II 113th CONGRESS 1st Session S. 277 IN THE SENATE OF THE UNITED STATES February 11, 2013 Mr. Whitehouse (for himself, Mr. Harkin , Mr. Sanders , and Mr. Levin ) introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To replace the Budget Control Act sequester by eliminating tax loopholes, and for other purposes.

1. Short title; table of contents (a) Short title This Act may be cited as the Job Preservation and Economic Certainty Act of 2013 . (b) Table of contents The table of contents of this Act is as follows: Sec. 1. Short title; table of contents. TITLE I—Elimination of sequestration Sec. 101. Discretionary spending limits. TITLE II—Elimination of Tax Loopholes for High-Income Taxpayers Sec. 201. Minimum tax for high-income earners. Sec. 202. Requiring high-income professionals to pay their payroll taxes. Sec. 203. Elimination of private jet giveaway. Sec. 204. Limitation on itemized deductions to 28-percent rate bracket. TITLE III—Elimination of tax loopholes for offshoring manufacturers Sec. 301. Ending tax breaks for offshoring manufacturers. TITLE IV—Elimination of tax loopholes for oil and gas companies Sec. 401. Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers. Sec. 402. Limitation on section 199 deduction attributable to oil, natural gas, or primary products thereof. Sec. 403. Limitation on deduction for intangible drilling and development costs. Sec. 404. Limitation on percentage depletion allowance for oil and gas wells. Sec. 405. Limitation on deduction for tertiary injectants. Sec. 406. Repeal of outer Continental Shelf deep water and deep gas royalty relief. TITLE V—Ending International Tax Abuses Sec. 501. Allocation of expenses and taxes on basis of repatriation of foreign income. Sec. 502. Excess income from transfers of intangibles to low-taxed affiliates treated as subpart F income. Sec. 503. Limitations on income shifting through intangible property transfers. Sec. 504. Limitation on earnings stripping by expatriated entities. Sec. 505. Modifications of foreign tax credit rules applicable to dual capacity taxpayers. Sec. 506. Separate basket treatment taxes paid on foreign oil and gas income. TITLE VI—Financial crisis responsibility fee Sec. 601. Definitions and special rules. Sec. 602. Financial crisis responsibility fee. Sec. 603. Other provisions. TITLE VII—Tax on trading transactions Sec. 701. Transaction tax. TITLE VIII—Modification of accounting rules Sec. 801. Repeal of last-in, first-out method of inventory. Sec. 802. Repeal of lower of cost or market method of inventory. TITLE IX—Fair treatment of options Sec. 901. Consistent treatment of stock options by corporations. Sec. 902. Application of executive pay deduction limit. I Elimination of sequestration 101. Discretionary spending limits (a) In general Part C of title II of the Balanced Budget and Emergency Deficit Control Act of 1985 ( 2 U.S.C. 900 et seq. ) is amended— (1) by striking section 251(c) ( 2 U.S.C. 901(c) ) and inserting the following: (c) Discretionary spending limit As used in this part, the term discretionary spending limit means— (1) with respect to fiscal year 2012— (A) for the security category, $684,000,000,000 in new budget authority; and (B) for the nonsecurity category, $359,000,000,000 in new budget authority; (2) with respect to fiscal year 2013— (A) for the security category, $686,000,000,000 in new budget authority; and (B) for the nonsecurity category, $361,000,000,000 in new budget authority; (3) with respect to fiscal year 2014, for the discretionary category, $1,066,000,000,000 in new budget authority; (4) with respect to fiscal year 2015, for the discretionary category, $1,086,000,000,000 in new budget authority; (5) with respect to fiscal year 2016, for the discretionary category, $1,107,000,000,000 in new budget authority; (6) with respect to fiscal year 2017, for the discretionary category, $1,131,000,000,000 in new budget authority; (7) with respect to fiscal year 2018, for the discretionary category, $1,156,000,000,000 in new budget authority; (8) with respect to fiscal year 2019, for the discretionary category, $1,182,000,000,000 in new budget authority; (9) with respect to fiscal year 2020, for the discretionary category, $1,208,000,000,000 in new budget authority; and (10) with respect to fiscal year 2021, for the discretionary category, $1,234,000,000,000 in new budget authority; as adjusted in strict conformance with subsection (b). ; (2) by striking section 251A ( 2 U.S.C. 901a ); and (3) in the table of contents set forth in section 250(a), by striking the item relating to section 251A. (b) Technical and conforming amendment Section 901(e) of the American Taxpayer Relief Act of 2012 ( Public Law 112–240 ) is repealed. II Elimination of Tax Loopholes for High-Income Taxpayers 201. Minimum tax for high-income earners (a) In general Subchapter A of chapter 1 is amended by adding at the end the following new part: VIII Fair share tax on high-income taxpayers Sec. 59B. Fair share tax. 59B. Fair share tax (a) General rule (1) Phase-in of tax In the case of any high-income taxpayer, there is hereby imposed for a taxable year (in addition to any other tax imposed by this subtitle) a tax equal to the product of— (A) the amount determined under paragraph (2), and (B) a fraction (not to exceed 1)— (i) the numerator of which is the excess of— (I) the taxpayer's adjusted gross income, over (II) the dollar amount in effect under subsection (c)(1), and (ii) the denominator of which is the dollar amount in effect under subsection (c)(1). (2) Amount of tax The amount of tax determined under this paragraph is an amount equal to the excess (if any) of— (A) the tentative fair share tax for the taxable year, over (B) the excess of— (i) the sum of— (I) the regular tax liability (as defined in section 26(b)) for the taxable year, determined without regard to any tax liability determined under this section, (II) the tax imposed by section 55 for the taxable year, plus (III) the payroll tax for the taxable year, over (ii) the credits allowable under part IV of subchapter A (other than sections 27(a), 31, and 34). (b) Tentative fair share tax For purposes of this section— (1) In general The tentative fair share tax for the taxable year is 30 percent of the excess of— (A) the adjusted gross income of the taxpayer, over (B) the modified charitable contribution deduction for the taxable year. (2) Modified charitable contribution deduction For purposes of paragraph (1)— (A) In general The modified charitable contribution deduction for any taxable year is an amount equal to the amount which bears the same ratio to the deduction allowable under section 170 (section 642(c) in the case of a trust or estate) for such taxable year as— (i) the amount of itemized deductions allowable under the regular tax (as defined in section 55) for such taxable year, determined after the application of section 68, bears to (ii) such amount, determined before the application of section 68. (B) Taxpayer must itemize In the case of any individual who does not elect to itemize deductions for the taxable year, the modified charitable contribution deduction shall be zero. (c) High-Income taxpayer For purposes of this section— (1) In general The term high-income taxpayer means, with respect to any taxable year, any taxpayer (other than a corporation) with an adjusted gross income for such taxable year in excess of $1,000,000 (50 percent of such amount in the case of a married individual who files a separate return). (2) Inflation adjustment (A) In general In the case of a taxable year beginning after 2013, the $1,000,000 amount under paragraph (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 2012 for calendar year 1992 in subparagraph (B) thereof. (B) Rounding If any amount as adjusted under subparagraph (A) is not a multiple of $10,000, such amount shall be rounded to the next lowest multiple of $10,000. (d) Payroll tax For purposes of this section, the payroll tax for any taxable year is an amount equal to the excess of— (1) the taxes imposed on the taxpayer under sections 1401, 1411, 3101, 3201, and 3211(a) (to the extent such tax is attributable to the rate of tax in effect under section 3101) with respect to such taxable year or wages or compensation received during such taxable year, over (2) the deduction allowable under section 164(f) for such taxable year. (e) Special rule for estates and trusts For purposes of this section, in the case of an estate or trust, adjusted gross income shall be computed in the manner described in section 67(e). (f) Not treated as tax imposed by this chapter for certain purposes The tax imposed under this section shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter (other than the credit allowed under section 27(a)) or for purposes of section 55. . (b) Clerical amendment The table of parts for subchapter A of chapter 1 is amended by adding at the end the following new item: Part VIII—Fair share tax on high-Income taxpayers . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2012. 