount rules, 
see section 1279(a)(1)(B)(iii).’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Section 852(b)(2), as amended by the pre-
ceding provisions of this Act, is amended by striking 
subparagraph (E) and redesignating subparagraphs 
(F) and (G) as subparagraphs (E) and (F), respec-
tively. 
(2) Section 1283(c)(3), as amended by the pre-
ceding provisions of this Act, is amended by striking 
all that precedes ‘‘shall not apply’’ and inserting the 
following: 
‘‘(3) COORDINATION WITH SECTION 1271.—Sec-
tion 1271(a)(3)’’. 
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(3) Section 7871(a)(6) is amended by adding 
‘‘and’’ at the end of subparagraph (A) and by strik-
ing subparagraph (C). 
(4) The table of sections for subpart A of part 
V of subchapter P of chapter 1 is amended by in-
serting after the item relating to section 1272 the 
following new item: 
‘‘Sec. 1272A. United States savings bonds.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act. 
PART 3—CERTAIN RULES FOR DETERMINING 
GAIN AND LOSS 
SEC. 3421. COST BASIS OF SPECIFIED SECURITIES DETER-
MINED WITHOUT REGARD TO IDENTIFICA-
TION. 
(a) IN GENERAL.—Section 1012 is amended by add-
ing at the end the following new subsection: 
‘‘(e) COST BASIS OF SPECIFIED SECURITIES DETER-
MINED WITHOUT REGARD TO IDENTIFICATION.—Except 
to the extent otherwise provided in this section or in regu-
lations thereunder permitting the use of an average basis 
method for determining cost, in the case of the sale, ex-
change, or other disposition of a specified security (within 
the meaning of section 6045(g)(3)(B)), the basis (and 
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holding period) of such security shall be determined on 
a first-in first-out basis.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1012(c)(1) is amended by striking 
‘‘the conventions prescribed by regulations under 
this section’’ and inserting ‘‘the method applicable 
for determining the cost of such security’’. 
(2) Section 1012(c)(2)(A) is amended by strik-
ing ‘‘section 1012’’ and inserting ‘‘this section (as in 
effect prior to the enactment of the Tax Reform Act 
of 2014)’’. 
(3) Section 6045(g)(2)(B)(i)(I) is amended by 
striking ‘‘unless the customer notifies the broker by 
means of making an adequate identification of the 
stock sold or transferred’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales, exchanges, and other dis-
positions after December 31, 2014. 
SEC. 3422. WASH SALES BY RELATED PARTIES. 
(a) APPLICATION OF WASH SALE RULES TO RE-
LATED PARTIES.—Subsection (a) of section 1091 is 
amended by striking ‘‘the taxpayer has acquired’’ and in-
serting ‘‘the taxpayer (or a related party) has acquired’’. 
(b) MODIFICATION OF BASIS ADJUSTMENT RULE TO 
PREVENT TRANSFER
OF LOSSES
TO RELATED PAR-
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TIES.—Subsection (d) of section 1091 is amended to read 
as follows: 
‘‘(d) ADJUSTMENT
TO BASIS
IN CASE
OF WASH 
SALE.—If the taxpayer (or the taxpayer’s spouse) ac-
quires substantially identical stock or securities during the 
period which— 
‘‘(1) begins 30 days before the disposition with 
respect to which a deduction was disallowed under 
subsection (a), and 
‘‘(2) ends with the close of the taxpayer’s first 
taxable year which begins after such disposition, 
the basis of such stock or securities shall be increased by 
the amount of the deduction so disallowed (reduced by any 
amount of such deduction taken into account under this 
subsection to increase the basis of stock or securities pre-
viously acquired).’’. 
