I 115th CONGRESS 1st Session H. R. 1 IN THE HOUSE OF REPRESENTATIVES November 2, 2017 Mr. Brady of Texas (for himself, Mr. Ryan of Wisconsin , Mr. Sam Johnson of Texas , Mr. Nunes , Mr. Tiberi , Mr. Reichert , Mr. Roskam , Mr. Buchanan , Mr. Smith of Nebraska , Ms. Jenkins of Kansas , Mr. Paulsen , Mr. Marchant , Mrs. Black , Mr. Reed , Mr. Kelly of Pennsylvania , Mr. Renacci , Mr. Meehan , Mrs. Noem , Mr. Holding , Mr. Smith of Missouri , Mr. Rice of South Carolina , Mr. Schweikert , Mrs. Walorski , Mr. Curbelo of Florida , and Mr. Bishop of Michigan ) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To provide for reconciliation pursuant to title II of the concurrent resolution on the budget for fiscal year 2018.

1. Short title; etc (a) Short title This Act may be cited as the Tax Cuts and Jobs Act . (b) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Table of contents The table of contents for this Act is as follows: Sec. 1. Short title; etc. Title I—Tax reform for individuals Subtitle A—Simplification and reform of rates, standard deduction, and exemptions Sec. 1001. Reduction and simplification of individual income tax rates. Sec. 1002. Enhancement of standard deduction. Sec. 1003. Repeal of deduction for personal exemptions. Sec. 1004. Maximum rate on business income of individuals. Sec. 1005. Conforming amendments related to simplification of individual income tax rates. Subtitle B—Simplification and reform of family and individual tax credits Sec. 1101. Enhancement of child tax credit and new family tax credit. Sec. 1102. Repeal of nonrefundable credits. Sec. 1103. Refundable credit program integrity. Subtitle C—Simplification and reform of education incentives Sec. 1201. American opportunity tax credit. Sec. 1202. Consolidation of education savings rules. Sec. 1203. Reforms to discharge of certain student loan indebtedness. Sec. 1204. Repeal of other provisions relating to education. Subtitle D—Simplification and reform of deductions Sec. 1301. Repeal of overall limitation on itemized deductions. Sec. 1302. Mortgage interest. Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business. Sec. 1304. Repeal of deduction for personal casualty losses. Sec. 1305. Limitation on wagering losses. Sec. 1306. Charitable contributions. Sec. 1307. Repeal of deduction for tax preparation expenses. Sec. 1308. Repeal of medical expense deduction. Sec. 1309. Repeal of deduction for alimony payments. Sec. 1310. Repeal of deduction for moving expenses. Sec. 1311. Termination of deduction and exclusions for contributions to medical savings accounts. Sec. 1312. Denial of deduction for expenses attributable to the trade or business of being an employee. Subtitle E—Simplification and reform of exclusions and taxable compensation Sec. 1401. Limitation on exclusion for employer-provided housing. Sec. 1402. Exclusion of gain from sale of a principal residence. Sec. 1403. Repeal of exclusion, etc., for employee achievement awards. Sec. 1404. Repeal of exclusion for dependent care assistance programs. Sec. 1405. Repeal of exclusion for qualified moving expense reimbursement. Sec. 1406. Repeal of exclusion for adoption assistance programs. Subtitle F—Simplification and reform of savings, pensions, retirement Sec. 1501. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions. Sec. 1502. Reduction in minimum age for allowable in-service distributions. Sec. 1503. Modification of rules governing hardship distributions. Sec. 1504. Modification of rules relating to hardship withdrawals from cash or deferred arrangements. Sec. 1505. Extended rollover period for the rollover of plan loan offset amounts in certain cases. Sec. 1506. Modification of nondiscrimination rules to protect older, longer service participants. Subtitle G—Estate, gift, and generation-skipping transfer taxes Sec. 1601. Increase in credit against estate, gift, and generation-skipping transfer tax. Sec. 1602. Repeal of estate and generation-skipping transfer taxes. Title II—Alternative Minimum Tax Repeal Sec. 2001. Repeal of alternative minimum tax. Title III—Business tax reform Subtitle A—Tax rates Sec. 3001. Reduction in corporate tax rate. Subtitle B—Cost recovery Sec. 3101. Increased expensing. Subtitle C—Small business reforms Sec. 3201. Expansion of section 179 expensing. Sec. 3202. Small business accounting method reform and simplification. Sec. 3203. Small business exception from limitation on deduction of business interest. Subtitle D—Reform of business-related exclusions, deductions, etc. Sec. 3301. Interest. Sec. 3302. Modification of net operating loss deduction. Sec. 3303. Like-kind exchanges of real property. Sec. 3304. Revision of treatment of contributions to capital. Sec. 3305. Repeal of deduction for local lobbying expenses. Sec. 3306. Repeal of deduction for income attributable to domestic production activities. Sec. 3307. Entertainment, etc. expenses. Sec. 3308. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed. Sec. 3309. Limitation on deduction for FDIC premiums. Sec. 3310. Repeal of rollover of publicly traded securities gain into specialized small business investment companies. Sec. 3311. Certain self-created property not treated as a capital asset. Sec. 3312. Repeal of special rule for sale or exchange of patents. Sec. 3313. Repeal of technical termination of partnerships. Subtitle E—Reform of business credits Sec. 3401. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions. Sec. 3402. Repeal of employer-provided child care credit. Sec. 3403. Repeal of rehabilitation credit. Sec. 3404. Repeal of work opportunity tax credit. Sec. 3405. Repeal of deduction for certain unused business credits. Sec. 3406. Termination of new markets tax credit. Sec. 3407. Repeal of credit for expenditures to provide access to disabled individuals. Sec. 3408. Modification of credit for portion of employer social security taxes paid with respect to employee tips. Subtitle F—Energy credits Sec. 3501. Modifications to credit for electricity produced from certain renewable resources. Sec. 3502. Modification of the energy investment tax credit. Sec. 3503. Extension and phaseout of residential energy efficient property. Sec. 3504. Repeal of enhanced oil recovery credit. Sec. 3505. Repeal of credit for producing oil and gas from marginal wells. Sec. 3506. Modifications of credit for production from advanced nuclear power facilities. Subtitle G—Bond reforms Sec. 3601. Termination of private activity bonds. Sec. 3602. Repeal of advance refunding bonds. Sec. 3603. Repeal of tax credit bonds. Sec. 3604. No tax exempt bonds for professional stadiums. Subtitle H—Insurance Sec. 3701. Net operating losses of life insurance companies. Sec. 3702. Repeal of small life insurance company deduction. Sec. 3703. Computation of life insurance tax reserves. Sec. 3704. Adjustment for change in computing reserves. Sec. 3705. Modification of rules for life insurance proration for purposes of determining the dividends received deduction. Sec. 3706. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account. Sec. 3707. Modification of proration rules for property and casualty insurance companies. Sec. 3708. Modification of discounting rules for property and casualty insurance companies. Sec. 3709. Repeal of special estimated tax payments. Sec. 3710. Capitalization of certain policy acquisition expenses. Subtitle I—Compensation Sec. 3801. Nonqualified deferred compensation. Sec. 3802. Modification of limitation on excessive employee remuneration. Sec. 3803. Excise tax on excess tax-exempt organization executive compensation. Title IV—Taxation of foreign income and foreign persons Subtitle A—Establishment of participation exemption system for taxation of foreign income Sec. 4001. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations. Sec. 4002. Application of participation exemption to investments in United States property. Sec. 4003. Limitation on losses with respect to specified 10-percent owned foreign corporations. Sec. 4004. Treatment of deferred foreign income upon transition to participation exemption system of taxation. Subtitle B—Modifications related to foreign tax credit system Sec. 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis. Sec. 4102. Source of income from sales of inventory determined solely on basis of production activities. Subtitle C—Modification of subpart F provisions Sec. 4201. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment. Sec. 4202. Repeal of treatment of foreign base company oil related income as subpart F income. Sec. 4203. Inflation adjustment of de minimis exception for foreign base company income. Sec. 4204. Look-thru rule for related controlled foreign corporations made permanent. Sec. 4205. Modification of stock attribution rules for determining status as a controlled foreign corporation. Sec. 4206. Elimination of requirement that corporation must be controlled for 30 days before subpart F inclusions apply. Subtitle D—Prevention of base erosion Sec. 4301. Current year inclusion by United States shareholders with foreign high returns. Sec. 4302. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group. Sec. 4303. Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income. Subtitle E—Provisions related to possessions of the United States Sec. 4401. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico. Sec. 4402. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands. Sec. 4403. Extension of American Samoa economic development credit. Subtitle F—Other international reforms Sec. 4501. Restriction on insurance business exception to passive foreign investment company rules. Sec. 4502. Limitation on treaty benefits for certain deductible payments. Title V—Exempt organizations Subtitle A—Unrelated Business Income Tax Sec. 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a) . Sec. 5002. Exclusion of research income limited to publicly available research. Subtitle B—Excise Taxes Sec. 5101. Simplification of excise tax on private foundation investment income. Sec. 5102. Private operating foundation requirements relating to operation of art museum. Sec. 5103. Excise tax based on investment income of private colleges and universities. Sec. 5104. Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings. Subtitle C—Requirements for organizations exempt from tax Sec. 5201. Churches permitted to make statements relating to political campaign in ordinary course of religious services and activities. Sec. 5202. Additional reporting requirements for donor advised fund sponsoring organizations. I Tax reform for individuals A Simplification and reform of rates, standard deduction, and exemptions 1001. Reduction and simplification of individual income tax rates (a) In general Section 1 is amended by striking subsection (i) and by striking all that precedes subsection (h) and inserting the following: 1. Tax imposed (a) In general There is hereby imposed on the income of every individual a tax equal to the sum of— (1) 12 percent bracket 12 percent of so much of the taxable income as does not exceed the 25-percent bracket threshold amount, (2) 25 percent bracket 25 percent of so much of the taxable income as exceeds the 25-percent bracket threshold amount but does not exceed the 35-percent bracket threshold amount, plus (3) 35 percent bracket 35 percent of so much of taxable income as exceeds the 35-percent bracket threshold amount but does not exceed the 39.6 percent bracket threshold amount. (4) 39.6 percent bracket 39.6 percent of so much of taxable income as exceeds the 39.6-percent bracket threshold amount. (b) Bracket threshold amounts For purposes of this section— (1) 25-percent bracket threshold amount The term 25-percent bracket threshold amount means— (A) in the case of a joint return or surviving spouse, $90,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), $67,500, (C) in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under subparagraph (A), and (D) in the case of an estate or trust, $2,550. (2) 35-percent bracket threshold amount The term 35-percent bracket threshold amount means— (A) in the case of a joint return or surviving spouse, $260,000, (B) in the case of a married individual filing a separate return, an amount equal to ½ of the amount in effect for the taxable year under subparagraph (A), (C) in the case of any other individual (other than an estate or trust), $200,000, and (D) in the case of an estate or trust, $9,150. (3) 39-percent bracket threshold amount The term 39.6-percent bracket threshold amount means— (A) in the case of a joint return or surviving spouse, $1,000,000, (B) in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of an estate or trust, $12,500. (c) Inflation adjustment (1) In general In the case of any taxable year beginning after 2018, each dollar amount in subsection (b) (other than any amount determined by reference to such a dollar amount) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under this subsection for the calendar year in which the taxable year begins by substituting 2017 for 2016 in paragraph (2)(A)(ii). If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. (2) Cost-of-living adjustment For purposes of this subsection— (A) In general The cost-of-living adjustment for any calendar year is the percentage (if any) by which— (i) the C-CPI-U for the preceding calendar year, exceeds (ii) the normalized CPI for calendar year 2016. (B) Special rule for adjustments with a base year after 2016 For purposes of any provision which provides for the substitution of a year after 2016 for 2016 in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting C-CPI-U for normalized CPI in clause (ii). (3) Normalized CPI For purposes of this subsection, the normalized CPI for any calendar year is the product of— (A) the CPI for such calendar year, multiplied by (B) the C-CPI-U transition multiple. (4) C-CPI-U transition multiple For purposes of this subsection, the term C-CPI-U transition multiple means the amount obtained by dividing— (A) the C-CPI-U for calendar year 2016, by (B) the CPI for calendar year 2016. (5) C-CPI-U For purposes of this subsection— (A) In general The term C-CPI-U means the Chained Consumer Price Index for All Urban Consumers (as published by the Bureau of Labor Statistics of the Department of Labor). The values of the Chained Consumer Price Index for All Urban Consumers taken into account for purposes of determining the cost-of-living adjustment for any calendar year under this subsection shall be the latest values so published as of the date on which such Bureau publishes the initial value of the Chained Consumer Price Index for All Urban Consumers for the month of August for the preceding calendar year. (B) Determination for calendar year The C-CPI-U for any calendar year is the average of the C-CPI-U as of the close of the 12-month period ending on August 31 of such calendar year. (6) CPI For purposes of this subsection— (A) In general The term Consumer Price Index means the last Consumer Price Index for All Urban Consumers published by the Department of Labor. For purposes of the preceding sentence, the revision of the Consumer Price Index which is most consistent with the Consumer Price Index for calendar year 1986 shall be used. (B) Determination for calendar year The CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on August 31 of such calendar year. (7) Delay of adjustment based on C-CPI-U until 2023 Notwithstanding any other provision of this title, any cost-of-living adjustment determined under this subsection (or by reference to this subsection) shall be determined on the basis of CPI rather than C-CPI-U with respect to periods before January 1, 2023. Proper adjustments shall be made in the application of this subsection to carry out the preceding sentence. (d) Special rules for certain children with unearned income (1) In general In the case of any child to whom this subsection applies for any taxable year— (A) the 25-percent bracket threshold amount shall not be more than the taxable income of such child for the taxable year reduced by the net unearned income of such child, and (B) the 35-percent bracket threshold amount shall not be more than the sum of— (i) the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus (ii) the dollar amount in effect under subsection (b)(2)(D) for the taxable year. (C) the 39.6-percent bracket threshold amount shall not be more than the sum of— (i) the taxable income of such child