202. Requiring high-income professionals to pay their payroll taxes (a) In general Section 1402 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (m) Special rules for professional service businesses (1) Shareholders providing services to specified S corporations (A) In general In the case of an applicable shareholder who provides substantial services with respect to a professional service business referred to in subparagraph (C) of a specified S corporation— (i) such shareholder shall be treated as engaged in the trade or business of such professional service business with respect to items of income or loss described in section 1366 which are attributable to such business, and (ii) such shareholder's net earnings from self-employment shall include such shareholder’s pro rata share of such items of income or loss, except that in computing such pro rata share of such items the exceptions provided in subsection (a) shall apply. (B) Treatment of family members Except as otherwise provided by the Secretary, the applicable shareholder’s pro rata share of items referred to in subparagraph (A) shall be increased by the pro rata share of such items of each member of such applicable shareholder’s family (within the meaning of section 318(a)(1)) who does not provide substantial services with respect to such professional service business. (C) Specified S corporation For purposes of this subsection, the term specified S corporation means— (i) any S corporation which is a partner in a partnership which is engaged in a professional service business if substantially all of the activities of such S corporation are performed in connection with such partnership, and (ii) any other S corporation which is engaged in a professional service business if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation. (D) Applicable shareholder For purposes of this paragraph, the term applicable shareholder means any shareholder whose modified adjusted gross income for the taxable year exceeds— (i) in the case of a shareholder making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000, (ii) in the case of a married shareholder (as defined in section 7703) filing a separate return, half of the dollar amount determined under clause (i), and (iii) in any other case, $200,000. (2) Partners (A) In general In the case of any partnership which is engaged in a professional service business, subsection (a)(13) shall not apply to any applicable partner who provides substantial services with respect to such professional service business. (B) Applicable partner For purposes of this paragraph, the term applicable partner means any partner whose modified adjusted gross income for the taxable year exceeds— (i) in the case of a partner making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000, (ii) in the case of a married partner (as defined in section 7703) filing a separate return, half of the dollar amount determined under clause (i), and (iii) in any other case, $200,000. (3) Professional service business For purposes of this subsection, the term professional service business means any trade or business (or portion thereof) providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services. (4) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income means adjusted gross income— (A) determined without regard to any deduction allowed under section 164(f), and (B) increased by the amount excluded from gross income under section 911(a)(1). (5) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations which prevent the avoidance of the purposes of this subsection through tiered entities or otherwise. (6) Cross reference For employment tax treatment of wages paid to shareholders of S corporations, see subtitle C. . (b) Conforming amendment Section 211 of the Social Security Act is amended by adding at the end the following new subsection: (l) Special rules for professional service businesses (1) Shareholders providing services to specified S corporations (A) In general In the case of an applicable shareholder who provides substantial services with respect to a professional service business referred to in subparagraph (C) of a specified S corporation— (i) such shareholder shall be treated as engaged in the trade or business of such professional service business with respect to items of income or loss described in section 1366 of the Internal Revenue Code of 1986 which are attributable to such business, and (ii) such shareholder's net earnings from self-employment shall include such shareholder’s pro rata share of such items of income or loss, except that in computing such pro rata share of such items the exceptions provided in subsection (a) shall apply. (B) Treatment of family members Except as otherwise provided by the Secretary of the Treasury, the applicable shareholder’s pro rata share of items referred to in subparagraph (A) shall be increased by the pro rata share of such items of each member of such applicable shareholder’s family (within the meaning of section 318(a)(1) of the Internal Revenue Code of 1986) who does not provide substantial services with respect to such professional service business. (C) Specified S corporation For purposes of this subsection, the term specified S corporation means— (i) any S corporation (as defined in section 1361(a) of the Internal Revenue Code of 1986) which is a partner in a partnership which is engaged in a professional service business if substantially all of the activities of such S corporation are performed in connection with such partnership, and (ii) any other S corporation (as so defined) which is engaged in a professional service business if 75 percent or more of the gross income of such business is attributable to service of 3 or fewer shareholders of such corporation. (D) Applicable shareholder For purposes of this paragraph, the term applicable shareholder means any shareholder whose modified adjusted gross income for the taxable year exceeds— (i) in the case of a shareholder making a joint return under section 6013 of the Internal Revenue Code of 1986 or a surviving spouse (as defined in section 2(a) of such Code), $250,000, (ii) in the case of a married shareholder (as defined in section 7703 of such Code) filing a separate return, half of the dollar amount determined under clause (i), and (iii) in any other case, $200,000. (2) Partners (A) In general In the case of any partnership which is engaged in a professional service business, subsection (a)(12) shall not apply to any applicable partner who provides substantial services with respect to such professional service business. (B) Applicable partner For purposes of this paragraph, the term applicable partner means any partner whose modified adjusted gross income for the taxable year exceeds— (i) in the case of a partner making a joint return under section 6013 of the Internal Revenue Code of 1986 or a surviving spouse (as defined in section 2(a) of such Code), $250,000, (ii) in the case of a married partner (as defined in section 7703 of such Code) filing a separate return, half of the dollar amount determined under clause (i), and (iii) in any other case, $200,000. (3) Professional service business For purposes of this subsection, the term professional service business means any trade or business (or portion thereof) providing services in the fields of health, law, lobbying, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, investment advice or management, or brokerage services. (4) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income means adjusted gross income as determined under section 62 of the Internal Revenue Code of 1986— (A) determined without regard to any deduction allowed under section 164(f) of such Code, and (B) increased by the amount excluded from gross income under section 911(a)(1) of such Code. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2012. 203. Elimination of private jet giveaway (a) In general Subparagraph (C) of section 168(e)(3) of the Internal Revenue Code of 1986 is amended by striking and at the end of clause (iv), by redesignating clause (v) as clause (vi), and by inserting after clause (iv) the following new clause: (v) any general aviation aircraft, and . (b) Class Life Paragraph (3) of section 168(g) of the Internal Revenue Code of 1986 is amended by inserting after subparagraph (E) the following new subparagraph: (F) General aviation aircraft In the case of any general aviation aircraft, the recovery period used for purposes of paragraph (2) shall be 12 years. . (c) General aviation aircraft Subsection (i) of section 168 of the Internal Revenue Code of 1986 is amended by inserting after paragraph (19) the following new paragraph: (20) General aviation aircraft The term general aviation aircraft means any airplane or helicopter (including airframes and engines) not used in commercial or contract carrying of passengers or freight, but which primarily engages in the carrying of passengers. . (d) Effective date This section shall be effective for property placed in service after December 31, 2012. 204. Limitation on itemized deductions to 28-percent rate bracket (a) In general The Internal Revenue Code of 1986 is amended by inserting after section 68 the following new section: 68A. Benefit of itemized deductions limited to 28-percent rate bracket (a) In general In the case of an individual whose adjusted gross income exceeds $200,000 ($250,000 in the case of a joint return), the amount of the itemized deductions otherwise allowable for the taxable year shall be reduced by an amount necessary to increase the amount of regular tax liability of the taxpayer to an amount that would be imposed if such deductions reduced the regular tax liability by not more than the amount such deductions would reduce the tax imposed by section 1 on taxable income within the 28-percent bracket amount. (b) Regular tax liability For purposes of this section, the term regular tax liability has the meaning given such term by section 26(b). (c) Coordination with section 68 This section shall apply after the application of section 68. . (b) Alternative minimum tax (1) In general Subsection (b) of section 55 is amended by adding at the end the following new paragraph: (5) Coordination with section 68A In the case of an individual, for purposes of paragraph (2), alternative minimum taxable income shall be determined by reducing the amount of any itemized deductions otherwise allowed in determining alternative minimum taxable income by an amount which bears the same ratio to the amount by which the itemized deductions of the taxpayer were reduced for the taxable year under section 68A as— (A) the amount of itemized deductions otherwise allowed in determining the alternative minimum taxable income for the taxable year, bears to (B) the aggregate amount of itemized deductions of the taxpayer for the taxable year (determined without regard to section 68A). . (2) Conforming amendment Paragraph (1) of section 56(b) is amended by adding at the end the following new subparagraph: (G) Section 68A not applicable Section 68A shall not apply. . (c) Clerical amendment The table of sections for part I of subchapter B of chapter 1 is amended by adding at the end the following new item: Sec. 68A. Benefit of itemized deductions limited to 28-percent rate bracket. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2012. III Elimination of tax loopholes for off­shor­ing manufacturers 301. Ending tax breaks for offshoring manufacturers (a) General Rule Subsection (a) of section 954 of the Internal Revenue Code of 1986 is amended by striking the period at the end of paragraph (5) and inserting , and , by redesignating paragraph (5) as paragraph (4), and by adding at the end the following new paragraph: (5) imported property income for the taxable year (determined under subsection (j) and reduced as provided in subsection (b)(5)). . (b) Definition of Imported Property Income Section 954 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (j) Imported Property Income (1) In general For purposes of subsection (a)(5), the term imported property income means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with— (A) manufacturing, producing, growing, or extracting imported property; (B) the sale, exchange, or other disposition of imported property; or (C) the lease, rental, or licensing of imported property. Such term shall not include any foreign oil and gas extraction income (within the meaning of section 907(c)) or any foreign oil related income (within the meaning of section 907(c)). (2) Imported property For purposes of this subsection— (A) In general Except as otherwise provided in this paragraph, the term imported property means property which is imported into the United States by the controlled foreign corporation or a related person. (B) Imported property includes certain property imported by unrelated persons The term imported property includes any property imported into the United States by an unrelated person if, when such property was sold to the unrelated person by the controlled foreign corporation (or a related person), it was reasonable to expect that— (i) such property would be imported into the United States; or (ii) such property would be used as a component in other property which would be imported into the United States. (C) Exception for property subsequently exported The term imported property does not include any property which is imported into the United States and which— (i) before substantial use in the United States, is sold, leased, or rented by the controlled foreign corporation or a related person for direct use, consumption, or disposition outside the United States; or (ii) is used by the controlled foreign corporation or a related person as a component in other property which is so sold, leased, or rented. (D) Exception for certain agricultural commodities The term imported property does not include any agricultural commodity which is not grown in the United States in commercially marketable quantities. (3) Definitions and special rules (A) Import For purposes of this subsection, the term import means entering, or withdrawal from warehouse, for consumption or use. Such term includes any grant of the right to use intangible property (as defined in section 936(h)(3)(B)) in the United States. (B) United states For purposes of this subsection, the term United States includes the Commonwealth of Puerto Rico, the Virgin Islands of the United States, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. (C) Unrelated person For purposes of this subsection, the term unrelated person means any person who is not a related person with respect to the controlled foreign corporation. (D) Coordination with foreign base company sales income For purposes of this section, the term foreign base company sales income shall not include any imported property income. . (c) Separate Application of Limitations on Foreign Tax Credit for Imported Property Income (1) In general Paragraph (1) of section 904(d) of the Internal Revenue Code of 1986 is amended by striking and at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph: (B) imported property income, and . (2) Imported property income defined Paragraph (2) of section 904(d) of such Code is amended by redesignating subparagraphs (I), (J), and (K) as subparagraphs (J), (K), and (L), respectively, and by inserting after subparagraph (H) the following new subparagraph: (I) Imported property income The term imported property income means any income received or accrued by any person which is of a kind which would be imported property income (as defined in section 954(j)). . (3) Conforming amendment Clause (ii) of section 904(d)(2)(A) of such Code is amended by inserting or imported property income after passive category income . (d) Technical Amendments (1) Clause (iii) of section 952(c)(1)(B) of the Internal Revenue Code of 1986 is amended— (A) by redesignating subclauses (II), (III), (IV), and (V) as subclauses (III), (IV), (V), and (VI), and (B) by inserting after subclause (I) the following new subclause: (II) imported property income, . (2) The last sentence of paragraph (4) of section 954(b) of such Code is amended by striking subsection (a)(5) and inserting subsection (a)(4) . (3) Paragraph (5) of section 954(b) of such Code is amended by striking and the foreign base company oil related income and inserting the foreign base company oil related income, and the imported property income . (e) Effective Date The amendments made by this section shall apply to taxable years of foreign corporations beginning after the date of the enactment of this Act, and to taxable years of United States shareholders within which or with which such taxable years of such foreign corporations end. IV Elimination of tax loopholes for oil and gas companies 401. Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers (a) In general Section 901 of the Internal Revenue Code of 1986 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: (n) Special rules relating to major integrated oil companies which are dual capacity taxpayers (1) General rule Notwithstanding any other provision of this chapter, any amount paid or accrued by a dual capacity taxpayer which is a major integrated oil company (as defined in section 167(h)(5)(B)) to a foreign country or possession of the United States for any period shall not be considered a tax— (A) if, for such period, the foreign country or possession does not impose a generally applicable income tax, or (B) to the extent such amount exceeds the amount (determined in accordance with regulations) which— (i) is paid by such dual capacity taxpayer pursuant to the generally applicable income tax imposed by the country or possession, or (ii) would be paid if the generally applicable income tax imposed by the country or possession were applicable to such dual capacity taxpayer. Nothing in this paragraph shall be construed to imply the proper treatment of any such amount not in excess of the amount determined under subparagraph (B). (2) Dual capacity taxpayer For purposes of this subsection, the term dual capacity taxpayer means, with respect to any foreign country or possession of the United States, a person who— (A) is subject to a levy of such country or possession, and (B) receives (or will receive) directly or indirectly a specific economic benefit (as determined in accordance with regulations) from such country or possession. (3) Generally applicable income tax For purposes of this subsection— (A) In general The term generally applicable income tax means an income tax (or a series of income taxes) which is generally imposed under the laws of a foreign country or possession on income derived from the conduct of a trade or business within such country or possession. (B) Exceptions Such term shall not include a tax unless it has substantial application, by its terms and in practice, to— (i) persons who are not dual capacity taxpayers, and (ii) persons who are citizens or residents of the foreign country or possession. . (b) Effective Date (1) In general The amendments made by this section shall apply to taxes paid or accrued in taxable years beginning after the date of the enactment of this Act. (2) Contrary treaty obligations upheld The amendments made by this section shall not apply to the extent contrary to any treaty obligation of the United States. 402. Limitation on section 199 deduction attributable to oil, natural gas, or primary products thereof (a) Denial of deduction Paragraph (4) of section 199(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: (E) Special rule for certain oil and gas income In the case of any taxpayer who is a major integrated oil company (as defined in section 167(h)(5)(B)) for the taxable year, the term domestic production gross receipts shall not include gross receipts from the production, transportation, or distribution of oil, natural gas, or any primary product (within the meaning of subsection (d)(9)) thereof. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2012. 