(c) RELATED PARTY.—Section 1091 is amended by 
adding at the end the following new subsection: 
‘‘(g) RELATED PARTY.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—The term ‘related party’ 
means— 
‘‘(A) the taxpayer’s spouse, 
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‘‘(B) any dependent of the taxpayer and 
any other taxpayer with respect to whom the 
taxpayer is a dependent, 
‘‘(C) any individual, corporation, partner-
ship, trust, or estate which controls, or is con-
trolled by, (within the meaning of section 
954(d)(3)) the taxpayer or any individual de-
scribed in subparagraph (A) or (B) with respect 
to the taxpayer (or any combination thereof), 
‘‘(D) any individual retirement plan, Ar-
cher MSA (as defined in section 220(d)), or 
health savings account (as defined in section 
223(d)), of the taxpayer or of any individual de-
scribed in subparagraph (A) or (B) with respect 
to the taxpayer, 
‘‘(E) any account under a qualified tuition 
program described in section 529 or a Coverdell 
education savings account (as defined in section 
530(b)) if the taxpayer, or any individual de-
scribed in subparagraph (A) or (B) with respect 
to the taxpayer, is the designated beneficiary of 
such account or has the right to make any deci-
sion with respect to the investment of any 
amount in such account, and 
‘‘(F) any account under— 
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‘‘(i) a plan described in section 
401(a), 
‘‘(ii) an annuity plan described in sec-
tion 403(a), 
‘‘(iii) an annuity contract described in 
section 403(b), or 
‘‘(iv) an eligible deferred compensa-
tion plan described in section 457(b) and 
maintained by an employer described in 
section 457(e)(1)(A), 
if the taxpayer or any individual described in 
subparagraph (A) or (B) with respect to the 
taxpayer has the right to make any decision 
with respect to the investment of any amount in 
such account. 
‘‘(2) RULES FOR DETERMINING STATUS.— 
‘‘(A) RELATIONSHIPS
DETERMINED
AT 
TIME OF ACQUISITION.—Determinations under 
paragraph (1) shall be made as of the time of 
the purchase or exchange referred to in sub-
section (a) except that determinations under 
subparagraphs (A) and (B) of paragraph (1) 
shall be made for the taxable year which in-
cludes such purchase or exchange. 
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‘‘(B) DETERMINATION OF MARITAL STA-
TUS.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), marital status shall be 
determined under section 7703. 
‘‘(ii) SPECIAL RULE FOR MARRIED IN-
DIVIDUALS FILING SEPARATELY AND LIV-
ING APART.—A husband and wife who— 
‘‘(I) file separate returns for any 
taxable year, and 
‘‘(II) live apart at all times dur-
ing such taxable year, 
shall not be treated as married individuals. 
‘‘(3) REGULATIONS.—The Secretary shall issue 
such regulations or other guidance as may be nec-
essary to prevent the avoidance of the purposes of 
this subsection, including regulations which treat 
persons as related parties if such persons are formed 
or availed of to avoid the purposes of this sub-
section.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales and other dispositions 
after December 31, 2014. 
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SEC. 3423. NONRECOGNITION FOR DERIVATIVE TRANS-
ACTIONS BY A CORPORATION WITH RESPECT 
TO ITS STOCK. 
(a) IN GENERAL.—Section 1032 is amended to read 
as follows: 
‘‘SEC. 1032. DERIVATIVE TRANSACTIONS BY A CORPORA-
TION WITH RESPECT TO ITS STOCK. 
‘‘(a) IN GENERAL.—Except as otherwise provided in 
this section or section 76, section 1032 derivative items 
of a corporation shall not be taken into account in deter-
mining such corporation’s liability for tax under this sub-
title. 
‘‘(b) INCOME RECOGNITION ON CERTAIN FORWARD 
CONTRACTS.— 
‘‘(1) IN GENERAL.—If— 
‘‘(A) a corporation acquires its stock, and 
‘‘(B) such acquisition is part of a plan (or 
series of related transactions) pursuant to 
which the corporation enters into a forward 
contract with respect to its stock, 
such corporation shall include amounts in income as 
if the excess of the amount to be received under the 
forward contract over the fair market value of the 
stock as of the date the corporation entered into the 
forward contract were original issue discount on a 
debt instrument acquired on such date. The pre-
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ceding sentence shall apply only to the extent that 
the amount of stock involved in the forward contract 
does not exceed the amount acquired as described in 
subparagraph (A). 