for the taxable year reduced by the net unearned income of such child, plus (ii) the dollar amount in effect under subsection (b)(3)(C). (2) Child to whom subsection applies This subsection shall apply to any child for any taxable year if— (A) such child— (i) has not attained age 18 before the close of the taxable year, or (ii) has attained age 18 before the close of the taxable year and is described in paragraph (3), (B) either parent of such child is alive at the close of the taxable year, and (C) such child does not file a joint return for the taxable year. (3) Certain children whose earned income does not exceed one-half of individual’s support A child is described in this paragraph if— (A) such child— (i) has not attained age 19 before the close of the taxable year, or (ii) is a student (within the meaning of section 7706(f)(2)) who has not attained age 24 before the close of the taxable year, and (B) such child’s earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual’s support (within the meaning of section 7706(c)(1)(D) after the application of section 7706(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year. (4) Net unearned income For purposes of this subsection— (A) In general The term net unearned income means the excess of— (i) the portion of the adjusted gross income for the taxable year which is not attributable to earned income (as defined in section 911(d)(2)), over (ii) the sum of— (I) the amount in effect for the taxable year under section 63(c)(2)(A) (relating to limitation on standard deduction in the case of certain dependents), plus (II) The greater of the amount described in subclause (I) or, if the child itemizes his deductions for the taxable year, the amount of the itemized deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of adjusted gross income referred to in clause (i). (B) Limitation based on taxable income The amount of the net unearned income for any taxable year shall not exceed the individual’s taxable income for such taxable year. (e) Phaseout of 12-Percent rate (1) In general The amount of tax imposed by this section (determined without regard to this subsection) shall be increased by 6 percent of the excess (if any) of— (A) adjusted gross income, over (B) the applicable dollar amount. (2) Limitation The increase determined under paragraph (1) with respect to any taxpayer for any taxable year shall not exceed 27.6 percent of the lesser of— (A) the taxpayer’s taxable income for such taxable year, or (B) the 25-percent bracket threshold amount in effect with respect to the taxpayer for such taxable year. (3) Applicable dollar amount For purposes of this subsection, the term applicable dollar amount means— (A) in the case of a joint return or a surviving spouse, $1,200,000, and (B) in the case of any other individual, $1,000,000. (4) Estates and trusts Paragraph (1) shall not apply in the case of an estate or trust. . (b) Application of current income tax brackets to capital gains brackets (1) In general (A) 0 -percent capital gains bracket Section 1(h)(1) is amended by striking which would (without regard to this paragraph) be taxed at a rate below 25 percent in subparagraph (B)(i) and inserting below the 15-percent rate threshold . (B) 15 -percent capital gains bracket Section 1(h)(1)(C)(ii)(I) is amended by striking which would (without regard to this paragraph) be taxed at a rate below 39.6 percent and inserting below the 20-percent rate threshold . (2) Rate thresholds defined Section 1(h) is amended by adding at the end the following new paragraph: (12) Rate thresholds defined For purposes of this subsection— (A) 15 -percent rate threshold The 15-percent rate threshold shall be— (i) in the case of a joint return or surviving spouse, $77,200 ( ½ such amount in the case of a married individual filing a separate return), (ii) in the case of an individual who is the head of a household (as defined in section 2(b)), $51,700, (iii) in the case of any other individual (other than an estate or trust), an amount equal to ½ of the amount in effect for the taxable year under clause (i), and (iv) in the case of an estate or trust, $2,600. (B) 20 -percent rate threshold The 20-percent rate threshold shall be— (i) in the case of a joint return or surviving spouse, $479,000 ( ½ such amount in the case of a married individual filing a separate return), (ii) in the case of an individual who is the head of a household (as defined in section 2(b)), $452,400, (iii) in the case of any other individual (other than an estate or trust), $425,800, and (iv) in the case of an estate or trust, $12,700. (C) Inflation adjustment In the case of any taxable year beginning after 2018, each of the dollar amounts in subparagraphs (A) and (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under subsection (c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in clause (ii) thereof. . (c) Application of section 15 (1) In general Subsection (a) of section 15 is amended by striking by this chapter and inserting by section 11 (or by reference to any such rates) . (2) Conforming amendments (A) Section 15 is amended by striking subsections (d) and (f) and by redesignating subsection (e) as subsection (d). (B) Section 15(d), as redesignated by subparagraph (A), is amended by striking section 1 or 11(b) and inserting section 11(b) . (C) Section 6013(c) is amended by striking sections 15, 443, and 7851(a)(1)(A) and inserting sections 443 and 7851(a)(1)(A) . (3) Application to this Act Section 15 of the Internal Revenue Code of 1986 shall not apply to any change in a rate of tax imposed by chapter 1 of such Code which occurs by reason of any amendment made by this Act (other than the amendments made by section 3001). (d) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Subsection (c) The amendments made by subsection (c) shall take effect on the date of the enactment of this Act. 1002. Enhancement of standard deduction (a) Increase in standard deduction Section 63(c) is amended to read as follows: (c) Standard deduction For purposes of this subtitle— (1) In general Except as otherwise provided in this subsection, the term standard deduction means— (A) $24,400, in the case of a joint return (or a surviving spouse (as defined in section 2(a)), (B) three-quarters of the amount in effect under subparagraph (A) for the taxable year, in the case of an unmarried individual with at least one qualifying child (within the meaning of section 7706), and (C) one-half of the amount in effect under subparagraph (A) for the taxable year, in any other case. (2) Limitation on standard deduction in the case of certain dependents In the case of an individual who is a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the standard deduction applicable to such individual for such individual’s taxable year shall not exceed the greater of— (A) $500, or (B) the sum of $250 and such individual’s earned income (within the means of section 32). (3) Certain individuals, etc., not eligible for standard deduction In the case of— (A) a married individual filing a separate return where either spouse itemizes deductions, (B) a nonresident alien individual, (C) an individual making a return under section 443(a)(1) for a period of less than 12 months on account of a change in his annual accounting period, or (D) an estate or trust, common trust fund, or partnership, the standard deduction shall be zero. (4) Unmarried individual For purposes of this section, the term unmarried individual means any individual who— (A) is not married as of the close of the taxable year (as determined by applying section 7703), (B) is not a surviving spouse (as defined in section 2(a)) for the taxable year, and (C) is not a dependent of another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins. (5) Inflation adjustments (A) Standard deduction amount In the case of any taxable year beginning after 2019, the dollar amount in paragraph (1)(A) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2018 for calendar year 2016 in clause (ii) thereof. (B) Limitation amount in case of certain dependents In the case of any taxable year beginning after 2017, each of the dollar amounts in paragraph (2) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) (I) in the case of the dollar amount in paragraph (2)(A), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1987 for calendar year 2016 in clause (ii) thereof, and (II) in the case of the dollar amount in paragraph (2)(B), under section 1(c)(2)(A) for the calendar year in which the taxable year begins determined by substituting calendar year 1997 for calendar year 2016 in clause (ii) thereof. If any increase determined under this paragraph is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. . (b) Conforming amendments (1) Section 63(b) is amended by striking , minus— and all that follows and inserting minus the standard deduction . (2) Section 63 is amended by striking subsections (f) and (g). (3) Section 1398(c) is amended— (A) by striking Basic in the heading thereof, (B) by striking Basic standard in the heading of paragraph (3) and inserting Standard , and (C) by striking basic in paragraph (3). (4) Section 3402(m)(3) is amended by striking (including the additional standard deduction under section 63(c)(3) for the aged and blind) . (5) Section 6014(b)(4) is amended by striking section 63(c)(5) and inserting section 63(c)(2) . (c) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 1003. Repeal of deduction for personal exemptions (a) In general Part V of subchapter B of chapter 1 is hereby repealed. (b) Definition of dependent retained Section 152, prior to repeal by subsection (a), is hereby redesignated as section 7706 and moved to the end of chapter 79. (c) Application to estates and trusts Subsection (b) of section 642 is amended— (1) by striking paragraph (2)(C), (2) by striking paragraph (3), and (3) by striking Deduction for personal exemption in the heading thereof and inserting Basic deduction . (d) Application to nonresident aliens Section 873(b) is amended by striking paragraph (3). (e) Modification of wage withholding rules (1) In general Section 3402(a) is amended by striking paragraph (2) (2) Conforming amendment Section 3402(a) is amended— (A) by redesignating subparagraph (A) and (B) of paragraph (1) as paragraphs (1) and (2) and moving such redesignated paragraphs 2 ems to the left, and (B) by striking all that precedes otherwise provided in this section and inserting the following: (a) Requirement of withholding Except as . (3) Number of exemptions Section 3402(f)(1) is amended— (A) in subparagraph (A), by striking an individual described in section 151(d)(2) and inserting a dependent of any other taxpayer , and (B) in subparagraph (C), by striking with respect to whom, on the basis of facts existing at the beginning of such day, there may reasonably be expected to be allowable an exemption under section 151(c) and inserting who, on the basis of facts existing at the beginning of such day, is reasonably expected to be a dependent of the employee . (f) Modification of return requirement (1) In general Paragraph (1) of section 6012(a) is amended to read as follows: (1) Every individual who has gross income for the taxable year, except that a return shall not be required of— (A) an individual who is not married (determined by applying section 7703) and who has gross income for the taxable year which does not exceed the standard deduction applicable to such individual for such taxable year under section 63, or (B) an individual entitled to make a joint return if— (i) the gross income of such individual, when combined with the gross income of such individual’s spouse, for the taxable year does not exceed the standard deduction which would be applicable to the taxpayer for such taxable year under section 63 if such individual and such individual’s spouse made a joint return, (ii) such individual and such individual’s spouse have the same household as their home at the close of the taxable year, (iii) such individual’s spouse does not make a separate return, and (iv) neither such individual nor such individual’s spouse is an individual described in section 63(c)(2) who has income (other than earned income) in excess of the amount in effect under section 63(c)(2)(A). . (2) Bankruptcy estates Paragraph (8) of section 6012(a) is amended by striking the sum of the exemption amount plus the basic standard deduction under section 63(c)(2)(D) and inserting the standard deduction in effect under section 63(c)(1)(B) . (g) Conforming amendments (1) Section 2(a)(1)(B) is amended by striking a dependent and all that follows through section 151 and inserting a dependent who (within the meaning of section 7706, determined without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) is a son, stepson, daughter, or stepdaughter of the taxpayer . (2) Section 36B(b)(2)(A) is amended by striking section 152 and inserting section 7706 . (3) Section 36B(b)(3)(B) is amended by striking unless a deduction is allowed under section 151 for the taxable year with respect to a dependent in the flush matter at the end and inserting unless the taxpayer has a dependent for the taxable year . (4) Section 36B(c)(1)(D) is amended by striking with respect to whom a deduction under section 151 is allowable to another taxpayer and inserting who is a dependent of another taxpayer . (5) Section 36B(d)(1) is amended by striking equal to the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year and inserting the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the taxable year . (6) Section 36B(e)(1) is amended by striking 1 or more individuals for whom a taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year (including the taxpayer or his spouse) and inserting 1 or more of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer . (7) Section 42(i)(3)(D)(ii)(I) is amended— (A) by striking section 152 and inserting section 7706 , and (B) by striking the period at the end and inserting a comma. (8) Section 72(t)(2)(D)(i)(III) is amended by striking section 152 and inserting section 7706 . (9) Section 72(t)(7)(A)(iii) is amended by striking section 152(f)(1) and inserting section 7706(f)(1) . (10) Section 105(b) is amended— (A) by striking as defined in section 152 and inserting as defined in section 7706 , (B) by striking section 152(f)(1) and inserting section 7706(f)(1) and (C) by striking section 152(e) and inserting section 7706(e) . (11) Section 105(c)(1) is amended by striking section 152 and inserting section 7706 . (12) Section 125(e)(1)(D) is amended by striking section 152 and inserting section 7706 . (13) Section 132(h)(2)(B) is amended— (A) by striking section 152(f)(1) and inserting section 7706(f)(1) , and (B) by striking section 152(e) and inserting section 7706(e) . (14) Section 139D(c)(5) is amended by striking section 152 and inserting section 7706 . (15) Section 162(l)(1)(D) is amended by striking section 152(f)(1) and inserting section 7706(f)(1) . (16) Section 170(g)(1) is amended by striking section 152 and inserting section 7706 . (17) Section 170(g)(3) is amended by striking section 152(d)(2) and inserting section 7706(d)(2) . (18) Section 172(d) is amended by striking paragraph (3). (19) Section 220(b)(6) is amended by striking with respect to whom a deduction under section 151 is allowable to and inserting who is a dependent of . (20) Section 220(d)(2)(A) is amended by striking section 152 and inserting section 7706 . (21) Section 223(b)(6) is amended by striking with respect to whom a deduction under section 151 is allowable to and inserting who is a dependent of . (22) Section 223(d)(2)(A) is amended by striking section 152 and inserting section 7706 . (23) Section 401(h) is amended by striking section 152(f)(1) in the last sentence and inserting section 7706(f)(1) . (24) Section 402(l)(4)(D) is amended by striking section 152 and inserting section 7706 . (25) Section 409A(a)(2)(B)(ii)(I) is amended by striking section 152(a) and inserting section 7706(a) . (26) Section 501(c)(9) is amended by striking section 152(f)(1) and inserting section 7706(f)(1) . (27) Section 529(e)(2)(B) is amended by striking section 152(d)(2) and inserting section 7706(d)(2) . (28) Section 703(a)(2) is amended by striking subparagraph (A) and by redesignating subparagraphs (B) through (F) as subparagraphs (A) through (E), respectively. (29) Section 874 is amended by striking subsection (b) and by redesignating subsection (c) as subsection (b). (30) Section 891 is amended by striking under section 151 and . (31) Section 904(b) is amended by striking paragraph (1). (32) Section 931(b)(1) is amended by striking (other than the deduction under section 151, relating to personal exemptions) . (33) Section 933 is amended— (A) by striking (other than the deduction under section 151, relating to personal exemptions) in paragraph (1), and (B) by striking (other than the deduction for personal exemptions under section 151) in paragraph (2). (34) Section 1212(b)(2)(B)(ii) is amended to read as follows: (ii) in the case of an estate or trust, the deduction allowed for such year under section 642(b). . (35) Section 1361(c)(1)(C) is amended by striking section 152(f)(1)(C) and inserting section 7706(f)(1)(C) . (36) Section 1402(a) is amended by striking paragraph (7). (37) Section 2032A(c)(7)(D) is amended by striking section 152(f)(2) and inserting section 7706(f)(2) . (38) Section 3402(m)(1) is amended by striking other than the deductions referred to in section 151 and . (39) Section 3402(r)(2) is amended by striking the sum of— and all that follows and inserting the standard deduction in effect under section 63(c)(1)(B). . (40) Section 5000A(b)(3)(A) is amended by striking section 152 and inserting section 7706 . (41) Section 5000A(c)(4)(A) is amended by striking the number of individuals for whom the taxpayer is allowed a deduction under section 151 (relating to allowance of deduction for personal exemptions) for the taxable year and inserting the sum of 1 (2 in the case of a joint return) plus the number of the taxpayer’s dependents for the taxable year . (42) Section 6013(b)(3)(A) is amended— (A) by striking had less than the exemption amount of gross income in clause (ii) and inserting had no gross income , (B) by striking had gross income of the exemption amount or more in clause (iii) and inserting had any gross income , and (C) by striking the flush language following clause (iii). (43) Section 6014(b)(4), as amended by the preceding provisions of this Act, is amended by striking where the taxpayer itemizes his deductions or . (44) Section 6103(l)(21)(A)(iii) is amended to read as follows: (iii) the number of the taxpayer’s dependents, . (45) Section 6213(g)(2) is amended by striking subparagraph (H). (46) Section 6334(d)(2) is amended to read as follows: (2) Exempt amount (A) In general For purposes of paragraph (1), the term exempt amount means an amount equal to— (i) the standard deduction, divided by (ii) 52. (B) Verified statement Unless the taxpayer submits to the Secretary a written and properly verified statement specifying the facts necessary to determine the proper amount under subparagraph (A), subparagraph (A) shall be applied as if the taxpayer were a married individual filing a separate return with no dependents. . (47) Section 7702B(f)(2)(C)(iii) is amended by striking section 152(d)(2) and inserting section 7706(d)(2) . (48) Section 7703(a) is amended by striking part V of subchapter B of chapter 1 and . (49) Section 7703(b)(1) is amended by striking section 152(f)(1) and all that follows and inserting section 7706(f)(1), . (50) Section 7706(a), as redesignated by this section, is amended by striking this subtitle and inserting subtitle A . (51) (A) Section 7706(d)(1)(B), as redesignated by this section, is amended by striking the exemption amount (as defined in section 151(d)) and inserting $4,150 . (B) Section 7706(d), as redesignated by this section, is amended by adding at the end the following new paragraph: (6) Inflation adjustment In the case of any calendar year beginning after 2018, the $4,150 amount in paragraph (1)(B) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2017 for calendar year 2016 in clause (ii) thereof. If any increase determined under the preceding sentence is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. . (52) The table of sections for chapter 79 is amended by adding at the end the following new item: Sec. 7706. Dependent defined. . (h) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1004. Maximum rate on business income of individuals (a) In general Part I of subchapter A of chapter 1 is amended by inserting after section 3 the following new section: 4. 25 percent maximum rate on business income of individuals (a) Reduction in tax To achieve 25 percent maximum rate The tax imposed by section 1 shall be reduced by the sum of— (1) 10 percent of the lesser of— (A) qualified business income, or (B) the excess (if any) of— (i) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), over (ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, and (2) 4.6 percent of the excess (if any) of— (A) the lesser of— (i) qualified business income, or (ii) the excess (if any) determined under paragraph (1)(B), over (B) the excess of— (i) the maximum dollar amount for the 35-percent rate bracket which applies to the taxpayer under section 1 for the taxable year, over (ii) the maximum dollar amount for the 25-percent rate bracket which applies to the taxpayer under section 1 for the taxable year. (b) Qualified business income For purposes of this section, the term qualified business income means the excess (if any) of— (1) the sum of— (A) 100 percent of any net business income derived from any passive business activity, plus (B) the capital percentage of any net business income derived from any active business activity, over (2) the sum of— (A) 100 percent of any net business loss derived from any passive business activity, (B) except as provided in subsection (e)(3)(A), 30 percent of any net business loss derived from any active business activity, plus (C) any carryover business loss determined for the preceding taxable year. (c) Determination of net business income or loss For purposes of this section— (1) In general Net business income or loss shall be determined with respect to any business activity by appropriately netting items of income, gain, deduction, and loss with respect to such business activity. (2) Wages, etc Any wages (as defined in section 3401), payments described in subsection (a) or (c) of section 707, or directors’ fees received by the taxpayer which are properly attributable to any business activity shall be taken into account under paragraph (1) as an item of income with respect to such business activity. (3) Exception for certain investment-related items There shall not be taken into account under paragraph (1)— (A) any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss, (B) any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G), (C) any interest income other than interest income which is properly allocable to a trade or business, (D) any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting business activity for controlled foreign corporation ), (E) any item of income, gain, deduction, or loss taken into account under section 954(c)(1)(F) (determined without regard to clause (ii) thereof and other than items attributable to notional principal contracts entered into in transactions qualifying under section 1221(a)(7)), (F) any amount received from an annuity which is not received in connection with the trade or business of the business activity, and (G) any item of deduction or loss properly allocable to an amount described in any of the preceding subparagraphs. (4) Application of restrictions applicable to determining taxable income Net business income or loss shall be appropriately adjusted so as only to take into account any amount of income, gain, deduction, or loss to the extent such amount affects the determination of taxable income for the taxable year. (5) Carryover business loss For purposes of subsection (b)(2)(C), the carryover business loss determined for any taxable year is the excess (if any) of the sum described in subsection (b)(2) over the sum described in subsection (b)(1) for such taxable year. (d) Passive and active business activity For purposes of this section— (1) Passive business activity The term passive business activity means any passive activity as defined in section 469(c) determined without regard to paragraphs (3) and (6)(B) thereof. (2) Active business activity The term active business activity means any business activity which is not a passive business activity. (3) Business activity The term business activity means any activity (within the meaning of section 469) which involves the conduct of any trade or business. (e) Capital percentage For purposes of this section— (1) In general Except as otherwise provided in this section, the term capital percentage means 30 percent. (2) Increased percentage for capital-intensive business activities In the case of a taxpayer who elects the application of this paragraph with respect to any active business activity (other than a specified service activity), the capital percentage shall be equal to the applicable percentage (as defined in subsection (f)) for each taxable year with respect to which such election applies. Any election made under this paragraph shall apply to the taxable year for which such election is made and each of the 4 subsequent taxable years. Such election shall be made not later than the due date (including extensions) for the return of tax for the taxable year for which such election is made, and, once made, may not be revoked. (3) Treatment of specified service activities (A) In general In the case of any active business activity which is a specified service activity— (i) the capital percentage shall be 0 percent, and (ii) subsection (b)(2)(B) shall be applied by substituting 0 percent for 30 percent . (B) Exception for capital-intensive specified service activities If— (i) the taxpayer elects the application of this subparagraph with respect to such activity for any taxable year, and (ii) the applicable percentage (as defined in subsection (f)) with respect to such activity for such taxable year is at least 10 percent, then subparagraph (A) shall not apply and the capital percentage with respect to such activity shall be equal to such applicable percentage. (C) Specified service activity The term specified service activity means any activity involving the performance of services described in section 1202(e)(3)(A), including investing, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). (4) Reduction in capital percentage in certain cases The capital percentage (determined after the application of paragraphs (2) and (3)) with respect to any active business activity shall not exceed 1 minus the quotient (not greater than 1) of— (A) any amounts described in subsection (c)(2) which are taken into account in determining the net business income derived from such activity, divided by (B) such net business income. (f) Applicable percentage For purposes of this section— (1) In general The term applicable percentage means, with respect to any active business activity for any taxable year, the quotient (not greater than 1) of— (A) the specified return on capital with respect to such activity for such taxable year, divided by (B) the taxpayer’s net business income derived from such activity for such taxable year. (2) Specified return on capital The term specified return on capital means, with respect to any active business activity referred to in paragraph (1), the excess of— (A) the product of— (i) the deemed rate of return for the taxable year, multiplied by (ii) the asset balance with respect to such activity for such taxable year, over (B) an amount equal to the interest which is paid or accrued, and for which a deduction is allowed under this chapter, with respect to such activity for such taxable year. (3) Deemed rate of return The term deemed rate of return means, with respect to any taxable year, the Federal short-term rate (determined under section 1274(d) for the month in which or with which such taxable year ends) plus 7 percentage points. (4) Asset balance (A) In general The asset balance with respect to any active business activity referred to in paragraph (1) for any taxable year equals the taxpayer’s adjusted basis of the property used in connection with such activity as of the end of the taxable year (determined without regard to sections 168(k) and 179). (B) Application to activities carried on through partnerships and S corporations In the case of any active business activity carried on through a partnership or S corporation, the taxpayer shall take into account such taxpayer’s distributive or pro rata share (as the case may be) of the asset balance with respect to such activity as determined under this paragraph with respect to the partnership’s or S corporation’s adjusted basis of the property used in connection with such activity by the partnership or S corporation. (g) Regulations The Secretary may issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance— (1) which ensures that no amount is taken into account under subsection (f)(4) with respect to more than one activity, and (2) which treats all specified service activities of the taxpayer as a single business activity for purposes of this section to the extent that such activities would be treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414. (h) References Any reference in this title to section 1 shall be treated as including a reference to this section unless the context of such reference clearly indicates otherwise. . (b) 25 percent rate for certain dividends of real estate investment trusts and cooperatives Section 1(h) is amended by adding at the end the following new paragraph: (12) 25 percent rate for certain dividends of real estate investment trusts and cooperatives (A) In general For purposes of this subsection, net capital gain (as defined in paragraph (11)) and unrecaptured section 1250 gain (as defined in paragraph (6)) shall each be increased by specified dividend income. (B) Specified dividend income For purposes of this paragraph, the term specified dividend income means— (i) in the case of any dividend received from a real estate investment trust, the portion of such dividend which is neither— (I) a capital gain dividend (as defined in section 852(b)(3)), nor (II) taken into account in determining qualified dividend income (as defined in paragraph (11)), and (ii) any dividend which is includible in gross income and which is received from an organization or corporation described in section 501(c)(12) or 1381(a). . (c) Net earnings from self-Employment (1) Application to labor percentage of distributive and pro rata shares Section 1402(a) is amended— (A) by striking the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed by this subtitle which are attributable to such trade or business, plus his distributive share (whether or not distributed) of income or loss described in section 702(a)(8) from any trade or business carried on by a partnership of which he is a member and inserting the labor percentage of the gross income derived by an individual from any trade or business carried on by such individual, less the labor percentage of the deductions allowed by this subtitle which are attributable to such trade or business, plus the labor percentage of such individual’s distributive share (whether or not distributed) of income or loss described in section 702(a)(8) from any trade or business carried on by a partnership of which such individual is a member, plus the labor percentage of such individual’s pro rata share (whether or not distributed) of nonseparately computed income or loss (as defined in section 1366(a)(2)) from any trade or business carried on by an S corporation in which such individual is a shareholder , and (B) by striking and such distributive share of partnership ordinary income or loss and inserting , such distributive share of partnership ordinary income or loss, and such pro rata share of S corporation nonseparately computed income or loss . (2) Labor percentage Section 1402 is amended by adding at the end the following new subsection: (m) Labor percentage (1) In general For purposes of this section, the term labor percentage means, with respect to any income or loss, the excess (expressed as a percentage) of 1 minus the capital percentage (expressed as a decimal) with respect to such income or loss. (2) Capital percentage For purposes of paragraph (1), the term capital percentage means the percentage which applied with respect to such income or loss under section 4(b)(1)(B). (3) Adjustment for S corporation wages For purposes of this subsection, proper adjustment shall be made for wages paid to the taxpayer with respect to any trade or business carried on by an S corporation in which the taxpayer is a shareholder. . (3) Application to rental income Section 1402(a) is amended by striking paragraph (1). (4) Application to limited partners Section 1402(a) is amended by striking paragraph (13). (d) Clerical amendment The table of sections for part I of subchapter A of chapter 1 is amended by inserting after the item relating to section 3 the following new item: Sec. 4. 