403. Limitation on deduction for intangible drilling and development costs (a) In general Section 263(c) of the Internal Revenue Code of 1986 is amended by adding at the end the following new sentence: This subsection shall not apply to amounts paid or incurred by a taxpayer in any taxable year in which such taxpayer is a major integrated oil company (as defined in section 167(h)(5)(B)). . (b) Effective date The amendment made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2012. 404. Limitation on percentage depletion allowance for oil and gas wells (a) In general Section 613A of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (f) Application with respect to major integrated oil companies In the case of any taxable year in which the taxpayer is a major integrated oil company (as defined in section 167(h)(5)(B)), the allowance for percentage depletion shall be zero. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2012. 405. Limitation on deduction for tertiary injectants (a) In general Section 193 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (d) Application with respect to major integrated oil companies This section shall not apply to amounts paid or incurred by a taxpayer in any taxable year in which such taxpayer is a major integrated oil company (as defined in section 167(h)(5)(B)). . (b) Effective date The amendment made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2012. 406. Repeal of outer Continental Shelf deep water and deep gas royalty relief (a) In general Sections 344 and 345 of the Energy Policy Act of 2005 ( 42 U.S.C. 15904 , 15905) are repealed. (b) Administration The Secretary of the Interior shall not be required to provide for royalty relief in the lease sale terms beginning with the first lease sale held on or after the date of enactment of this Act for which a final notice of sale has not been published. V Ending International Tax Abuses 501. Allocation of expenses and taxes on basis of repatriation of foreign income (a) In general Part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after subpart G the following new subpart: H Special Rules for Allocation of Foreign-Related Deductions and Foreign Tax Credits Sec. 975. Deductions allocated to deferred foreign income may not offset United States source income. Sec. 976. Amount of foreign taxes computed on overall basis. Sec. 977. Application of subpart. 975. Deductions allocated to deferred foreign income may not offset United States source income (a) Current year deductions For purposes of this chapter, foreign-related deductions for any taxable year— (1) shall be taken into account for such taxable year only to the extent that such deductions are allocable to currently-taxed foreign income, and (2) to the extent not so allowed, shall be taken into account in subsequent taxable years as provided in subsection (b). Foreign-related deductions shall be allocated to currently taxed foreign income in the same proportion which currently taxed foreign income bears to the sum of currently taxed foreign income and deferred foreign income. (b) Deductions related to repatriated deferred foreign income (1) In general If there is repatriated foreign income for a taxable year, the portion of the previously deferred deductions allocated to the repatriated foreign income shall be taken into account for the taxable year as a deduction allocated to income from sources outside the United States. Any such amount shall not be included in foreign-related deductions for purposes of applying subsection (a) to such taxable year. (2) Portion of previously deferred deductions For purposes of paragraph (1), the portion of the previously deferred deductions allocated to repatriated foreign income is— (A) the amount which bears the same proportion to such deductions, as (B) the repatriated income bears to the previously deferred foreign income. (c) Definitions and special rule For purposes of this section— (1) Foreign-related deductions The term foreign-related deductions means the total amount of deductions and expenses which would be allocated or apportioned to gross income from sources without the United States for the taxable year if both the currently-taxed foreign income and deferred foreign income were taken into account. (2) Currently-taxed foreign income The term currently-taxed foreign income means the amount of gross income from sources without the United States for the taxable year (determined without regard to repatriated foreign income for such year). (3) Deferred foreign income The term deferred foreign income means the excess of— (A) the amount that would be includible in gross income under subpart F of this part for the taxable year if— (i) all controlled foreign corporations were treated as one controlled foreign corporation, and (ii) all earnings and profits of all controlled foreign corporations were subpart F income (as defined in section 952), over (B) the sum of— (i) all dividends received during the taxable year from controlled foreign corporations, plus (ii) amounts includible in gross income under section 951(a). (4) Previously deferred foreign income The term previously deferred foreign income means the aggregate amount of deferred foreign income for all prior taxable years to which this part applies, determined as of the beginning of the taxable year, reduced by the repatriated foreign income for all such prior taxable years. (5) Repatriated foreign income The term repatriated foreign income means the amount included in gross income on account of distributions out of previously deferred foreign income. (6) Previously deferred deductions The term previously deferred deductions means the aggregate amount of foreign-related deductions not taken into account under subsection (a) for all prior taxable years (determined as of the beginning of the taxable year), reduced by any amounts taken into account under subsection (b) for such prior taxable years. (7) Treatment of certain foreign taxes (A) Paid by controlled foreign corporation Section 78 shall not apply for purposes of determining currently-taxed foreign income and deferred foreign income. (B) Paid by taxpayer For purposes of determining currently-taxed foreign income, gross income from sources without the United States shall be reduced by the aggregate amount of taxes described in the applicable paragraph of section 901(b) which are paid by the taxpayer (without regard to sections 902 and 960) during the taxable year. (8) Coordination with section 976 In determining currently-taxed foreign income and deferred foreign income, the amount of deemed foreign tax credits shall be determined with regard to section 976. 976. Amount of foreign taxes computed on overall basis (a) Current year allowance For purposes of this chapter, the amount taken into account as foreign income taxes for any taxable year shall be an amount which bears the same ratio to the total foreign income taxes for that taxable year as— (1) the currently-taxed foreign income for such taxable year, bears to (2) the sum of the currently-taxed foreign income and deferred foreign income for such year. The portion of the total foreign income taxes for any taxable year not taken into account under the preceding sentence for a taxable year shall only be taken into account as provided in subsection (b) (and shall not be taken into account for purposes of applying sections 902 and 960). (b) Allowance related to repatriated deferred foreign income (1) In general If there is repatriated foreign income for any taxable year, the portion of the previously deferred foreign income taxes paid or accrued during such taxable year shall be taken into account for the taxable year as foreign taxes paid or accrued. Any such taxes so taken into account shall not be included in foreign income taxes for purposes of applying subsection (a) to such taxable year. (2) Portion of previously deferred foreign income taxes For purposes of paragraph (1), the portion of the previously deferred foreign income taxes allocated to repatriated deferred foreign income is— (A) the amount which bears the same proportion to such taxes, as (B) the repatriated deferred income bears to the previously deferred foreign income. (c) Definitions and special rule For purposes of this section— (1) Previously deferred foreign income taxes The term previously deferred foreign income taxes means the aggregate amount of total foreign income taxes not taken into account under subsection (a) for all prior taxable years (determined as of the beginning of the taxable year), reduced by any amounts taken into account under subsection (b) for such prior taxable years. (2) Total foreign income taxes The term total foreign income taxes means the sum of foreign income taxes paid or accrued during the taxable year (determined without regard to section 904(c)) plus the increase in foreign income taxes that would be paid or accrued during the taxable year under sections 902 and 960 if— (A) all controlled foreign corporations were treated as one controlled foreign corporation, and (B) all earnings and profits of all controlled foreign corporations were subpart F income (as defined in section 952). (3) Foreign income taxes The term foreign income taxes means any income, war profits, or excess profits taxes paid by the taxpayer to any foreign country or possession of the United States. (4) Currently-taxed foreign income and deferred foreign income The terms currently-taxed foreign income and deferred foreign income have the meanings given such terms by section 975(c). 977. Application of subpart This subpart— (1) shall be applied before subpart A, and (2) shall be applied separately with respect to the categories of income specified in section 904(d)(1). . (b) Clerical amendment The table of subparts for part III of subpart N of chapter 1 of such Code is amended by inserting after the item relating to subpart G the following new item: Subpart H. Special Rules for Allocation of Foreign-Related Deductions and Foreign Tax Credits. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 502. Excess income from transfers of intangibles to low-taxed affiliates treated as subpart F income (a) In general Subsection (a) of section 954 of the Internal Revenue Code of 1986 is amended by inserting after paragraph (3) the following new paragraph: (4) the foreign base company excess intangible income for the taxable year (determined under subsection (f) and reduced as provided in subsection (b)(5)), and . (b) Foreign base company excess intangible income Section 954 of such Code is amended by inserting after subsection (e) the following new subsection: (f) Foreign base company excess intangible income For purposes of subsection (a)(4) and this subsection: (1) Foreign base company excess intangible income defined (A) In general The term foreign base company excess intangible income means, with respect to any covered intangible, the excess of— (i) the sum of— (I) gross income from the sale, lease, license, or other disposition of property in which such covered intangible is used directly or indirectly, and (II) gross income from the provision of services related to such covered intangible or in connection with property in which such covered intangible is used directly or indirectly, over (ii) 150 percent of the costs properly allocated and apportioned to the gross income taken into account under clause (i) other than expenses for interest and taxes and any expenses which are not directly allocable to such gross income. (B) Same country income not taken into account If— (i) the sale, lease, license, or other disposition of the property referred to in subparagraph (A)(i)(I) is for use, consumption, or disposition in the country under the laws of which the controlled foreign corporation is created or organized, or (ii) the services referred to in subparagraph (A)(i)(II) are performed in such country, the gross income from such sale, lease, license, or other disposition, or provision of services, shall not be taken into account under subparagraph (A)(i). (2) Exception based on effective foreign income tax rate (A) In general Foreign base company excess intangible income shall not include the applicable percentage of any item of income received by a controlled foreign corporation if the taxpayer establishes to the satisfaction of the Secretary that such income was subject to an effective rate of income tax imposed by a foreign country in excess of 5 percent. (B) Applicable percentage For purposes of subparagraph (A), the term applicable percentage means the ratio (expressed as a percentage), not greater than 100 percent, of— (i) the number of percentage points by which the effective rate of income tax referred to in subparagraph (A) exceeds 5 percentage points, over (ii) 10 percentage points. (C) Treatment of losses in determining effective rate of foreign income tax For purposes of determining the effective rate of income tax imposed by any foreign country— (i) such effective rate shall be determined without regard to any losses carried to the relevant taxable year, and (ii) to the extent the income with respect to such intangible reduces losses in the relevant taxable year, such effective rate shall be treated as being the effective rate which would have been imposed on such income without regard to such losses. (3) Covered intangible The term covered intangible means, with respect to any controlled foreign corporation, any intangible property (as defined in section 936(h)(3)(B))— (A) which is sold, leased, licensed, or otherwise transferred (directly or indirectly) to such controlled foreign corporation from a related person, or (B) with respect to which such controlled foreign corporation and one or more related persons has (directly or indirectly) entered into any shared risk or development agreement (including any cost sharing agreement). (4) Related person The term related person has the meaning given such term in subsection (d)(3). . (c) Separate basket for foreign tax credit Subsection (d) of section 904 of such Code is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: (6) Separate application to foreign base company excess intangible income (A) In general Subsections (a), (b), and (c) of this section and sections 902, 907, and 960 shall be applied separately with respect to each item of income which is taken into account under section 954(a)(4) as foreign base company excess intangible income. (B) Regulations The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provides that related items of income may be aggregated for purposes of this paragraph. . (d) Conforming amendments (1) Paragraph (4) of section 954(b) of such Code is amended by inserting foreign base company excess intangible income described in subsection (a)(4) or before foreign base company oil-related income in the last sentence thereof. (2) Subsection (b) of section 954 of such Code is amended by adding at the end the following new paragraph: (7) Foreign base company excess intangible income not treated as another kind of base company income Income of a corporation which is foreign base company excess intangible income shall not be considered foreign base company income of such corporation under paragraph (2), (3), or (5) of subsection (a). . (e) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 503. Limitations on income shifting through intangible property transfers (a) Clarification of definition of intangible asset Clause (vi) of section 936(h)(3)(B) of the Internal Revenue Code of 1986 is amended by inserting (including any section 197 intangible described in subparagraph (A), (B), or (C)(i) of subsection (d)(1) of such section) after item . (b) Clarification of allowable valuation methods (1) Foreign corporations Paragraph (2) of section 367(d) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph: (D) Regulatory authority For purposes of the last sentence of subparagraph (A), the Secretary may require— (i) the valuation of transfers of intangible property on an aggregate basis, or (ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, in any case in which the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (2) Allocation among taxpayers Section 482 of such Code is amended by adding at the end the following: For purposes of the preceding sentence, the Secretary may require the valuation of transfers of intangible property on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, in any case in which the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (c) Effective date (1) In general The amendments made by this section shall apply to transfers in taxable years beginning after the date of the enactment of this Act. (2) No inference Nothing in the amendment made by subsection (a) shall be construed to create any inference with respect to the application of section 936(h)(3) of the Internal Revenue Code of 1986, or the authority of the Secretary of the Treasury to provide regulations for such application, on or before the date of the enactment of such amendment. 504. Limitation on earnings stripping by expatriated entities (a) In general Subsection (j) of section 163 of the Internal Revenue Code of 1986 is amended— (1) by redesignating paragraph (9) as paragraph (10), and (2) by inserting after paragraph (8) the following new paragraph: (9) Special rules for expatriated entities (A) In general In the case of a corporation to which this subsection applies which is an expatriated entity, this subsection shall apply to such corporation with the following modifications: (i) Paragraph (2)(A) shall be applied without regard to clause (ii) thereof. (ii) Paragraph (1)(B) shall be applied— (I) without regard to the parenthetical, and (II) by substituting in the 1st succeeding taxable year and in the 2nd through 10th succeeding taxable years to the extent not previously taken into account under this subparagraph for in the succeeding taxable year . (iii) Paragraph (2)(B) shall be applied— (I) without regard to clauses (ii) and (iii), and (II) by substituting 25 percent of the adjusted taxable income of the corporation for such taxable year for the matter of clause (i)(II) thereof. (B) Expatriated entity For purposes of this paragraph— (i) In general With respect to a corporation and a taxable year, the term expatriated entity has the meaning given such term by section 7874(a)(2), determined as if such section and the regulations under such section as in effect on the first day of such taxable year applied to all taxable years of the corporation beginning after July 10, 1989. (ii) Exception for surrogates treated as a domestic corporation The term expatriated entity does not include a surrogate foreign corporation which is treated as a domestic corporation by reason of section 7874(b). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 505. Modifications of foreign tax credit rules applicable to dual capacity taxpayers (a) In general Section 901 of the Internal Revenue Code of 1986 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: (n) Special Rules Relating to Dual Capacity Taxpayers (1) General rule Notwithstanding any other provision of this chapter, any amount paid or accrued by a dual capacity taxpayer or any member of the worldwide affiliated group of which such dual capacity taxpayer is also a member to any foreign country or to any possession of the United States for any period shall not be considered a tax to the extent such amount exceeds the amount (determined in accordance with regulations) which would have been required to be paid if the taxpayer were not a dual capacity taxpayer. (2) Dual capacity taxpayer For purposes of this subsection, the term ‘dual capacity taxpayer’ means, with respect to any foreign country or possession of the United States, a person who— (A) is subject to a levy of such country or possession, and (B) receives (or will receive) directly or indirectly a specific economic benefit (as determined in accordance with regulations) from such country or possession. (3) Regulations The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection. . (b) Contrary Treaty Obligations Upheld The amendments made by this section shall not apply to the extent contrary to any treaty obligation of the United States. (c) Effective Date The amendments made by this section shall apply to amounts that, if such amounts were an amount of tax paid or accrued, would be considered paid or accrued in taxable years beginning after December 31, 2012. 