‘‘(2) PLAN PRESUMED TO EXIST.—If a corpora-
tion enters into a forward contract with respect to 
its stock within the 60-day period beginning on the 
date which is 30 days before the date that the cor-
poration acquires its stock, such acquisition shall be 
treated as pursuant to a plan described in paragraph 
(1)(B) unless it is established that entering into 
such contract and such acquisition are not pursuant 
to a plan or series of related transactions. 
‘‘(c) SECTION 1032 DERIVATIVE ITEMS.—For pur-
poses of this section, the term ‘section 1032 derivative 
item’ means any item of income, gain, loss, or deduction 
if— 
‘‘(1) such item arises out of the rights or obli-
gations under any derivative (as defined in section 
486) to the extent such derivative relates to the cor-
poration’s stock (or is attributable to any transfer or 
extinguishment of any such right or obligation), or 
‘‘(2) such item arises under any other contract 
or position but only to the extent that such item re-
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flects (or is determined by reference to) changes in 
the value of such stock or distributions thereon. 
Such term shall not include any deduction with respect 
to which section 83(h) applies and shall not include any 
deduction for any item which is in the nature of compensa-
tion for services rendered. For purposes of this subpara-
graph, de minimis relationships, as determined by the Sec-
retary, shall be disregarded. 
‘‘(d) TREASURY STOCK TREATED AS STOCK.—Any 
reference in this section to stock shall be treated as includ-
ing a reference to treasury stock. 
‘‘(e) REGULATIONS.—The Secretary shall prescribe 
such regulations or other guidance as may be appropriate 
to carry out the purposes of this section, including regula-
tions or other guidance which— 
‘‘(1) treat the portion of an instrument which 
is described in subsection (c)(1) separately from the 
portion of such instrument which is not so described, 
and 
‘‘(2) treat section 1032 derivative items as con-
tributions to the capital of the corporation to the ex-
tent that the application of this section would be in-
consistent with the purposes of section 76(b).’’. 
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(b) CLERICAL AMENDMENT.—The item relating to 
section 1032 in the table of sections for part III of sub-
chapter O of chapter 1 is amended to read as follows: 
‘‘Sec. 1032. Derivative transactions by a corporation with respect to its stock.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transactions entered into after 
the date of the enactment of this Act. 
PART 4—TAX FAVORED BONDS 
SEC. 3431. TERMINATION OF PRIVATE ACTIVITY BONDS. 
(a) IN GENERAL.—Paragraph (1) of section 103(b) 
is amended— 
(1) by striking ‘‘which is not a qualified bond 
(within the meaning of section 141)’’, and 
(2) by striking ‘‘WHICH IS NOT A QUALIFIED 
BOND’’ in the heading thereof. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 141 is amended by striking sub-
section (e). 
(2) Subpart A of part IV of subchapter B of 
chapter 1 is amended by striking sections 142, 143, 
144, 145, 146, and 147 (and by striking each of the 
items relating to such sections in the table of sec-
tions for such subpart). 
(3) Section 25 is amended by adding at the end 
the following new subsection: 
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‘‘(j) COORDINATION WITH REPEAL OF PRIVATE AC-
TIVITY BONDS.—Any reference to section 143, 144, or 
146 shall be treated as a reference to such section as in 
effect before its repeal by the Tax Reform Act of 2014.’’. 
(4) Section 26(b)(2) is amended by striking 
subparagraph (D). 
(5) Section 141(b) is amended by striking para-
graphs (5) and (9) and by redesignating paragraphs 
(6), (7), and (8) as paragraphs (5), (6), and (7), re-
spectively. 
(6) Section 141(d) is amended by striking para-
graph (5) and by redesignating paragraphs (6) and 
(7) as paragraphs (5) and (6). 
(7) Section 148(b)(2)(E) is amended by strik-
ing ‘‘in the case of a bond other than a private activ-
ity bond,’’. 
(8) Section 148(b)(3) is amended to read as fol-
lows: 
‘‘(3) TAX-EXEMPT BONDS NOT TREATED AS IN-
VESTMENT PROPERTY.—The term ‘investment prop-
erty’ does not include any tax-exempt bond.’’. 
(9) Section 148(f)(3) is amended by striking 
‘‘or is a private activity bond’’ in the fourth sen-
tence. 