25 percent maximum rate on business income of individuals. . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (f) Transition rule In the case of any taxable year which includes December 31, 2017, the amendment made by subsection (a) shall apply with respect to such taxable year adjusted— (1) so as to apply with respect to the rates of tax in effect under section 1 of the Internal Revenue Code of 1986 with respect to such taxable year (and so as to achieve a 25 percent effective rate of tax on the business income (determined without regard to paragraph (2)) in the same manner as such amendment applies to taxable years beginning after such date with respect to the rates of tax in effect for such years), and (2) by reducing the amount of the reduction in tax (as otherwise determined under paragraph (1)) by the amount which bears the same proportion to the amount of such reduction as the number of days in the taxable year which are before January 1, 2018, bears to the number of days in the entire taxable year. 1005. Conforming amendments related to simplification of individual income tax rates (a) Amendments related to modification of inflation adjustment (1) Section 36B(b)(3)(A)(ii)(II) is amended by striking consumer price index and inserting C-CPI-U (as defined in section 1(c)) . (2) Section 41(e)(5)(C) is amended to read as follows: (C) Cost-of-living adjustment defined (i) In general The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1(c)(2)(A), by substituting calendar year 1987 for calendar year 2016 in clause (ii) thereof. (ii) Special rule where base period ends in a calendar year other than 1983 or 1984 If the base period of any taxpayer does not end in 1983 or 1984, clause (i) shall be applied by substituting the calendar year in which such base period ends for 1987. . (3) Section 42(e)(3)(D)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 2008 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year by substituting calendar year 2008 for calendar year 2016 in clause (ii) thereof . (4) Section 42(h)(3)(H)(i)(II) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 2001 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year by substituting calendar year 2001 for calendar year 2016 in clause (ii) thereof . (5) Section 45R(d)(3)(B)(ii) is amended by striking section 1(f)(3) for the calendar year, determined by substituting calendar year 2012 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2012 for calendar year 2016 in clause (ii) thereof . (6) Section 125(i)(2) is amended— (A) by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 2012 for calendar year 1992 in subparagraph (B) thereof in subparagraph (B) and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins , and (B) by striking $50 both places it appears in the last sentence and inserting $100 . (7) Section 162(o)(3) is amended by inserting as in effect before enactment of the Tax Cuts and Jobs Act after section 1(f)(5) . (8) Section 220(g)(2) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1997 for calendar year 2016 in clause (ii) thereof . (9) Section 223(g)(1) is amended by striking all that follows subparagraph (A) and inserting the following: (B) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined— (i) by substituting for calendar year 2016 in clause (ii) thereof— (I) except as provided in clause (ii), calendar year 1997 , and (II) in the case of each dollar amount in subsection (c)(2)(A), calendar year 2003 , and (ii) by substituting March 31 for August 31 in paragraphs (5)(B) and (6)(B) of section 1(c). The Secretary shall publish the dollar amounts as adjusted under this subsection for taxable years beginning in any calendar year no later than June 1 of the preceding calendar year. . (10) Section 430(c)(7)(D)(vii)(II) is amended by striking section 1(f)(3) for the calendar year, determined by substituting calendar year 2009 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 2009 for calendar year 2016 in clause (ii) thereof . (11) Section 512(d)(2)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1994 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1994 for calendar year 2016 in clause (ii) thereof . (12) Section 513(h)(2)(C)(ii) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins by substituting calendar year 1987 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 1987 for calendar year 2016 in clause (ii) thereof . (13) Section 831(b)(2)(D)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year by substituting calendar year 2013 for calendar year 2016 in clause (ii) thereof . (14) Section 877A(a)(3)(B)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2007 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2007 for calendar year 2016 in clause (ii) thereof . (15) Section 911(b)(2)(D)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2004 for 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2004 for calendar year 2016 in clause (ii) thereof . (16) Section 1274A(d)(2) is amended to read as follows: (2) Inflation adjustment (A) In general In the case of any debt instrument arising out of a sale or exchange during any calendar year after 2018, each adjusted dollar amount shall be increased by an amount equal to— (i) such adjusted dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2017 for calendar year 2016 in clause (ii) thereof. (B) Adjusted dollar amounts For purposes of this paragraph, the term adjusted dollar amount means the dollar amounts in subsections (b) and (c), in each case as in effect for calendar year 2018. (C) Rounding Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100. . (17) Section 2010(c)(3)(B)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 2010 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2010 for calendar year 2016 in clause (ii) thereof . (18) Section 2032A(a)(3)(B) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1997 for calendar year 2016 in clause (ii) thereof . (19) Section 2503(b)(2)(B) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 1997 for calendar year 2016 in clause (ii) thereof . (20) Section 4161(b)(2)(C)(i)(II) is amended by striking section 1(f)(3) for such calendar year, determined by substituting 2004 for 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2004 for calendar year 2016 in clause (ii) thereof . (21) Section 4261(e)(4)(A)(ii) is amended by striking section 1(f)(3) for such calendar year by substituting the year before the last nonindexed year for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting the year before the last nonindexed year for calendar year 2016 in clause (ii) thereof . (22) Section 4980I(b)(3)(C)(v)(II) is amended (A) by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) by striking subparagraph (B) and inserting clause (ii) , and (C) by striking 1992 and inserting 2016 . (23) Section 5000A(c)(3)(D)(ii) is amended— (A) by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) by striking subparagraph (B) and inserting clause (ii) , and (C) by striking 1992 and inserting 2016 . (24) Section 6039F(d) is amended by striking section 1(f)(3), except that subparagraph (B) thereof and inserting section 1(c)(2)(A), except that clause (ii) thereof . (25) Section 6323(i)(4)(B) is amended by striking section 1(f)(3) for the calendar year, determined by substituting calendar year 1996 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 1996 for calendar year 2016 in clause (ii) thereof . (26) Section 6334(g)(1)(B) is amended by striking section 1(f)(3) for such calendar year, by substituting calendar year 1998 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1999 for calendar year 2016 in clause (ii) thereof . (27) Section 6601(j)(3)(B) is amended by striking section 1(f)(3) for such calendar year by substituting calendar year 1997 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for such calendar year by substituting calendar year 1997 for calendar year 2016 in clause (ii) thereof . (28) Section 6651(i)(1) is amended by striking section 1(f)(3) determined by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) determined by substituting calendar year 2013 for calendar year 2016 in clause (ii) thereof . (29) Section 6721(f)(1) is amended— (A) by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) by striking subparagraph (B) and inserting clause (ii) , and (C) by striking 1992 and inserting 2016 . (30) Section 6722(f)(1) is amended— (A) by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) by striking subparagraph (B) and inserting clause (ii) , and (C) by striking 1992 and inserting 2016 . (31) Section 6652(c)(7)(A) is amended by striking section 1(f)(3) determined by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) determined by substituting calendar year 2013 for calendar year 2016 in clause (ii) thereof . (32) Section 6695(h)(1) is amended by striking section 1(f)(3) determined by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) determined by substituting calendar year 2013 for calendar year 2016 in clause (ii) thereof . (33) Section 6698(e)(1) is amended by striking section 1(f)(3) determined by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) determined by substituting calendar year 2013 for calendar year 2016 in clause (ii) thereof . (34) Section 6699(e)(1) is amended by striking section 1(f)(3) determined by substituting calendar year 2013 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) determined by substituting calendar year 2013 for calendar year 2016 in clause (ii) thereof . (35) Section 7345(f)(2) is amended by striking section 1(f)(3) for the calendar year, determined by substituting calendar year 2015 for calendar year 1992 in subparagraph (B) thereof and inserting section 1(c)(2)(A) for the calendar year, determined by substituting calendar year 2015 for calendar year 2016 in clause (ii) thereof . (36) Section 7430(c)(1) is amended by striking section 1(f)(3) for such calendar year, by substituting calendar year 1995 for calendar year 1992 in subparagraph (B) thereof in the flush text at the end and inserting section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 1995 for calendar year 2016 in clause (ii) thereof . (37) Section 7872(g)(5) is amended to read as follows: (5) Inflation adjustment (A) In general In the case of any loan made during any calendar year after 2018 to which paragraph (1) applies, the adjusted dollar amount shall be increased by an amount equal to— (i) such adjusted dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for such calendar year, determined by substituting calendar year 2017 for calendar year 2016 in clause (ii) thereof. (B) Adjusted dollar amount For purposes of this paragraph, the term adjusted dollar amount means the dollar amount in paragraph (2) as in effect for calendar year 2018. (C) Rounding Any increase under subparagraph (A) shall be rounded to the nearest multiple of $100. . (b) Other conforming amendments (1) Section 36B(b)(3)(B)(ii)(I)(aa) is amended to read as follows: (aa) who is described in section 1(b)(1)(B) and who does not have any dependents for the taxable year, . (2) Section 486B(b)(1) is amended— (A) by striking maximum rate in effect and inserting highest rate specified , and (B) by striking section 1(e) and inserting section 1 . (3) Section 511(b)(1) is amended by striking section 1(e) and inserting section 1 . (4) Section 641(a) is amended by striking section 1(e) shall apply to the taxable income and inserting section 1 shall apply to the taxable income . (5) Section 641(c)(2)(A) is amended to read as follows: (A) Except to the extent provided in section 1(h), the rate of tax shall be treated as being the highest rate of tax set forth in section 1(a). . (6) Section 646(b) is amended to read as follows: (b) Taxation of income of trust Except as provided in subsection (f)(1)(B)(ii), there is hereby imposed on the taxable income of an electing Settlement Trust a tax at the rate specified in section 1(a)(1). Such tax shall be in lieu of the income tax otherwise imposed by this chapter on such income. . (7) Section 685(c) is amended by striking Section 1(e) and inserting Section 1 . (8) Section 904(b)(3)(E)(ii)(I) is amended by striking set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies) and inserting the highest rate of tax specified in section 1 . (9) Section 1398(c)(2) is amended by striking subsection (d) of . (10) Section 3402(p)(1)(B) is amended by striking any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c), and inserting 12 percent, 25 percent, . (11) Section 3402(q)(1) is amended by striking the product of third lowest rate of tax applicable under section 1(c) and and inserting 25 percent of . (12) Section 3402(r)(3) is amended by striking the amount of tax which would be imposed by section 1(c) (determined without regard to any rate of tax in excess of the fourth lowest rate of tax applicable under section 1(c)) on an amount of taxable income equal to and inserting an amount equal to the product of 25 percent multiplied by . (13) Section 3406(a)(1) is amended by striking the product of the fourth lowest rate of tax applicable under section 1(c) and and inserting 25 percent of . (14) Section 6103(e)(1)(A)(iii) is amended by striking section 1(g) (as in effect on the day before the enactment of the Tax Cuts and Jobs Act ) . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. B Simplification and reform of family and individual tax credits 1101. Enhancement of child tax credit and new family tax credit (a) Increase in credit amount and addition of other dependents (1) In general Section 24(a) is amended— (A) by striking qualifying child and inserting dependent , (B) by striking for which the taxpayer is allowed a deduction under section 151 , and (C) by striking an amount equal to $1,000. and inserting the following: an amount equal to— (1) in the case of a qualifying child, $1,600, and (2) for taxable years beginning before January 1, 2023, in the case of the taxpayer (each spouse in the case of a joint return) and any dependent to whom paragraph (1) does not apply, $300. . (2) Conforming amendments (A) Section 24(c) is amended— (i) by redesignating paragraphs (1) and (2) as paragraphs (2) and (3), respectively, (ii) by striking 152(c) in paragraph (2) (as so redesignated) and inserting 7706(c) , (iii) by inserting before paragraph (2) (as so redesignated) the following new paragraph: (1) Dependent (A) In general The term dependent shall have the meaning given such term by section 7706. (B) Certain individuals not treated as dependents In the case of an individual with respect to whom a credit under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the amount applicable to such individual under subsection (a) for such individual’s taxable year shall be zero. , (iv) in paragraph (3) (as so redesignated)— (I) by striking term qualifying child and inserting terms qualifying child and dependent , and (II) by striking 152(b)(3) and inserting 7706(b)(3) , and (v) in the heading by striking Qualifying and inserting Dependent; qualifying (B) The heading for section 24 is amended by inserting and family after Child . (C) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 24 and inserting the following new item: Sec. 24. Child and dependent tax credit. . (b) Elimination of marriage penalty Section 24(b)(2) is amended— (1) by striking $110,000 in subparagraph (A) and inserting $230,000 , (2) by inserting and at the end of subparagraph (A), (3) by striking $75,000 in the case of an individual who is not married and all that follows through the period at the end and inserting one-half of the amount in effect under subparagraph (A) for the taxable year in the case of any other individual. . (c) Credit refundable up to $1,000 per child (1) In general Section 24(d)(1)(A) is amended by striking all that follows under this section and inserting the following: determined— (i) without regard to this subsection and the limitation under section 26(a), (ii) without regard to subsection (a)(2), and (iii) by substituting $1,000 for $1,600 in subsection (a)(1), or . (2) Inflation adjustment Section 24(d) is amended by inserting after paragraph (2) the following new paragraph: (3) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2017, the $1,000 amount in paragraph (1)(A)(iii) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment under section 1(c)(2)(A) for such calendar year. Any increase determined under the preceding sentence shall be rounded to the next highest multiple of $100 and shall not exceed the amount in effect under subsection (a)(2). . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1102. Repeal of nonrefundable credits (a) Repeal of section 22 (1) In general Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 22 (and by striking the item relating to such section in the table of sections for such subpart). (2) Conforming amendment (A) Section 86(f) is amended by striking paragraph (1) and by redesignating paragraphs (2), (3), and (4) as paragraphs (1), (2), and (3), respectively. (B) (i) Subsections (c)(3)(B) and (d)(4)(A) of section 7706, as redesignated by this Act, are each amended by striking (as defined in section 22(e)(3) . (ii) Section 7706(f), as redesignated by this Act, is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph: (7) Permanent and total disability defined An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require. . (iii) Section 415(c)(3)(C)(i) is amended by striking 22(e)(3) and inserting 7706(f)(7) . (iv) Section 422(c)(6) is amended by striking 22(e)(3) and inserting 7706(f)(7) . (b) Repeal of section 23 Subpart A of part IV of subchapter A of chapter 1 is amended by striking section 23 (and by striking the item relating to such section in the table of sections for such subpart). (c) Termination of section 25 Section 25, as amended by section 3601, 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 certificate issued after December 31, 2017. . (d) Repeal of section 30D (1) In general Subpart B of part IV of subchapter A of chapter 1 is amended by striking section 30D (and by striking the item relating to such section in the table of sections for such subpart). (2) Conforming amendments (A) Section 38(b) is amended by striking paragraph (35). (B) Section 1016(a) is amended by striking paragraph (37). (C) Section 6501(m) is amended by striking 30D(e)(4), . (e) Effective date (1) In general Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Subsection (c) The amendment made by subsection (c) shall apply to taxable years ending after December 31, 2017. (3) Subsection (d) The amendments made by subsection (d) shall apply to vehicles placed in service in taxable years beginning after December 31, 2017. 1103. Refundable credit program integrity (a) Social security number required To claim the refundable portion of the child tax credit (1) In general Section 24(d), as amended by the preceding provisions of this Act, is amended by redesignating paragraph (5) as paragraph (4) and by adding at the end the following new paragraph: (5) Identification requirement (A) In general Paragraph (1) shall not apply to any taxpayer for any taxable year unless the taxpayer includes the taxpayer’s social security number on the return of tax for such taxable year. (B) Joint returns In the case of a joint return, the requirement of subparagraph (A) shall be treated as met if the social security number of either spouse is included on such return. (C) Social security number For purposes of this paragraph, the term social security number means a social security number issued to an individual by the Social Security Administration (but only if the social security number is issued to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act). . (2) Omissions treated as mathematical or clerical error (A) In general Section 6213(g)(2)(I) is amended to read as follows: (I) an omission of a correct social security number required under section 24(d)(5) (relating to refundable portion of child tax credit), or a correct TIN required under section 24(e) (relating to child tax credit), to be included on a return, . (3) Clerical amendment The heading for section 24(e) is amended by striking Identification requirements and inserting General identification requirements . (b) Social security number must be provided (1) In general Section 25A(f)(1)(A), as amended by section 1201 of this Act, is amended by striking taxpayer identification number each place it appears and inserting social security number . (2) Omission treated as mathematical or clerical error Section 6213(g)(2)(J) is amended by striking TIN and inserting social security number and employer identification number . (c) Individuals prohibited from engaging in employment in United States not eligible for earned income tax credit Section 32(m) is amended— (1) by striking (other than: and all that follows through of the Social Security Act) , and (2) by inserting before the period at the end the following: , but only if, in the case of subsection (c)(1)(E), the social security number is issued to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. C Simplification and reform of education incentives 1201. American opportunity tax credit (a) In general Section 25A is amended to read as follows: 25A. American opportunity tax credit (a) In general In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of— (1) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to any eligible student for whom an election is in effect under this section for such taxable year during any academic period beginning in such taxable year) as does not exceed $2,000, plus (2) 25 percent of so much of such expenses so paid as exceeds the dollar amount in effect under paragraph (1) but does not exceed twice such dollar amount. (b) Portion of credit refundable 40 percent of the credit allowable under subsection (a)(1) (determined without regard to this subsection and section 26(a) and after application of all other provisions of this section) shall be treated as a credit allowable under subpart C (and not under this part). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom section 1(d) applies for such taxable year. (c) Limitation based on modified adjusted gross income (1) In general The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this subsection and subsection (b) but after application of all other provisions of this section) as— (A) the excess of— (i) the taxpayer’s modified adjusted gross income for such taxable year, over (ii) $80,000 (twice such amount in the case of a joint return), bears to (B) $10,000 (twice such amount in the case of a joint return). (2) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933. (d) Other limitations (1) Credit allowed only for 5 taxable years An election to have this section apply may not be made for any taxable year if such an election (by the taxpayer or any other individual) is in effect with respect to such student for any 5 prior taxable years. (2) Credit allowed only for first 5 years of postsecondary education (A) In general No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an eligible student if the student has completed (before the beginning of such taxable year) the first 5 years of postsecondary education at an eligible educational institution. (B) Fifth year limitations In the case of an eligible student with respect to whom an election has been in effect for 4 preceding taxable years for purposes of the fifth taxable year— (i) the amount of the credit allowed under this section for the taxable year shall not exceed an amount equal to 50 percent of the credit otherwise determined with respect to such student under this section (without regard to this subparagraph), and (ii) the amount of the credit determined under subsection (b) and allowable under subpart C shall not exceed an amount equal to 40 percent of the amount determined with respect to such student under clause (i). (e) Definitions For purposes of this section— (1) Eligible student The term eligible student means, with respect to any academic period, a student who— (A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 ( 20 U.S.C. 1091(a)(1) ), as in effect on August 5, 1997, and (B) is carrying at least ½ the normal full-time work load for the course of study the student is pursuing. (2) Qualified tuition and related expenses (A) In general The term qualified tuition and related expenses means tuition, fees, and course materials, required for enrollment or attendance of— (i) the taxpayer, (ii) the taxpayer’s spouse, or (iii) any dependent of the taxpayer, at an eligible educational institution for courses of instruction of such individual at such institution. (B) Exception for education involving sports, etc Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program. (C) Exception for nonacademic fees Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction. (3) Eligible educational institution The term eligible educational institution means an institution— (A) which is described in section 481 of the Higher Education Act of 1965 ( 20 U.S.C. 1088 ), as in effect on August 5, 1997, and (B) which is eligible to participate in a program under title IV of such Act. (f) Special rules (1) Identification requirements (A) Student No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year, and such taxpayer identification number was issued on or before the due date for filing such return. (B) Taxpayer No credit shall be allowed under this section if the identifying number of the taxpayer was issued after the due date for filing the return for the taxable year. (C) Institution No credit shall be allowed under this section unless the taxpayer includes the employer identification number of any institution to which qualified tuition and related expenses were paid with respect to the individual. (2) Adjustment for certain scholarships, etc The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsection (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as— (A) a qualified scholarship which is excludable from gross income under section 117, (B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and (C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual's educational expenses, or attributable to such individual's enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. (3) Treatment of expenses paid by dependent If an individual is a dependent of another taxpayer for a taxable year beginning in the calendar year in which such individuals taxable year begins— (A) no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year, and (B) qualified tuition and related expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer. (4) Treatment of certain prepayments If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year. (5) Denial of double benefit No credit shall be allowed under this section for any amount for which a deduction is allowed under any other provision of this chapter. (6) No credit for married individuals filing separate returns If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. (7) Nonresident aliens If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (8) Restrictions on taxpayers who improperly claimed credit in prior year (A) Taxpayers making prior fraudulent or reckless claims (i) In general No credit shall be allowed under this section for any taxable year in the disallowance period. (ii) Disallowance period For purposes of clause (i), the disallowance period is— (I) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and (II) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud). (B) Taxpayers making improper prior claims In the case of a taxpayer who is denied credit under this section for any taxable year as a result of the deficiency procedures under subchapter B of chapter 63, no credit shall be allowed under this section for any subsequent taxable year unless the taxpayer provides such information as the Secretary may require to demonstrate eligibility for such credit. (g) Inflation adjustment (1) In general In the case of a taxable year beginning after 2018, the $80,000 amount in subsection (c)(1)(A)(ii) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in clause (ii) thereof. (2) Rounding If any amount as adjusted under paragraph (1) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (h) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit. . (b) Conforming amendments (1) Section 72(t)(7)(B) is amended by striking section 25A(g)(2) and inserting section 25A(f)(2) . (2) Section 529(c)(3)(B)(v)(I) is amended by striking section 25A(g)(2) and inserting section 25A(f)(2) . (3) Section 529(e)(3)(B)(i) is amended by striking section 25A(b)(3) and inserting section 25A(d) . (4) Section 530(d)(2)(C) is amended— (A) by striking section 25A(g)(2) in clause (i)(I) and inserting section 25A(f)(2) , and (B) by striking Hope and Lifetime Learning credits in the heading and inserting American opportunity tax credit . (5) Section 530(d)(4)(B)(iii) is amended by striking section 25A(g)(2) and inserting section 25A(d)(4)(B) . (6) Section 6050S(e) is amended by striking subsection (g)(2) and inserting subsection (f)(2) . (7) Section 6211(b)(4)(A) is amended by striking subsection (i)(6) and inserting subsection (b) . (8) Section 6213(g)(2)(J) is amended by striking TIN required under section 25A(g)(1) and inserting TIN, and employer identification number, required under section 25A(f)(1) . (9) Section 6213(g)(2)(Q) is amended to read as follows: (Q) an omission of information required by section 25A(f)(8)(B) or an entry on the return claiming the credit determined under section 25A(a) for a taxable year for which the credit is disallowed under section 25A(f)(8)(A). . (10) Section 1004(c) of division B of the American Recovery and Reinvestment Tax Act of 2009 is amended— (A) in paragraph (1)— (i) by striking section 25A(i)(6) each place it appears and inserting section 25A(b) , and (ii) by striking with respect to taxable years beginning after 2008 and before 2018 each place it appears and inserting with respect to each taxable year , (B) in paragraph (2), by striking Section 25A(i)(6) and inserting Section 25A(b) , and (C) in paragraph (3)(C), by striking subsection (i)(6) and inserting subsection (b) . (11) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 25A and inserting the following new item: Sec. 25A. American opportunity tax credit. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1202. Consolidation of education savings rules (a) No new contributions to Coverdell education savings account Section 530(b)(1)(A) is amended to read as follows: (A) Except in the case of rollover contributions, no contribution will be accepted after December 31, 2017. . (b) Limited distribution allowed for elementary and secondary tuition (1) In general Section 529(c) is amended by adding at the end the following new paragraph: (7) Treatment of elementary and secondary tuition Any reference in this subsection to the term qualified higher education expense shall include a reference to expenses for tuition in connection with enrollment at an elementary or secondary school. . (2) Limitation Section 529(e)(3)(A) is amended by adding at the end the following: The amount of cash distributions from all qualified tuition programs described in subsection (b)(1)(A)(ii) with respect to a beneficiary during any taxable year, shall, in the aggregate, include not more than $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the beneficiary as an elementary or secondary school student at a public, private, or religious school. . (c) Rollovers to qualified tuition programs permitted Section 530(d)(5) is amended by inserting , or into (by purchase or contribution) a qualified tuition program (as defined in section 529), after into another Coverdell education savings account . (d) Distributions from qualified tuition programs for certain expenses associated with registered apprenticeship programs Section 529(e)(3) is amended by adding at the end the following new subparagraph: (C) Certain expenses associated with registered apprenticeship programs The term qualified higher education expenses shall include books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act ( 29 U.S.C. 50 ). . (e) Unborn children allowed as account beneficiaries Section 529(e) is amended by adding at the end the following new paragraph: (6) Treatment of unborn children (A) In general Nothing shall prevent an unborn child from being treated as a designated beneficiary or an individual under this section. (B) Unborn child For purposes of this paragraph— (i) In general The term unborn child means a child in utero. (ii) Child in utero The term child in utero means a member of the species homo sapiens, at any stage of development, who is carried in the womb. . (f) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to contributions made after December 31, 2017. (2) Rollovers to qualified tuition programs The amendments made by subsection (b) shall apply to distributions after December 31, 2017. 