506. Separate basket treatment taxes paid on foreign oil and gas income (a) Separate Basket for Foreign Tax Credit Paragraph (1) of section 904(d) of the Internal Revenue Code of 1986 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: (C) combined foreign oil and gas income (as defined in section 907(b)(1)). . (b) Coordination Section 904(d)(2) of such Code is amended by redesignating subparagraphs (J) and (K) as subparagraphs (K) and (L) and by inserting after subparagraph (I) the following: (J) Coordination with combined foreign oil and gas income For purposes of this section, passive category income and general category income shall not include combined foreign oil and gas income (as defined in section 907(b)(1)). . (c) Conforming amendments (1) Section 907(a) of such Code is hereby repealed. (2) Section 907(c)(4) of such Code is hereby repealed. (3) Section 907(f) of such Code is hereby repealed. (d) Effective dates (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2012. (2) Transitional rules (A) Carryovers Any unused foreign oil and gas taxes which under section 907(f) of such Code (as in effect before the amendment made by subsection (c)(3)) would have been allowable as a carryover to the taxpayer’s first taxable year beginning after December 31, 2012 (without regard to the limitation of paragraph (2) of such section 907(f) for first taxable year) shall be allowed as carryovers under section 904(c) of such Code in the same manner as if such taxes were unused taxes under such section 904(c) with respect to foreign oil and gas extraction income. (B) Losses The amendment made by subsection (c)(2) shall not apply to foreign oil and gas extraction losses arising in taxable years beginning on or before the date of the enactment of this Act. VI Financial crisis responsibility fee 601. Definitions and special rules (a) Definitions In this title, the following definitions shall apply: (1) Appropriate Federal agency The term appropriate Federal agency means— (A) for a covered firm that is a bank holding company, a savings and loan holding company, any company controlled by a bank holding company or savings and loan institution (other than a depository institution), a state member bank, a branch or agency of a foreign bank, a foreign bank that does not operate an insured branch, an agency or commercial lending company other than a Federal agency or any company that controls a registered broker or dealer but does not also control an insured depository institution, the Board of Governors of the Federal Reserve System; (B) for a covered firm that is a national banking association, a Federal branch or agency of a foreign bank, or a federal savings association, the Office of the Comptroller of the Currency; (C) for a covered firm that is a state nonmember insured bank, a foreign bank that has an insured branch, a state savings association, or a company that controls an insured depository institution and is not regulated as a bank holding company or a savings and loan association holding company, the Federal Deposit Insurance Corporation; and (D) for a covered firm that is a covered broker or dealer, the Securities and Exchange Commission. (2) Bank holding company The term bank holding company has the same meaning as in section 3(w)(2) of the Federal Deposit Insurance Act ( 12 U.S.C. 1813(w)(2) ). (3) Covered broker or dealer The term covered broker or dealer means a broker or dealer designated by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York as a primary dealer in government debt instruments. (4) Covered firm The term covered firm means any corporation or other entity that is organized under the laws of the United States or any state or territory thereof if— (A) as of January 14, 2012, such corporation or other entity was, or is at any time during a the beginning of the fiscal year for which this section is applicable, an insured depository institution, a bank holding company, a savings and loan holding company, a company that directly or indirectly controls an insured depository institution, a covered broker or dealer, or a company that directly or indirectly controls a covered broker or dealer; and (B) has $50,000,000,000 or more in total consolidated balance sheet assets that are associated with activities that are permissible for a bank holding company or a financial holding company under sections 3 and 4 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842 and 1843) at the beginning of the fiscal year. (5) Fee The term fee means the Financial Crisis Responsibility Fee authorized under section 502. (6) Financial holding company The term financial holding company has the same meaning as in section 2(p) of the Bank Holding Company Act of 1956, (12 U.S.C. 1841(2)(q)). (7) Fiscal year The term fiscal year means the Government’s fiscal year beginning on October 1. (8) Foreign banking organization The term foreign banking organization means— (A) a foreign bank, as defined in section 1(b)(7) of the International Banking Act of 1978 ( 12 U.S.C. 3101(7) ), that— (i) operates a branch, agency, or commercial lending company subsidiary in the United States; (ii) controls a bank in the United States; or (iii) controls an Edge corporation acquired after March 5, 1987; and (B) any company that directly or indirectly controls the foreign bank. (9) Secretary The term Secretary means the Secretary of the Treasury. (10) Top-tier covered firm The term top-tier covered firm means a covered firm that controls one or more other covered firms but is not itself directly or indirectly controlled by another covered firm. (11) Additional definitions For purposes of this chapter, the terms insured depository institution and savings and loan holding company shall have the same meanings as in section 3 of the Federal Deposit Insurance Act ( 12 U.S.C. 1813 ). (b) Special rules (1) Determination of control For purposes of this Act, a person shall be considered to control another person if the first such person directly or indirectly owns (or otherwise has the power to vote) 25 percent or more of any class of voting securities of the second such person. (2) Treatment of certain affiliated companies For purposes of determining the applicability of this Act and the amount of the Fee payable under section 502, the total consolidated balance sheet assets of any two or more corporations or other entities that are organized under the laws of the United States or any state or territory thereof that each meet any of the criteria described in subsection (a)(4)(A) and that are under common control, directly or indirectly, by the same person but that are not under common control, directly or indirectly, by any top-tier covered firm shall be consolidated together. If, following such consolidation, the amount and other characteristics of the combined balance sheet assets of such firms satisfy the criteria specified in subsection (a)(4)(B), each such firm shall be deemed a covered firm and the resulting amount of fee shall be appropriately apportioned by the Secretary. 602. Financial crisis responsibility fee (a) Amount To be collected In order to recover the costs to the Federal Government of assistance provided through the Troubled Asset Relief Program and other Federal programs and activities, the Secretary, during the 10-year period beginning in fiscal year 2014 and continuing through the end of fiscal year 2023, shall assess a risk-based Financial Crisis Responsibility Fee that shall collect a total of $30,000,000,000, net of any estimated corporate income tax deductions attributable to the Fee, during that period. (b) Assessment and schedule (1) In general To collect the fee authorized by this section, the Secretary shall establish, by regulation, an assessment schedule by fiscal year, including assessment base and rates, that— (A) is designed, in the Secretary’s judgment, to result in the collection of a total of $30,000,000,000, net of the estimated corporate income tax deduction, by the end of fiscal year 2023; and (B) shall apply to— (i) a top-tiered covered firm, with respect to the group consisting of such top-tier covered firm and each other covered firm controlled by such top-tier covered firm; and (ii) a covered firm, if such covered firm is not controlled by a top-tier covered firm. (2) Phase in To promote the full recovery of the economy and financial sector, the Secretary shall phase-in the assessment rate over the 10-year period, in a manner determined by the Secretary. (c) Annual adjustment For each fiscal year, starting with fiscal year 2015, the Secretary— (1) shall apply the fee to— (A) a top-tiered covered firm, with respect to the group consisting of such top-tier covered firm and each other covered firm controlled by such top-tier covered firm; and (B) a covered firm, if such covered firm is not controlled by a top-tier covered firm; and (2) shall adjust the rates under this subsection in a manner that is designed, in the judgment of the Secretary, to result in the collection of a total of $30,000,000,000, net of the estimated corporate income