(10) Section 148(f)(4) is amended— 
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(A) by striking ‘‘(determined in accordance 
with section 147(b)(2)(A))’’ in the flush matter 
following subparagraph (A)(ii), 
(B) by striking the last sentence of sub-
paragraph (D)(v), and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(E) AVERAGE MATURITY.—For purposes 
of this paragraph, the average maturity of any 
issue shall be determined by taking into account 
the respective issue prices of the bonds issued 
as part of such issue.’’. 
(11) Section 148(f)(4)(A) is amended in the 
flush matter after clause (ii) by striking ‘‘In the case 
of an issue no bond of which is a private activity 
bond, clause’’ and inserting ‘‘Clause’’. 
(12) Section 148(f)(4)(B)(ii) is amended— 
(A) by striking subclause (II), and 
(B) by striking ‘‘CERTAIN BONDS.—’’ and 
all that follows through ‘‘issue described in sub-
clause (II)’’ and inserting ‘‘CERTAIN BONDS.— 
In the case of an issue no bond of which is a 
tax or revenue anticipation bond’’. 
(13)(A) Section 148(f)(4)(C)(iv) is amended to 
read as follows: 
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‘‘(iv) 
CONSTRUCTION
ISSUE.—For 
purposes of this subparagraph, the term 
‘construction issue’ means any issue if at 
least 75 percent of the available construc-
tion proceeds of such issue are to be used 
for construction expenditures with respect 
to property which is to be owned by a gov-
ernmental unit.’’. 
(B) Section 148(f)(4)(C) is amended by re-
designating clauses (v) through (xvii) as clauses 
(viii) through (xx), respectively, and by insert-
ing after clause (iv) the following new clauses: 
‘‘(v) CONSTRUCTION.—For purposes 
of this subparagraph, the term ‘construc-
tion’ includes reconstruction and rehabili-
tation. 
‘‘(vi) SAFE HARBOR FOR LEASES AND 
MANAGEMENT CONTRACTS.—For purposes 
of this subparagraph, property leased by a 
governmental unit shall be treated as 
owned by such governmental unit if— 
‘‘(I) the lessee makes an irrev-
ocable election (binding on the lessee 
and all successors in interest under 
the lease) not to claim depreciation or 
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an investment credit with respect to 
such property, 
‘‘(II) the lease term (as defined 
in section 168(h)(1)) is not more than 
80 percent of the reasonably expected 
economic life of the property, and 
‘‘(III) the lessee has no option to 
purchase the property other than at 
fair market value (as of the time such 
option is exercised). 
‘‘(vii) DETERMINATION OF ECONOMIC 
LIFE.—For purposes of clause (vi), the 
reasonably expected economic life of any 
facility shall be determined as of the later 
of— 
‘‘(I) the date on which the bonds 
are issued, or 
‘‘(II) the date on which the facil-
ity is placed in service (or expected to 
be placed in service).’’. 
(C) Section 148(f)(4)(D) is amended by 
striking ‘‘subparagraph (C)(iv)’’ each place it 
appears and inserting ‘‘subparagraph (C)(v)’’. 
(14) Section 148(f)(4)(D)(i) is amended— 
(A) by striking subclause (II), 
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(B) by striking ‘‘(other than private activ-
ity bonds)’’ in subclause (IV), and 
(C) by redesignating subclauses (III) and 
(IV) (as amended by subparagraph (B)) as sub-
clauses (II) and (III). 
(15) Section 148(f)(4)(D)(ii) is amended by 
striking ‘‘subclause (IV)’’ both places it appears and 
inserting ‘‘subclause (III)’’. 
(16) Section 148(f)(4)(D)(iii) is amended by 
striking ‘‘subclause (IV)’’ and inserting ‘‘subclause 
(III)’’. 
(17) Section 148(f)(4)(D)(iv)(II) is amended by 
striking ‘‘clause (i)(IV)’’ and inserting ‘‘clause 
(i)(III)’’. 
(18) Section 148(f)(4)(D)(vi) is amended by 
striking the last sentence. 