1203. Reforms to discharge of certain student loan indebtedness (a) Treatment of student loans discharged on account of death or disability Section 108(f) is amended by adding at the end the following new paragraph: (5) Discharges on account of death or disability (A) In general In the case of an individual, gross income does not include any amount which (but for this subsection) would be includible in gross income by reasons of the discharge (in whole or in part) of any loan described in subparagraph (B) if such discharge was— (i) pursuant to subsection (a) or (d) of section 437 of the Higher Education Act of 1965 or the parallel benefit under part D of title IV of such Act (relating to the repayment of loan liability), (ii) pursuant to section 464(c)(1)(F) of such Act, or (iii) otherwise discharged on account of the death or total and permanent disability of the student. (B) Loans described A loan is described in this subparagraph if such loan is— (i) a student loan (as defined in paragraph (2)), or (ii) a private education loan (as defined in section 140(7) of the Consumer Credit Protection Act ( 15 U.S.C. 1650(7) )). . (b) Exclusion from gross income for payments made under indian health service loan repayment program (1) In general Section 108(f)(4) is amended by inserting under section 108 of the Indian Health Care Improvement Act, after 338I of such Act, . (2) Clerical amendment The heading for section 108(f)(4) is amended by striking and certain and inserting , indian health service loan repayment program, and certain . (c) Effective dates (1) Subsection (a) The amendment made by subsection (a)(1) shall apply to discharges of indebtedness after December 31, 2017. (2) Subsection (b) The amendments made by subsection (b) shall apply to amounts received in taxable years beginning after December 31, 2017. 1204. Repeal of other provisions relating to education (a) In general Subchapter B of chapter 1 is amended— (1) in part VII by striking sections 221 and 222 (and by striking the items relating to such sections in the table of sections for such part), (2) in part VII by striking sections 135 and 127 (and by striking the items relating to such sections in the table of sections for such part), and (3) by striking subsection (d) of section 117. (b) Conforming amendment relating to section 221 (1) Section 62(a) is amended by striking paragraph (17). (2) Section 163(h)(2) is amended by striking subparagraph (F). (3) Section 6050S(a) is amended— (A) by inserting or at the end of paragraph (1), (B) by striking or at the end of paragraph (2), and (C) by striking paragraph (3). (4) Section 6050S(e) is amended by striking all that follows thereof) and inserting a period. (c) Conforming amendment relating to section 222 Section 62(a) is amended by striking paragraph (18). (d) Conforming amendments relating to section 127 (1) Section 125(f)(1) is amended by striking 127, . (2) Section 132(j)(8) is amended by striking which are not excludable from gross income under section 127 . (3) Section 414(n)(3)(C) is amended by striking 127, . (4) Section 414(t)(2) is amended by striking 127, . (5) Section 3121(a)(18) is amended by striking 127, . (6) Section 3231(e) is amended by striking paragraph (6). (7) Section 3306(b)(13) is amended by 127, . (8) Section 3401(a)(18) is amended by striking 127, . (9) Section 6039D(d)(1) is amended by striking , 127 . (e) Conforming amendments relating to section 117(d) (1) Section 117(c)(1) is amended— (A) by striking subsections (a) and (d) and inserting subsection (a) , and (B) by striking or qualified tuition reduction . (2) Section 414(n)(3)(C) is amended by striking 117(d), . (3) Section 414(t)(2) is amended by striking 117(d), . (f) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Amendments relating to section 117(d) The amendments made by subsections (a)(3) and (e) shall apply to amounts paid or incurred after December 31, 2017. D Simplification and reform of deductions 1301. Repeal of overall limitation on itemized deductions (a) In general Part 1 of subchapter B of chapter 1 is amended by striking section 68 (and the item relating to such section in the table of sections for such part). (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1302. Mortgage interest (a) Modification of limitations (1) In general Section 163(h)(3) is amended to read as follows: (3) Qualified residence interest For purposes of this subsection— (A) In general The term qualified residence interest means any interest which is paid or accrued during the taxable year on indebtedness which— (i) is incurred in acquiring, constructing, or substantially improving any qualified residence (determined as of the time the interest is accrued) of the taxpayer, and (ii) is secured by such residence. Such term also includes interest on any indebtedness secured by such residence resulting from the refinancing of indebtedness meeting the requirements of the preceding sentence (or this sentence); but only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness. (B) Limitation (i) In general The aggregate amount of indebtedness taken into account under subparagraph (A) for any period shall not exceed $500,000 (half of such amount in the case of a married individual filing a separate return). (C) Treatment of indebtedness incurred on or before November 2, 2017 (i) In general In the case of any pre-November 2, 2017, indebtedness, this paragraph shall apply as in effect immediately before the enactment of the Tax Cuts and Jobs Act . (ii) Pre-November 2, 2017, indebtedness For purposes of this subparagraph, the term pre-November 2, 2017, indebtedness means— (I) any principal residence acquisition indebtedness which was incurred on or before November 2, 2017, or (II) any principal residence acquisition indebtedness which is incurred after November 2, 2017, to refinance indebtedness described in clause (i) (or refinanced indebtedness meeting the requirements of this clause) to the extent (immediately after the refinancing) the principal amount of the indebtedness resulting from the refinancing does not exceed the principal amount of the refinanced indebtedness (immediately before the refinancing). (iii) Limitation on period of refinancing clause (ii)(II) shall not apply to any indebtedness after— (I) the expiration of the term of the original indebtedness, or (II) if the principal of such original indebtedness is not amortized over its term, the expiration of the term of the 1st refinancing of such indebtedness (or if earlier, the date which is 30 years after the date of such 1st refinancing). (iv) Binding contract exception In the case of a taxpayer who enters into a written binding contract before November 2, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subparagraphs (A) and (B) shall be applied by substituting April 1, 2018 for November 2, 2017 . . (2) Conforming amendments (A) Section 108(h)(2) is by striking for $1,000,000 ($500,000 in clause (ii) thereof and inserting for $500,000 ($250,000 in paragraph (2)(A), and $1,000,000 for $500,000 in paragraph (2)(B), thereof (B) Section 163(h) is amended— (i) by striking subparagraphs (E) and (F) in paragraph (4), and (ii) by striking paragraph (5). (b) Taxpayers limited to 1 qualified residence Section 163(h)(4)(A)(i) is amended to read as follows: (i) In general The term qualified residence means the principal residence (within the meaning of section 121) of the taxpayer. Rules similar to the rules of paragraph (3)(C) shall apply for purposes of the preceding sentence. . (c) Effective dates (1) In general The amendments made by this section shall apply to interest paid or accrued in taxable years beginning after December 31, 2017, with respect to indebtedness incurred before, on, or after such date. (2) Treatment of grandfathered indebtedness For application of the amendments made by this section to grandfathered indebtedness, see paragraph (3)(C), and the second sentence of paragraph (4)(A)(i), of section 163(h) of the Internal Revenue Code of 1986, as amended by this section. 1303. Repeal of deduction for certain taxes not paid or accrued in a trade or business (a) In general Section 164(b)(5) is amended to read as follows: (5) Limitation in case of individuals In the case of a taxpayer other than a corporation— (A) foreign real property taxes (other than taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212) shall not be taken into account under subsection (a)(1), (B) the aggregate amount of taxes (other than taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212) taken into account under subsection (a)(1) and for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return), (C) subsection (a)(2) shall only apply to taxes which are paid or accrued in carrying on a trade or business or an activity described in section 212, and (D) subsection (a)(3) shall not apply to State and local taxes. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1304. Repeal of deduction for personal casualty losses (a) In general Section 165(c) is amended by inserting and at the end of paragraph (1), by striking ; and at the end of paragraph (2) and inserting a period, and by striking paragraph (3). (b) Conforming amendments (1) Section 165(h) is amended to read as follows: (h) Special rule where personal casualty gains exceed personal casualty losses (1) In general If the personal casualty gains for any taxable year exceed the personal casualty losses for such taxable year— (A) all such gains shall be treated as gains from sales or exchanges of capital assets, and (B) all such losses shall be treated as losses from sales or exchanges of capital assets. (2) Definitions of personal casualty gain and personal casualty loss For purposes of this subsection— (A) Personal casualty loss The term personal casualty loss means any loss of property not connected with a trade or business or a transaction entered into for profit, if such loss arises from fire, storm, shipwreck, or other casualty, or from theft. (B) Personal casualty gain The term personal casualty gain means the recognized gain from any involuntary conversion of property which is described in subparagraph (A) arising from fire, storm, shipwreck, or other casualty, or from theft. . (2) Subsection (i) of section 165 is amended— (A) in paragraph (1)— (i) by striking (as defined by clause (ii) of subsection (h)(3)(C)) , and (ii) by striking (as defined by clause (i) of such subsection) , (B) by striking (as defined by subsection (h)(3)(C)(i) in paragraph (4), and (C) by adding at the end the following new paragraph: (5) Federally declared disaster For purposes of this subsection— (A) Federally declared disaster The term federally declared disaster means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. (B) Disaster area The term disaster area means the area so determined to warrant such assistance. . (3) Section 165 is amended by striking subsection (k). (4) (A) Section 165(l)(1) is amended by striking a loss described in subsection (c)(3) and inserting an ordinary loss described in subsection (c)(2) . (B) Section 165(l) is amended— (i) by striking paragraph (5), (ii) by redesignating paragraphs (2), (3), and (4) as paragraphs (3), (4), and (5), respectively, and (iii) by inserting after paragraph (1) the following new paragraph: (2) Limitations (A) Deposit may not be federally insured No election may be made under paragraph (1) with respect to any loss on a deposit in a qualified financial institution if part or all of such deposit is insured under Federal law. (B) Dollar limitation With respect to each financial institution, the aggregate amount of losses attributable to deposits in such financial institution to which an election under paragraph (1) may be made by the taxpayer for any taxable year shall not exceed $20,000 ($10,000 in the case of a separate return by a married individual). The limitation of the preceding sentence shall be reduced by the amount of any insurance proceeds under any State law which can reasonably be expected to be received with respect to losses on deposits in such institution. . (5) Section 172(b)(1)(E)(ii), prior to amendment under title III, is amended by striking subclause (I) and by redesignating subclauses (II) and (III) as subclauses (I) and (II), respectively (6) Section 172(d)(4)(C) is amended by striking paragraph (2) or (3) of section 165(c) and inserting section 165(c)(2) . (7) Section 274(f) is amended by striking casualty losses, in the heading thereof. (8) Section 280A(b) is amended by striking casualty losses, in the heading thereof. (9) Section 873(b), as amended by the preceding provisions of this Act, is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (10) Section 504(b) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 is amended by adding at the end the following new paragraph: (4) Coordination with Tax Reform This subsection shall be applied without regard to the amendments made by section 1306 of the Tax Cuts and Jobs Act . . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1305. Limitation on wagering losses (a) In general Section 165(d) is amended by adding at the end the following: For purposes of the preceding sentence, the term losses from wagering transactions includes any deduction otherwise allowable under this chapter incurred in carrying on any wagering transaction. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1306. Charitable contributions (a) Increased limitation for cash contributions (1) In general Section 170(b)(1) is amended by redesignating subparagraph (G) as subparagraph (H) and by inserting after subparagraph (F) the following new subparagraph: (G) Increased limitation for cash contributions (i) In general In the case of any contribution of cash to an organization described in subparagraph (A), the total amount of such contributions which may be taken into account under subsection (a) for any taxable year shall not exceed 60 percent of the taxpayer’s contribution base for such year. (ii) Carryover If the aggregate amount of contributions described in clause (i) exceeds the applicable limitation under clause (i), such excess shall be treated (in a manner consistent with the rules of subsection (d)(1)) as a charitable contribution to which clause (i) applies in each of the 5 succeeding years in order of time. (iii) Coordination with subparagraphs (A) and (B) (I) In general Contributions taken into account under this subparagraph shall not be taken into account under subparagraph (A). (II) Limitation reduction Subparagraphs (A) and (B) shall be applied by reducing (but not below zero) the aggregate contribution limitation allowed for the taxable year under each such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year. . (b) Denial of deduction for college athletic event seating rights Section 170(l)(1) is amended to read as follows: (1) In general No deduction shall be allowed under this section for any amount described in paragraph (2). . (c) Charitable mileage rate adjusted for inflation Section 170(i) is amended by striking shall be 14 cents per mile and inserting shall be a rate which takes into account the variable cost of operating an automobile . (d) Repeal of substantiation exception in case of contributions reported by donee Section 170(f)(8) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D). (e) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2017. 