tax deduction, by the end of fiscal year 2023. (d) Extension of the financial crisis responsibility fee (1) In general If the estimated cost of the Troubled Asset Relief Program, as projected in the Fiscal Year 2024 Budget of the U.S. Government, exceeds the total fee collections received as of the end of Fiscal Year 2023, the Secretary shall extend the operation of the Fee beyond the end of fiscal year 2023 in order to collect such excess amount. (2) Assessment schedule under extension In order to collect, by the end of fiscal year 2028, the excess amount determined under paragraph (d), the Secretary shall establish, by regulation, an assessment schedule, including assessment base and rates, that— (A) is designed, in the judgment of the Secretary, to result in the collection of such excess amount by the end of fiscal year 2028; and (B) shall apply to— (i) a top-tiered covered firm, with respect to the group consisting of such top-tier covered firm and each other covered firm controlled by such top-tier covered firm; and (ii) a covered firm, if such covered firm is not controlled by a top-tier covered firm. (3) Annual adjustment For each fiscal year, starting with fiscal year 2024, the Secretary— (A) shall apply the fee required by this section to— (i) a top-tiered covered firm, with respect to the group consisting of such top-tier covered firm and each other covered firm controlled by such top-tier covered firm; and (ii) a covered firm, if such covered firm is not controlled by a top-tier covered firm; and (B) shall adjust the rates under this subsection in a manner that is designed, in the judgment of the Secretary, to result in the collection of such excess amount as may be determined under this section by the end of fiscal year 2028. (e) Deposit of collections All amounts collected pursuant to the fee, during fiscal year 2014 and each fiscal year thereafter (including during the extension period, if applicable)— (1) shall be deposited and credited as general revenue of the Treasury for the purposes of deficit reduction; and (2) shall not be available for obligation. 603. Other provisions (a) Assistance with assessment and collection The appropriate Federal agencies shall respond promptly to any request for information or assistance from the Secretary with regard to the determination or collection of any Fee to be determined or imposed under this Act. (b) Severability; rule of construction It is the intent of Congress that the provisions of this Act be severable, and be construed to avoid the constitutional invalidity of any provision of the Act or any application of any provision of the Act to any person or circumstance. If a provision of this Act is held invalid, all valid provisions shall remain in effect. If a provision of this Act is held invalid in one or more of its applications to any person or circumstance, the Act shall remain in effect in all its valid applications. In any challenge to the constitutionality of any provision of this Act, a reviewing court shall construe such provision as necessary to avoid any constitutional invalidity. VII Tax on trading transactions 701. Transaction tax (a) In general Chapter 36 of the Internal Revenue Code of 1986 is amended by inserting after subchapter B the following new subchapter: C Tax on Trading Transactions Sec. 4475. Tax on trading transactions. 4475. Tax on trading transactions (a) Imposition of tax There is hereby imposed a tax on each covered transaction with respect to any security. (b) Rate of tax The tax imposed under subsection (a) with respect to any covered transaction shall be 0.03 percent of the specified base amount with respect to such covered transaction. (c) Specified base amount For purposes of this section, the term specified base amount means— (1) except as provided in paragraph (2), the fair market value of the security (determined as of the time of the covered transaction), and (2) in the case of any payment described in subsection (h), the amount of such payment. (d) Covered transaction For purposes of this section, the term covered transaction means— (1) except as provided in paragraph (2), any purchase if— (A) such purchase occurs or is cleared on a facility located in the United States, or (B) the purchaser or seller is a United States person, and (2) any transaction with respect to a security described in subparagraph (D), (E), or (F) of subsection (e)(1), if— (A) such security is traded or cleared on a facility located in the United States, or (B) any party with rights under such security is a United States person. (e) Security and other definitions For purposes of this section— (1) In general The term security means— (A) any share of stock in a corporation, (B) any partnership or beneficial ownership interest in a partnership or trust, (C) any note, bond, debenture, or other evidence of indebtedness, (D) any evidence of an interest in, or a derivative financial instrument with respect to, any security or securities described in subparagraph (A), (B), or (C), (E) any derivative financial instrument with respect to any currency or commodity, and (F) any notional principal contract. (2) Derivative financial instrument The term derivative financial instrument includes any option, forward contract, futures contract, or any similar financial instrument. (3) Notional principal contract Except as otherwise provided by the Secretary, the term notional principal contract means any financial instrument which requires two or more payments at specified intervals calculated by reference to a specified index upon one or more notional principal amounts. An amount shall not fail to be treated as a payment described in the preceding sentence merely because such amount is fixed on one date and paid or otherwise taken into account on a different date. (4) Specified index The term specified index means any 1 or more of any combination of— (A) a fixed rate, price, or amount, or (B) a variable rate, price, or amount, (C) any index based on any objectively determinable information (including the occurrence or nonoccurrence of any event) which is not within the control of any of the parties to the instrument and is not unique to any of the parties’ circumstances, and (D) any other index as the Secretary may prescribe. (5) Treatment of exchanges (A) In general An exchange shall be treated as the sale of the property transferred and a purchase of the property received by each party to the exchange. (B) Certain deemed exchanges In the case of a distribution treated as an exchange for stock under section 302 or 331, the corporation making such distribution shall be treated as having purchased such stock for purposes of this section. (f) Exceptions (1) Exception for initial issues No tax shall be imposed under subsection (a) on any covered transaction with respect to the initial issuance of any security described in subparagraph (A), (B), or (C) of subsection (e)(1). (2) Exception for certain traded short-term indebtedness A note, bond, debenture, or other evidence of indebtedness which— (A) is traded on a trading facility located in the United States, and (B) has a fixed maturity of not more than 100 days, shall not be treated as described in subsection (e)(1)(C). (3) Exception for securities lending arrangements No tax shall be imposed under subsection (a) on any covered transaction with respect to which gain or loss is not recognized by reason of section 1058. (g) By whom paid (1) In general The tax imposed by this section shall be paid by— (A) in the case of a transaction which occurs or is cleared on a facility located in the United States, such facility, and (B) in the case of a purchase not described in subparagraph (A) which is executed by a broker (as defined in section 6045(c)(1)) which is a United States person, such broker. (2) Special rules for direct, etc., transactions In the case of any transaction to which paragraph (1) does not apply, the tax imposed by this section shall be paid by— (A) in the case of a transaction described in subsection (d)(1)— (i) the purchaser if the purchaser is a United States person, and (ii) the seller if the purchaser is not a United States person, and (B) in the case of a transaction described in subsection (d)(2)— (i) the payor if the payor is a United States person, and (ii) the payee if the payor is not a United States person. (h) Certain payments treated as separate transactions Except as otherwise provided by the Secretary, any payment with respect to a security described in subparagraph (D), (E), or (F) of subsection (e)(1) shall be treated as a separate transaction for purposes of this section, including— (1) any net initial payment, net final or terminating payment, or net periodical payment with respect to a notional principal contract (or similar financial instrument), (2) any payment with respect to any forward contract (or similar financial instrument), and (3) any premium paid with respect to any option (or similar financial instrument). (i) Application to transactions by controlled foreign corporations (1) In general For purposes of this section, a controlled foreign corporation shall be treated as a United States person. (2) Special rules for payment of tax on direct, etc., transactions In the case of any transaction which is a covered transaction solely by reason of paragraph (1) and which is not described in subsection (g)(1)— (A) Payment by United States shareholders Any tax which would (but for this paragraph) be payable under subsection (g)(2) by the controlled foreign corporation shall, in lieu thereof, be paid by the United States shareholders of such controlled foreign corporation as provided in subparagraph (B). (B) Pro rata shares Each such United States shareholder shall pay the same proportion of