(19) Section 148(f)(7) is amended by striking 
subparagraph (A) and by redesignating subpara-
graphs (B) and (C) as subparagraphs (A) and (B). 
(20) Section 149(b)(3) is amended— 
(A) by striking subparagraph (C) and by 
redesignating subparagraphs (D) and (E) as 
subparagraphs (C) and (D), and 
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(B) by striking ‘‘subparagraph (E)’’ in 
subparagraph (A)(iv) and inserting ‘‘subpara-
graph (D)’’. 
(21) Section 149(e)(2) is amended— 
(A) by striking subparagraphs (C), (D), 
and (F) and by redesignating subparagraphs 
(E) and (G) as subparagraphs (C) and (D), re-
spectively, and 
(B) by striking the second sentence. 
(22) Section 149(f)(6) is amended— 
(A) by striking subparagraph (B), and 
(B) by striking ‘‘For purposes of this sub-
section’’ and all that follows through ‘‘The 
term’’ and inserting the following: ‘‘For pur-
poses of this subsection, the term’’. 
(23) Section 150 is amended by striking sub-
sections (b) and (c) and by redesignating subsections 
(d) and (e) as subsections (b) and (c), respectively. 
(24) Section 150(e)(3) is amended to read as 
follows: 
‘‘(3) PUBLIC
APPROVAL
REQUIREMENT.—A 
bond shall not be treated as part of an issue which 
meets the requirements of paragraph (1) unless such 
bond satisfies the requirements of section 147(f)(2) 
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(as in effect before its repeal by the Tax Reform Act 
of 2014).’’. 
(25) Section 269A(b)(3) is amended by striking 
‘‘144(a)(3)’’ and inserting ‘‘414(n)(6)(A)’’. 
(26) Section 414(m)(5) is amended by striking 
‘‘section 
144(a)(3)’’ 
and 
inserting 
‘‘subsection 
(n)(6)(A)’’. 
(27) Section 414(n)(6)(A) is amended to read 
as follows: 
‘‘(A) RELATED PERSONS.—A person is a 
related person to another person if— 
‘‘(i) the relationship between such per-
sons would result in a disallowance of 
losses under section 267 or 707(b), or 
‘‘(ii) such persons are members of the 
same controlled group of corporations (as 
defined in section 1563(a), except that 
‘more than 50 percent’ shall be substituted 
for ‘at least 80 percent’ each place it ap-
pears therein).’’. 
(28) Section 6045(e)(4)(B) is amended by in-
serting ‘‘(as in effect before its repeal by the Tax 
Reform Act of 2014)’’ after ‘‘section 143(m)(3)’’. 
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(29) Section 6654(f)(1) is amended by inserting 
‘‘(as in effect before its repeal by the Tax Reform 
Act of 2014)’’ after ‘‘section 143(m)’’. 
(30) Section 7871(c) is amended— 
(A) by striking paragraphs (2) and (3), 
and 
(B) by striking ‘‘TAX-EXEMPT BONDS.—’’ 
and all that follows through ‘‘Subsection (a) of 
section 103’’ and inserting the following: ‘‘TAX- 
EXEMPT
BONDS.—Subsection (a) of section 
103’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to bonds issued after December 
31, 2014. 
SEC. 3432. TERMINATION OF CREDIT FOR INTEREST ON 
CERTAIN HOME MORTGAGES. 
(a) IN GENERAL.—Section 25, as amended by the 
preceding provisions of this Act, is amended by adding at 
the end the following new subsection: 
‘‘(k) TERMINATION.—No credit shall be allowed 
under this section with respect to any mortgage credit cer-
tificate issued after December 31, 2014.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2014. 
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SEC. 3433. REPEAL OF ADVANCE REFUNDING BONDS. 
(a) IN GENERAL.—Paragraph (1) of section 149(d) 
is amended by striking ‘‘as part of an issue described in 
paragraph (2), (3), or (4).’’ and inserting ‘‘to advance re-
fund a bond.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 149(d) is amended by striking para-
graphs (2), (3), (4), and (6) and by redesignating 
paragraphs (5) and (7) as paragraphs (2) and (3). 