1307. Repeal of deduction for tax preparation expenses (a) In general Section 212 is amended by adding or at the end of paragraph (1), by striking ; or at the end of paragraph (2) and inserting a period, and by striking paragraph (3). (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1308. Repeal of medical expense deduction (a) In general Part VII of subchapter B is amended by striking by striking section 213 (and by striking the item relating to such section in the table of section for such subpart). (b) Conforming amendments (1) (A) Section 105(f) is amended to read as follows: (f) Medical care For purposes of this section— (1) In general The term medical care means amounts paid— (A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, (B) for transportation primarily for and essential to medical care referred to in subparagraph (A), (C) for qualified long-term care services (as defined in section 7702B(c)), or (D) for insurance (including amounts paid as premiums under part B of title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract (as defined in section 7702B(b)). In the case of a qualified long-term care insurance contract (as defined in section 7702B(b)), only eligible long-term care premiums (as defined in paragraph (7)) shall be taken into account under subparagraph (D). (2) Amounts paid for certain lodging away from home treated as paid for medical care Amounts paid for lodging (not lavish or extravagant under the circumstances) while away from home primarily for and essential to medical care referred to in paragraph (1)(A) shall be treated as amounts paid for medical care if— (A) the medical care referred to in paragraph (1)(A) is provided by a physician in a licensed hospital (or in a medical care facility which is related to, or the equivalent of, a licensed hospital), and (B) there is no significant element of personal pleasure, recreation, or vacation in the travel away from home. The amount taken into account under the preceding sentence shall not exceed $50 for each night for each individual. (3) Physician The term physician has the meaning given to such term by section 1861(r) of the Social Security Act ( 42 U.S.C. 1395x(r) ). (4) Contracts covering other than medical care In the case of an insurance contract under which amounts are payable for other than medical care referred to in subparagraphs (A), (B) and (C) of paragraph (1)— (A) no amount shall be treated as paid for insurance to which paragraph (1)(D) applies unless the charge for such insurance is either separately stated in the contract, or furnished to the policyholder by the insurance company in a separate statement, (B) the amount taken into account as the amount paid for such insurance shall not exceed such charge, and (C) no amount shall be treated as paid for such insurance if the amount specified in the contract (or furnished to the policyholder by the insurance company in a separate statement) as the charge for such insurance is unreasonably large in relation to the total charges under the contract. (5) Certain pre-paid contracts Subject to the limitations of paragraph (4), premiums paid during the taxable year by a taxpayer before he attains the age of 65 for insurance covering medical care (within the meaning of subparagraphs (A), (B), and (C) of paragraph (1)) for the taxpayer, his spouse, or a dependent after the taxpayer attains the age of 65 shall be treated as expenses paid during the taxable year for insurance which constitutes medical care if premiums for such insurance are payable (on a level payment basis) under the contract for a period of 10 years or more or until the year in which the taxpayer attains the age of 65 (but in no case for a period of less than 5 years). (6) Cosmetic surgery (A) In general The term medical care does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or disfiguring disease. (B) Cosmetic surgery defined For purposes of this paragraph, the term cosmetic surgery means any procedure which is directed at improving the patient's appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. (7) Eligible long-term care premiums (A) In general For purposes of this section, the term eligible long-term care premiums means the amount paid during a taxable year for any qualified long-term care insurance contract (as defined in section 7702B(b)) covering an individual, to the extent such amount does not exceed the limitation determined under the following table: In the case of an individual with an attained age before the close of the taxable year of: The limitation is: 40 or less $200 More than 40 but not more than 50 $375 More than 50 but not more than 60 $750 More than 60 but not more than 70 $2,000 More than 70 $2,500 (B) Indexing (i) In general In the case of any taxable year beginning after 1997, each dollar amount in subparagraph (A) shall be increased by the medical care cost adjustment of such amount for such calendar year. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $10. (ii) Medical care cost adjustment For purposes of clause (i), the medical care cost adjustment for any calendar year is the adjustment prescribed by the Secretary, in consultation with the Secretary of Health and Human Services, for purposes of such clause. To the extent that CPI (as defined section 1(c)), or any component thereof, is taken into account in determining such adjustment, such adjustment shall be determined by taking into account C-CPI-U (as so defined), or the corresponding component thereof, in lieu of such CPI (or component thereof), but only with respect to the portion of such adjustment which relates to periods after December 31, 2017. (8) Certain payments to relatives treated as not paid for medical care An amount paid for a qualified long-term care service (as defined in section 7702B(c)) provided to an individual shall be treated as not paid for medical care if such service is provided— (A) by the spouse of the individual or by a relative (directly or through a partnership, corporation, or other entity) unless the service is provided by a licensed professional with respect to such service, or (B) by a corporation or partnership which is related (within the meaning of section 267(b) or 707(b)) to the individual. For purposes of this paragraph, the term relative means an individual bearing a relationship to the individual which is described in any of subparagraphs (A) through (G) of section 7706(d)(2). This paragraph shall not apply for purposes of subsection (b) with respect to reimbursements through insurance. . (B) Section 72(t)(2)(D)(i)(III) is amended by striking section 213(d)(1)(D) and inserting section 105(f)(1)(D) . (C) Section 104(a) is amended by striking section 213(d)(1) in the last sentence and inserting section 105(f)(1) . (D) Section 105(b) is amended by striking section 213(d) and inserting section 105(f) . (E) Section 139D is amended by striking section 213 and inserting section 223 . (F) Section 162(l)(2) is amended by striking section 213(d)(10) and inserting section 105(f)(7) . (G) Section 220(d)(2)(A) is amended by striking section 213(d) and inserting section 105(f) . (H) Section 223(d)(2)(A) is amended by striking section 213(d) and inserting section 105(f) . (I) Section 419A(f)(2) is amended by striking section 213(d) and inserting section 105(f) . (J) Section 501(c)(26)(A) is amended by striking section 213(d) and inserting section 105(f) . (K) Section 2503(e) is amended by striking section 213(d) and inserting section 105(f) . (L) Section 4980B(c)(4)(B)(i)(I) is amended by striking section 213(d) and inserting section 105(f) . (M) Section 6041(f) is amended by striking section 213(d) and inserting section 105(f) . (N) Section 7702B(a)(2) is amended by striking section 213(d) and inserting section 105(f) . (O) Section 7702B(a)(4) is amended by striking section 213(d)(1)(D) and inserting section 105(f)(1)(D) . (P) Section 7702B(d)(5) is amended by striking section 213(d)(10) and inserting section 105(f)(7) . (Q) Section 9832(d)(3) is amended by striking section 213(d) and inserting section 105(f) . (2) Section 72(t)(2)(B) is amended to read as follows: (B) Medical expenses Distributions made to an individual (other than distributions described in subparagraph (A), (C), or (D) to the extent such distributions do not exceed the excess of— (i) the expenses paid by the taxpayer during the taxable year, not compensated for by insurance or otherwise, for medical care (as defined in 105(f)) of the taxpayer, his spouse, or a dependent (as defined in section 7706, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), over (ii) 10 percent of the taxpayer’s adjusted gross income. . (3) Section 162(l) is amended by striking paragraph (3). (4) Section 402(l) is amended by striking paragraph (7) and redesignating paragraph (8) as paragraph (7). (5) Section 220(f) is amended by striking paragraph (6). (6) Section 223(f) is amended by striking paragraph (6). (7) Section 7702B(e) is amended by striking paragraph (2). (8) Section 7706(f)(7), as redesignated by this Act, is amended by striking sections 105(b), 132(h)(2)(B), and 213(d)(5) and inserting sections 105(b) and 132(h)(2)(B) . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1309. Repeal of deduction for alimony payments (a) In general Part VII of subchapter B is amended by striking by striking section 215 (and by striking the item relating to such section in the table of section for such subpart). (b) Conforming amendments (1) Amendments relating to section 215 (A) Corresponding repeal of provisions providing for inclusion of alimony in gross income (i) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (ii) Part II of subchapter B of chapter 1 is amended by striking section 71 (and by striking the item relating to such section in the table of sections for such part). (iii) Subpart F of part I of subchapter J of chapter 1 is amended by striking section 682 (and by striking the item relating to such section in the table of sections for such subpart). (B) Related to repeal of section 215 (i) Section 62(a) is amended by striking paragraph (10). (ii) Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof) . (C) Related to repeal of section 71 (i) Section 121(d)(3) is amended— (I) by striking (as defined in section 71(b)(2)) in subparagraph (B), and (II) by adding at the end the following new subparagraph: (C) Divorce or separation instrument For purposes of this paragraph, the term divorce or separation instrument means— (i) a decree of divorce or separate maintenance or a written instrument incident to such a decree, (ii) a written separation agreement, or (iii) a decree (not described in clause (i)) requiring a spouse to make payments for the support or maintenance of the other spouse. . (ii) Section 220(f)(7) is amended by striking subparagraph (A) of section 71(b)(2) and inserting clause (i) of section 121(d)(3)(C) . (iii) Section 223(f)(7) is amended by striking subparagraph (A) of section 71(b)(2) and inserting clause (i) of section 121(d)(3)(C) . (iv) Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C) . (v) Section 408(d)(6) is amended by striking subparagraph (A) of section 71(b)(2) and inserting clause (i) of section 121(d)(3)(C) . (c) Effective date The amendments made by this section shall apply to— (1) any divorce or separation instrument (as defined in section 71(b)(2) of the Internal Revenue Code of 1986 as in effect before the date of the enactment of this Act) executed after December 31, 2017, and (2) any divorce or separation instrument (as so defined) executed on or before such date and modified after such date if the modification expressly provides that the amendments made by this section apply to such modification. 1310. Repeal of deduction for moving expenses (a) In general Part VII of subchapter B is amended by striking by striking section 217 (and by striking the item relating to such section in the table of section for such subpart). (b) Conforming amendments (1) Section 62(a) is amended by striking paragraph (15). (2) Section 274(m)(3) is amended by striking (other than section 217) . (3) Section 3121(a) is amended by striking paragraph (11). (4) Section 3306(b) is amended by striking paragraph (9). (5) Section 3401(a) is amended by striking paragraph (15). (6) Section 7872(f) is amended by striking paragraph (11). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1311. Termination of deduction and exclusions for contributions to medical savings accounts (a) Termination of income tax deduction Section 220 is amended by adding at the end the following new subsection: (k) Termination No deduction shall be allowed under subsection (a) with respect to any taxable year beginning after December 31, 2017. . (b) Termination of exclusion for employer-Provided contributions Section 106 is amended by striking subsection (b). (c) Conforming amendments (1) Section 62(a) is amended by striking paragraph (16). (2) Section 106(d) is amended by striking paragraph (2), by redesignating paragraph (3) as paragraph (6), and by inserting after paragraph (1) the following new paragraphs: (2) No constructive receipt No amount shall be included in the gross income of any employee solely because the employee may choose between the contributions referred to in paragraph (1) and employer contributions to another health plan of the employer. (3) Special rule for deduction of employer contributions Any employer contribution to a health savings account (as so defined), if otherwise allowable as a deduction under this chapter, shall be allowed only for the taxable year in which paid. (4) Employer health savings account contribution required to be shown on return Every individual required to file a return under section 6012 for the taxable year shall include on such return the aggregate amount contributed by employers to the health savings accounts (as so defined) of such individual or such individual’s spouse for such taxable year. (5) Health savings account contributions not part of COBRA coverage Paragraph (1) shall not apply for purposes of section 4980B. . (3) Section 223(b)(4) is amended by striking subparagraph (A), by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and by striking the second sentence thereof. (4) Section 223(b)(5) is amended by striking under paragraph (3)) and all that follows through shall be divided equally between them and inserting the following: under paragraph (3)) shall be divided equally between the spouses . (5) Section 223(c) is amended by striking paragraph (5). (6) Section 3231(e) is amended by striking paragraph (10). (7) Section 3306(b) is amended by striking paragraph (17). (8) Section 3401(a) is amended by striking paragraph (21). (9) Chapter 43 is amended by striking section 4980E (and by striking the item relating to such section in the table of sections for such chapter). (10) Section 4980G is amended to read as follows: 4980G. Failure of employer to make comparable health savings account contributions (a) In general In the case of an employer who makes a contribution to the health savings account of any employee during a calendar year, there is hereby imposed a tax on the failure of such employer to meet the requirements of subsection (d) for such calendar year. (b) Amount of tax The amount of the tax imposed by subsection (a) on any failure for any calendar year is the amount equal to 35 percent of the aggregate amount contributed by the employer to health savings accounts of employees for taxable years of such employees ending with or within such calendar year. (c) Waiver by Secretary In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved. (d) Employer required To make comparable health savings account contributions for all participating employees (1) In general An employer meets the requirements of this subsection for any calendar year if the employer makes available comparable contributions to the health savings accounts of all comparable participating employees for each coverage period during such calendar year. (2) Comparable contributions (A) In general For purposes of paragraph (1), the term comparable contributions means contributions— (i) which are the same amount, or (ii) which are the same percentage of the annual deductible limit under the high deductible health plan covering the employees. (B) Part-year employees In the case of an employee who is employed by the employer for only a portion of the calendar year, a contribution to the health savings account of such employee shall be treated as comparable if it is an amount which bears the same ratio to the comparable amount (determined without regard to this subparagraph) as such portion bears to the entire calendar year. (3) Comparable participating employees (A) In general For purposes of paragraph (1), the term