such tax as— (i) the stock which such United States shareholder owns (within the meaning of section 958(a)) in such controlled foreign corporation, bears to (ii) the stock so owned by all United States shareholders in such controlled foreign corporation. (C) Definitions For purposes of this subsection, the terms United States shareholder and controlled foreign corporation have the meanings given such terms in sections 951(b) and 957(a), respectively. (j) Administration The Secretary shall carry out this section in consultation with the Securities and Exchange Commission and the Commodity Futures Trading Commission. (k) Guidance; regulations The Secretary shall— (1) provide guidance regarding such information reporting concerning covered transactions as the Secretary deems appropriate, and (2) prescribe such regulations as are necessary or appropriate to prevent avoidance of the purposes of this section, including the use of non-United States persons in such transactions. . (b) Credit with respect to certain tax-Favored accounts To offset transaction tax (1) In general Subpart C of part IV of subchapter A of chapter 1 of such Code is amended by inserting after section 36B the following new section: 36C. Offset for transaction tax with respect to certain tax-favored accounts (a) In general There shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to 0.03 percent of the qualified tax-favored account contributions of the taxpayer for the taxable year. (b) Qualified tax-Favored account contributions For purposes of this section, the term qualified tax-favored account contributions means, with respect to any taxable year, the sum of— (1) with respect to qualified retirement plans (as defined in section 4974(c)) of the taxpayer, the amount contributed to such plans for such taxable year to the extent that such contributions are allowable as a deduction or are excludable from gross income (or, in the case of a Roth IRA (as defined in section 408A(b)), the amount contributed), (2) with respect to Archer MSAs of the taxpayer, the amount allowed as a deduction under section 220 for such taxable year, (3) with respect to health savings accounts of the taxpayer, the amount allowed as a deduction under section 223 for such taxable year, plus (4) with respect to qualified tuition programs (as defined in section 529) and Coverdell education savings accounts (as defined in section 530) with respect to which the taxpayer is the designated beneficiary (or, in the case of a designated beneficiary with respect to whom another taxpayer is allowed a deduction under section 151, such other taxpayer in lieu of such designated beneficiary), the amount contributed for such taxable year. . (2) Conforming amendments (A) Section 1324(b)(2) of title 31, United States Code, is amended by inserting , 36C after 36B . (B) The table of sections for subpart C of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting before the item relating to section 37 the following new item: Sec. 36C. Offset for transaction tax on contributions to certain tax-favored accounts. . (c) Information reporting with respect to controlled foreign corporations Subparagraph (B) of section 6038(a)(1) is amended by inserting and transactions which are covered transactions for purposes of section 4475 by reason of the application of section 4475(i)(1) to such corporation before the semicolon at the end. (d) Clerical amendment The table of subchapters for chapter 36 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to subchapter B the following new item: Subchapter C. Tax on trading transactions. . (e) Effective date The amendments made by this section shall apply to transactions after December 31, 2013. VIII Modification of accounting rules 801. Repeal of last-in, first-out method of inventory (a) In general Subpart D of part II of subchapter E of chapter 1 is amended by striking sections 472 (relating to last-in, first-out inventories), 473 (relating to qualified liquidations of LIFO inventories), and 474 (relating to simplified dollar-value LIFO method for certain small businesses). (b) Conforming amendments (1) (A) Section 312(n) is amended by striking paragraph (4) and by redesignating paragraphs (5) through (8) as paragraphs (4) through (7), respectively. (B) Section 312(n)(7), as redesignated by subparagraph (A), is amended— (i) by striking paragraphs (4) and (6) in subparagraph (A) and inserting paragraph (5) , and (ii) by striking paragraph (5) in subparagraph (B) and inserting paragraph (4) . (C) Section 56(g)(4)(D) is amended by striking clause (iii) and by redesignating clause (iv) as clause (iii). (2) Section 1363 is amended by striking subsection (d). (c) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (2) Change in method of accounting In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after the date of the enactment of this Act— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as made with the consent of the Secretary of the Treasury, and (C) if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 is positive, such amount shall be taken into account over a period of 8 years beginning with such first taxable year. 802. Repeal of lower of cost or market method of inventory (a) In general Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Inventories taken into account at cost A method of determining inventories shall not be treated as clearly reflecting income unless such method provides that inventories shall be taken into account at cost. . (b) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (2) Change in method of accounting In the case of any taxpayer required by the amendments made by this section to change its method of accounting for its first taxable year beginning after the date of the enactment of this Act— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as made with the consent of the Secretary of the Treasury, and (C) if the net amount of the adjustments required to be taken into account by the taxpayer under section 481 of the Internal Revenue Code of 1986 is positive, such amount shall be taken into account over a period of 8 years beginning with such first taxable year. IX Fair treatment of options 901. Consistent treatment of stock options by corporations (a) Consistent treatment for wage deduction (1) In general Section 83(h) is amended— (A) by striking In the case of and inserting: (1) In general In the case of , and (B) by adding at the end the following new paragraph: (2) Stock options In the case of property transferred to a person in connection with a stock option, any deduction related to such stock option shall be allowed only under section 162(q) and paragraph (1) shall not apply. . (2) Treatment of compensation paid with stock options Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: (q) Treatment of compensation paid with stock options (1) In general In the case of compensation for personal services that is paid with stock options, the deduction under subsection (a)(1) shall not exceed the amount the taxpayer has treated as compensation cost with respect to such stock options for the purpose of ascertaining income, profit, or loss in a report or statement to shareholders, partners, or other proprietors (or to beneficiaries), and shall be taken into account in the same period that such compensation cost is recognized for such purpose. (2) Special rules for controlled groups The Secretary may prescribe rules for the application of paragraph (1) in cases where the stock option is granted by— (A) a parent or subsidiary corporation (within the meaning of section 424) of the taxpayer, or (B) another corporation. . (b) Consistent treatment for research tax credit Section 41(b)(2)(D) is amended by inserting at the end the following new clause: (iv) Special rule for stock options The amount which may be treated as wages for any taxable year in connection with the issuance of a stock option shall not exceed the amount allowed for such taxable year as a compensation deduction under section 162(q) with respect to such stock option. . (c) Application of amendments The amendments made by this section shall apply to stock options exercised after the date of the enactment of this Act, except that— (1) such amendments shall not apply to stock options that were granted before such date and that vested in taxable periods beginning on or before June 15, 2005, (2) for stock options that were granted before such date of enactment and vested during taxable periods beginning after June 15, 2005, and ending before such date of enactment, a deduction under section 162(q) of the Internal Revenue Code of 1986 (as added by subsection (a)(2)) shall be allowed in the first taxable period of the taxpayer that ends after such date of enactment, (3) for public entities reporting as small business issuers and for non-public entities required to file public reports of financial condition, paragraphs (1) and (2) shall be applied by substituting December 15, 2005 for June 15, 2005 , and (4) no deduction shall be allowed under section 83(h) or section 162(q) of such Code with respect to any stock option the vesting date of which is changed to accelerate the time at which the option may be exercised in order to avoid the applicability of such amendments. 902. Application of executive pay deduction limit (a) In general Subparagraph (D) of section 162(m)(4) is amended to read as follows: (D) Stock option compensation The term applicable employee remuneration shall include any compensation deducted under subsection (q), and such compensation shall not qualify as performance-based compensation under subparagraph (C). . (b) Effective date The amendment made by this section shall apply to stock options exercised or granted after the date of the enactment of this Act.