(2) Section 148(f)(4)(C), as amended by the 
preceding provisions of this Act, is amended by 
striking clause (xvii) and by redesignating clauses 
(xviii), (xix), and (xx) as clauses (xvii), (xviii), and 
(xix), respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to advance refunding bonds issued 
after December 31, 2014. 
SEC. 3434. REPEAL OF TAX CREDIT BOND RULES. 
(a) IN GENERAL.—Part IV of subchapter A of chap-
ter 1 is amended by striking subparts H, I, and J (and 
by striking the items relating to such subparts in the table 
of subparts for such part). 
(b) PAYMENTS TO ISSUERS.—Subchapter B of chap-
ter 65 is amended by striking section 6431 (and by strik-
ing the item relating to such section in the table of sec-
tions for such subchapter). 
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(c) CONFORMING AMENDMENTS.— 
(1) Section 6211(b)(4)(A) is amended by strik-
ing ‘‘and 6431’’. 
(2) Section 6401(b)(1) is amended by striking 
‘‘G, H, I, and J’’ and inserting ‘‘and G’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to bonds issued after the date of 
the enactment of this Act. 
Subtitle F—Insurance Reforms 
SEC. 3501. EXCEPTION TO PRO RATA INTEREST EXPENSE 
DISALLOWANCE 
FOR 
CORPORATE-OWNED 
LIFE INSURANCE RESTRICTED TO 20-PER-
CENT OWNERS. 
(a) IN GENERAL.—Subparagraph (A) of section 
264(f)(4) is amended— 
(1) by striking ‘‘policy or contract)—’’ and all 
that follows through ‘‘A policy or contract’’ and in-
serting ‘‘policy or contract) a 20-percent owner of 
such entity. A policy or contract’’, and 
(2) by striking ‘‘, OFFICERS, DIRECTORS, AND 
EMPLOYEES’’ in the heading. 
(b) CONFORMING AMENDMENT.—Section 264(f)(4) 
is amended by striking subparagraph (E). 
(c) EFFECTIVE DATE.—The amendment made by 
this section shall apply to contracts issued after December 
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31, 2014. For purposes of the preceding sentence, any ma-
terial increase in the death benefit or other material 
change in the contract shall be treated as a new contract. 
SEC. 3502. NET OPERATING LOSSES OF LIFE INSURANCE 
COMPANIES. 
(a) IN GENERAL.—Paragraph (5) of section 805(a) 
is amended to read as follows: 
‘‘(5) NET OPERATING LOSS DEDUCTION.—The 
deduction allowed under section 172, determined— 
‘‘(A) by treating the net operating loss for 
any taxable year as equal to the excess (if any) 
of— 
‘‘(i) the life insurance deductions for 
such taxable year, over 
‘‘(ii) the life insurance gross income 
for such taxable year, and 
‘‘(B) by applying subsection (d)(5) thereof 
with the modifications described in paragraph 
(4) of this subsection.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Part I of subchapter L of chapter 1 is 
amended by striking section 810 (and by striking 
the item relating to such section in the table of sec-
tions for such part). 
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(2) Part III of subchapter L of chapter 1 is 
amended by striking section 844 (and by striking 
the item relating to such section in the table of sec-
tions for such part). 
(3) Section 381 is amended by striking sub-
section (d). 
(4) Section 805(a)(4)(B)(i), as redesignated by 
the preceding provisions of this Act, is amended to 
read as follows: 
‘‘(ii) the net operating loss deduction 
provided by paragraph (5),’’. 
(5) Section 805(b)(2)(A)(iii), as redesignated 
by the preceding provisions of this Act, is amended 
to read as follows: 
‘‘(iv) any net operating loss carryback 
to the taxable year under section 172 (as 
applied pursuant to subsection (a)(5)), 
and’’. 
(6) Section 805(b) is amended by striking para-
graph (4) and redesignating paragraph (5) as para-
graph (4). 
(7) Section 953(b)(1)(A), as redesignated by 
the preceding provisions of this Act, is amended by 
striking ‘‘operations’’ and inserting ‘‘net operating’’. 
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(8) Section 1351(i)(3) is amended by striking 
‘‘or the operations loss deduction under section 
810,’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to losses arising in taxable years 
beginning after December 31, 2014. 
SEC. 3503. REPEAL OF SMALL LIFE INSURANCE COMPANY 
DEDUCTION. 
(a) IN GENERAL.—Part I of subchapter L of chapter 
1 is amended by striking section 806 (and by striking the 
item relating to such section in the table of sections for 
such part). 
(b) CONFORMING AMENDMENTS.— 
(1) Section 453B(e) is amended— 
(A) by striking ‘‘(as defined in section 
806(b)(3))’’ in paragraph (2)(B), and 
(B) by adding at the end the following new 
paragraph: 
‘‘(3) NONINSURANCE BUSINESS.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, the term ‘noninsurance business’ 
means any activity which is not an insurance 
business. 
‘‘(B) CERTAIN ACTIVITIES TREATED AS IN-
SURANCE BUSINESSES.—For purposes of sub-
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paragraph (A), any activity which is not an in-
surance business shall be treated as an insur-
ance business if— 
‘‘(i) it is of a type traditionally carried 
on by life insurance companies for invest-
ment purposes, but only if the carrying on 
of such activity (other than in the case of 
real estate) does not constitute the active 
conduct of a trade or business, or 
‘‘(ii) it involves the performance of ad-
ministrative services in connection with 
plans providing life insurance, pension, or 
accident and health benefits.’’. 
(2) Section 465(c)(7)(D)(v)(II) is amended by 
striking ‘‘section 806(b)(3)’’ and inserting ‘‘section 
453B(e)(3)’’. 
(3) Section 801(a)(2) is amended by striking 
subparagraph (C). 
(4) Section 804 is amended by striking 
‘‘means—’’ and all that follows and inserting 
‘‘means the general deductions provided in section 
805.’’. 
(5) Section 805(a)(4)(B) is amended by strik-
ing clause (i) and by redesignating clauses (ii), (iii), 
and (iv) as clauses (i), (ii), and (iii), respectively. 
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(6) Section 805(b)(2)(A) is amended by strik-
ing clause (iii) and by redesignating clauses (iv) and 
(v) as clauses (iii) and (iv), respectively. 
(7) Section 815(c)(2)(A) is amended by insert-
ing ‘‘and’’ at the end of clause (i), by striking clause 
(ii), and by redesignating clause (iii) as clause (ii). 
(8) Section 842(c) is amended by striking para-
graph (1) and by redesignating paragraphs (2) and 
(3) as paragraphs (1) and (2), respectively. 
(9) Section 953(b)(1) is amended by striking 
subparagraph (A) and by redesignating subpara-
graphs (B) and (C) as subparagraphs (A) and (B), 
respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2014. 
SEC. 3504. COMPUTATION OF LIFE INSURANCE TAX RE-
SERVES. 
(a) IN GENERAL.—Subparagraph (B) of section 
807(d)(2) is amended to read as follows: 
‘‘(B) an interest rate equal to the sum 
of— 
‘‘(i) the applicable Federal interest 
rate, plus 
‘‘(ii) 3.5 percentage points, and’’. 
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(b) CONFORMING AMENDMENTS.— 
(1) Paragraph (4) of section 807(d) is amended 
to read as follows: 
‘‘(4) APPLICABLE FEDERAL INTEREST RATE.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘applicable Federal 
interest rate’ means the annual rate determined 
by the Secretary under subparagraph (C) for 
the calendar year in which the contract was 
issued. 
‘‘(B) ELECTION TO RECOMPUTE FEDERAL 
INTEREST
RATE
EVERY
YEARS.—For pur-
poses of this subsection— 
‘‘(i) IN GENERAL.—In computing the 
amount of the reserve with respect to any 
contract to which an election under this 
subparagraph applies for periods during 
any recomputation period, the applicable 
Federal interest rate shall be the annual 
rate determined by the Secretary under 
subparagraph (C) for the 1st year of such 
period. No change in the applicable Fed-
eral interest rate shall be made under the 
preceding sentence unless such change 
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would equal or exceed 1⁄2 of 1 percentage 
point. 
‘‘(ii) RECOMPUTATION
PERIOD.—For 
purposes of clause (i), the term ‘recompu-
tation period’ means, with respect to any 
contract, the 5 calendar year period begin-
ning with the 5th calendar year beginning 
after the calendar year in which the con-
tract was issued (and each subsequent 5 
calendar year period). 
‘‘(iii) ELECTION.—An election under 
this subparagraph shall apply to all con-
tracts issued during the calendar year for 
which the election was made or during any 
subsequent calendar year unless such elec-
tion is revoked with the consent of the Sec-
retary. 
‘‘(iv) SPREAD NOT AVAILABLE.—Sub-
section (f) shall not apply to any adjust-
ment required under this paragraph. 
‘‘(C) RATE OF INTEREST.— 
‘‘(i) IN
GENERAL.—For purposes of 
this paragraph, the rate of interest deter-
mined under this subparagraph shall be 
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the annual rate determined by the Sec-
retary under clause (ii). 
‘‘(ii) DETERMINATION
OF
ANNUAL 
RATE.— 
‘‘(I) IN
GENERAL.—The annual 
rate determined by the Secretary 
under this clause for any calendar 
year shall be a rate equal to the aver-
age of the applicable Federal mid- 
term rates (as defined in section 
1274(d) 
but 
based 
on 
annual 
compounding) effective as of the be-
ginning of each of the calendar 
months in the test period. 
‘‘(II) TEST
PERIOD.—For pur-
poses of subclause (I), the test period 
is the most recent 60-calendar-month 
period ending before the beginning of 
the calendar year for which the deter-
mination is made.’’. 
(2) The first sentence following paragraph (6) 
in section 807(c) is amended by striking ‘‘the appli-
cable 
Federal 
interest 
rate 
under 
subsection 
(d)(2)(B)(i), the prevailing State assumed interest 
rate under subsection (d)(2)(B)(ii),’’ and inserting 
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‘‘the interest rate determined under subsection 
(d)(2)(B)’’. 
(3) Section 808 is amended by adding at the 
end the following new subsection: 
‘‘(g) 
PREVAILING
STATE
ASSUMED
INTEREST 
RATE.—For purposes of this subchapter— 
‘‘(1) IN GENERAL.—The term ‘prevailing State 
assumed interest rate’ means, with respect to any 
contract, the highest assumed interest rate per-
mitted to be used in computing life insurance re-
serves for insurance contracts or annuity contracts 
(as the case may be) under the insurance laws of at 
least 26 States. For purposes of the preceding sen-
tence, the effect of nonforfeiture laws of a State on 
interest rates for reserves shall not be taken into ac-
count. 
‘‘(2) WHEN
RATE
DETERMINED.—The pre-
vailing State assumed interest rate with respect to 
any contract shall be determined as of the beginning 
of the calendar year in which the contract was 
issued.’’. 
(4) Paragraph (1) of section 811(d) is amended 
by striking ‘‘the greater of the prevailing State as-
sumed interest rate or applicable Federal interest 
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rate in effect under section 807’’ and inserting ‘‘the 
interest rate in effect under section 807(d)(2)(B)’’. 
(5) Subparagraph (A) of section 846(f)(6) is 
amended by striking ‘‘except that’’ and all that fol-
lows and inserting ‘‘except that the limitation of 
subsection (a)(3) shall apply in lieu of the limitation 
of the last sentence of section 807(d)(1), and’’. 
(6) Subparagraph (B) of section 954(i)(5) is 
amended by striking ‘‘shall be substituted for the 
prevailing State assumed interest rate’’ and insert-
ing ‘‘shall, if higher, be substituted for the interest 
rate in effect under section 807(d)(2)(B)’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years beginning 
after December 31, 2014. 
(2) TRANSITION RULE.—For the first taxable 
year beginning after December 31, 2014, the reserve 
with respect to any contract (as determined under 
section 807(d)(2) of the Internal Revenue Code of 
1986) at the end of the preceding taxable year shall 
be determined as if the amendments made by this 
section had applied to such reserve in such preceding 
taxable year and by using the interest rate applica-
ble to such reserves under section 807(d)(2) of the 
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