comparable participating employees means all employees— (i) who are eligible individuals covered under any high deductible health plan of the employer, and (ii) who have the same category of coverage. (B) Categories of coverage For purposes of subparagraph (B), the categories of coverage are self-only and family coverage. (4) Part-time employees (A) In general Paragraph (3) shall be applied separately with respect to part-time employees and other employees. (B) Part-time employee For purposes of subparagraph (A), the term part-time employee means any employee who is customarily employed for fewer than 30 hours per week. (5) Special rule for non-highly compensated employees For purposes of applying this section to a contribution to a health savings account of an employee who is not a highly compensated employee (as defined in section 414(q)), highly compensated employees shall not be treated as comparable participating employees. (e) Controlled groups For purposes of this section, all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 employer. (f) Definitions Terms used in this section which are also used in section 223 have the respective meanings given such terms in section 223. (g) Regulations The Secretary shall issue regulations to carry out the purposes of this section. . (11) Section 6051(a) is amended by striking paragraph (11). (12) Section 6051(a)(14)(A) is amended by striking paragraphs (11) and (12) and inserting paragraph (12) . (d) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 1312. Denial of deduction for expenses attributable to the trade or business of being an employee (a) In general Part IX of subchapter B of chapter 1 is amended by inserting after the item relating to section 262 the following new item: 262A. Expenses attributable to being an employee (a) In general Except as otherwise provided in this section, no deduction shall be allowed with respect to any trade or business of the taxpayer which consists of the performance of services by the taxpayer as an employee. (b) Exception for above-the-Line deductions Subsection (a) shall not apply to any deduction allowable (determined without regard to subsection (a)) in determining adjusted gross income. . (b) Repeal of certain above-the-Line trade and business deductions of employees (1) In general Section 62(a)(2) is amended— (A) by striking subparagraphs (B), (C), and (D), and (B) by redesignating subparagraph (E) as subparagraph (B). (2) Conforming amendments (A) Section 62 is amended by striking subsections (b) and (d) and by redesignating subsections (c) and (e) as subsections (b) and (c), respectively. (B) Section 62(a)(20) is amended by striking subsection (e) and inserting subsection (c) . (c) Continued exclusion of working condition fringe benefits Section 132(d) is amended by inserting (determined without regard to section 262A) after section 162 . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. E Simplification and reform of exclusions and taxable compensation 1401. Limitation on exclusion for employer-provided housing (a) In general Section 119 is amended by adding at the end the following new subsection: (e) Limitation on exclusion of lodging (1) In general The aggregate amount excluded from gross income of the taxpayer under subsections (a) and (d) with respect to lodging for any taxable year shall not exceed $50,000 (half such amount in the case of a married individual filing a separate return). (2) Limitation to 1 home Subsections (a) and (d) (separately and in combination) shall not apply with respect to more than 1 residence of the taxpayer at any given time. In the case of a joint return, the preceding sentence shall apply separately to each spouse for any period during which each spouse resides separate from the other spouse in a residence which is provided in connection with the employment of each spouse, respectively. (3) Limitation for highly compensated employees (A) Reduced for excess compensation In the case of an individual whose compensation for the taxable year exceeds the amount in effect under section 414(q)(1)(B)(i) for the calendar in which such taxable year begins, the $50,000 amount under paragraph (1) shall be reduced (but not below zero) by an amount equal to 50 percent of such excess. For purposes of the preceding sentence, the term compensation means wages (as defined in section 3121(a) (without regard to the contribution and benefit base limitation in section 3121(a)(1)). (B) Exclusion denied for 5-percent owners In the case of an individual who is a 5-percent owner (as defined in section 416(i)(1)(B)(i)) of the employer at any time during the taxable year, the amount under paragraph (1) shall be zero. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 1402. Exclusion of gain from sale of a principal residence (a) Requirement that residence be principal residence for 5 years during 8-Year period Subsection (a) of section 121 is amended— (1) by striking 5-year period and inserting 8-year period , and (2) by striking 2 years and inserting 5 years . (b) Application to only 1 sale or exchange every 5 years Paragraph (3) of section 121(b) is amended to read as follows: (3) Application to only 1 sale or exchange every 5 years Subsection (a) shall not apply to any sale or exchange by the taxpayer if, during the 5-year period ending on the date of such sale or exchange, there was any other sale or exchange by the taxpayer to which subsection (a) applied. . (c) Phaseout based on modified adjusted gross income Section 121 is amended by adding at the end the following new subsection: (h) Phaseout based on modified adjusted gross income (1) In general If the average modified adjusted gross income of the taxpayer for the taxable year and the 2 preceding taxable years exceeds $250,000 (twice such amount in the case of a joint return), the amount which would (but for this subsection) be excluded from gross income under subsection (a) for such taxable year shall be reduced (but not below zero) by the amount of such excess. (2) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income means, with respect to any taxable year, adjusted gross income determined after application of this section (but without regard to subsection (b)(1) and this subsection). (3) Special rule for joint returns In the case of a joint return, the average modified adjusted gross income of the taxpayer shall be determined without regard to any taxable year with respect to which the taxpayer did not file a joint return. . (d) Conforming amendments (1) The last paragraph of section 121(b) (relating to exclusion of gain allocated to nonqualified use) is redesignated as paragraph (5). (2) The following provisions of section 121 are each amended by striking 5-year period each place it appears therein and inserting 8-year period : (A) Subsection (b)(5)(C)(ii)(I) (as redesignated by paragraph (1)). (B) Subsection (c)(1)(B)(i)(I). (C) Subsection (d)(7)(B). (D) Subparagraphs (A) and (B) of subsection (d)(9). (E) Subsection (d)(10) (F) Subsection (d)(12)(A). (3) Section 121(c)(1)(B)(ii) is amended by striking 2 years and inserting 5 years : (e) Effective date The amendments made by this section shall apply to sales and exchanges after December 31, 2017. 1403. Repeal of exclusion, etc., for employee achievement awards (a) In general Section 74 is amended by striking subsection (c). (b) Repeal of limitation on deduction Section 274 is amended by striking subsection (j). (c) Conforming amendments (1) Section 102(c)(2) is amended by striking the first sentence. (2) Section 414(n)(3)(C) is amended by striking 274(j), . (3) Section 414(t)(2) is amended by striking 274(j), . (4) Section 3121(a)(20) is amended by striking 74(c) . (5) Section 3231(e)(5) is amended by striking 74(c), . (6) Section 3306(b)(16) is amended by striking 74(c), . (7) Section 3401(a)(19) is amended by striking 74(c), . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1404. Repeal of exclusion for dependent care assistance programs (a) In general Part III of subchapter B of chapter 1 is amended by striking section 129 (and by striking the item relating to such section in the table of sections for such part). (b) Conforming amendments (1) Section 414(n)(3)(C) is amended by striking , 129 . (2) Section 414(r)(1) is amended by striking sections 129(d)(8) and and inserting section . (3) Section 414(t)(2) is amended by striking , 129 . (4) Section 125(j)(6) is amended— (A) by inserting or before section 105(h) , and (B) by striking , or paragraph (2), (3), (4), or (8) of section 129(d) . (5) Section 3121(a)(18) is amended by striking 129, . (6) Section 3306(b)(13) is amended by striking 129, . (7) Section 3401(a)(18) is amended by striking 129, . (8) Section 6039D(d)(1) is amended by striking , 129 . (9) Section 6051(a) is amended by striking paragraph (9). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1405. Repeal of exclusion for qualified moving expense reimbursement (a) In general Section 132(a) is amended by striking paragraph (6). (b) Conforming amendments (1) Section 82 is amended by striking Except as provided in section 132(a)(6), there and inserting There . (2) Section 132 is amended by striking subsection (g). (3) Section 132(l) is amended by striking by striking subsections (e) and (g) and inserting subsection (e) . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1406. Repeal of exclusion for adoption assistance programs (a) In general Part III of subchapter B of chapter 1 is amended by striking section 137 (and by striking the item relating to such section in the table of sections for such part). (b) Conforming amendments (1) Sections 414(n)(3)(C), 414(t)(2), 74(d)(2)(B), 86(b)(2)(A), 219(g)(3)(A)(ii) are each amended by striking , 137 . (2) Section 1016(a), as amended by the preceding provision of this Act, is amended by striking paragraph (26). (3) Section 6039D(d)(1), as amended by the preceding provisions of this Act, is amended— (A) by striking , or 137 , and (B) by inserting or before 125 . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. F Simplification and reform of savings, pensions, retirement 1501. Repeal of special rule permitting recharacterization of Roth IRA contributions as traditional IRA contributions (a) In general Section 408A(d) is amended by striking paragraph (6) and by redesignating paragraph (7) as paragraph (6). (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1502. Reduction in minimum age for allowable in-service distributions (a) In general Section 401(a)(36) is amended by striking age 62 and inserting age 59 ½ . (b) Application to governmental section 457(b) plans Clause (i) of section 457(d)(1)(A) is amended by inserting (in the case of a plan maintained by an employer described in subsection (e)(1)(A), age 59 ½ ) before the comma at the end. (c) Effective date The amendments made by this section shall apply to plan years beginning after December 31, 2017. 1503. Modification of rules governing hardship distributions (a) In general Not later than 1 year after the date of the enactment of this Act, the Secretary of the Treasury shall modify Treasury Regulation section 1.401(k)–1(d)(3)(iv)(E) to— (1) delete the 6-month prohibition on contributions imposed by paragraph (2) thereof, and (2) make any other modifications necessary to carry out the purposes of section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986. (b) Effective date The revised regulations under this section shall apply to plan years beginning after December 31, 2017. 1504. Modification of rules relating to hardship withdrawals from cash or deferred arrangements (a) In general Section 401(k) is amended by adding at the end the following: (14) Special rules relating to hardship withdrawals For purposes of paragraph (2)(B)(i)(IV)— (A) Amounts which may be withdrawn The following amounts may be distributed upon hardship of the employee: (i) Contributions to a profit-sharing or stock bonus plan to which section 402(e)(3) applies. (ii) Qualified nonelective contributions (as defined in subsection (m)(4)(C)). (iii) Qualified matching contributions described in paragraph (3)(D)(ii)(I). (iv) Earnings on any contributions described in clause (i), (ii), or (iii). (B) No requirement to take available loan A distribution shall not be treated as failing to be made upon the hardship of an employee solely because the employee does not take any available loan under the plan.". . (b) Conforming amendment Section 401(k)(2)(B)(i)(IV) is amended to read as follows: (IV) subject to the provisions of paragraph (14), upon hardship of the employee, or". . (c) Effective date The amendments made by this section shall apply to plan years beginning after December 31, 2017. 1505. Extended rollover period for the rollover of plan loan offset amounts in certain cases (a) In general Paragraph (3) of section 402(c) is amended by adding at the end the following new subparagraph: (C) Rollover of certain plan loan offset amounts (i) In general In the case of a qualified plan loan offset amount, paragraph (1) shall not apply to any transfer of such amount made after the due date (including extensions) for filing the return of tax for the taxable year in which such amount is treated as distributed from a qualified employer plan. (ii) Qualified plan loan offset amount For purposes of this subparagraph, the term qualified plan loan offset amount means a plan loan offset amount which is treated as distributed from a qualified employer plan to a participant or beneficiary solely by reason of— (I) the termination of the qualified employer plan, or (II) the failure to meet the repayment terms of the loan from such plan because of the separation from service of the participant (whether due to layoff, cessation of business, termination of employment, or otherwise). (iii) Plan loan offset amount For purposes of clause (ii), the term plan loan offset amount means the amount by which the participant's accrued benefit under the plan is reduced in order to repay a loan from the plan. (iv) Limitation This subparagraph shall not apply to any plan loan offset amount unless such plan loan offset amount relates to a loan to which section 72(p)(1) does not apply by reason of section 72(p)(2). (v) Qualified employer plan For purposes of this subsection, the term qualified employer plan has the meaning given such term by section 72(p)(4). . (b) Conforming amendment Subparagraph (A) of section 402(c)(3) is amended by striking subparagraph (B) and inserting subparagraphs (B) and (C) . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 1506. Modification of nondiscrimination rules to protect older, longer service participants (a) In general Section 401 is amended— (1) by redesignating subsection (o) as subsection (p), and (2) by inserting after subsection (n) the following new subsection: (o) Special rules for applying nondiscrimination rules To protect older, longer service and grandfathered participants (1) Testing of defined benefit plans with closed classes of participants (A) Benefits, rights, or features provided to closed classes A defined benefit plan which provides benefits, rights, or features to a closed class of participants shall not fail to satisfy the requirements of subsection (a)(4) by reason of the composition of such closed class or the benefits, rights, or features provided to such closed class, if— (i) for the plan year as of which the class closes and the 2 succeeding plan years, such benefits, rights, and features satisfy the requirements of subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)), (ii) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and (iii) the class was closed before April 5, 2017, or the plan is described in subparagraph (C). (B) Aggregate testing with defined contribution plans permitted on a benefits basis (i) In general For purposes of determining compliance with subsection (a)(4) and section 410(b), a defined benefit plan described in clause (iii) may be aggregated and tested on a benefits basis with 1 or more defined contribution plans, including with the portion of 1 or more defined contribution plans which— (I) provides matching contributions (as defined in subsection (m)(4)(A)), (II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or (III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)). (ii) Special rules for matching contributions For purposes of clause (i), if a defined benefit plan is aggregated with a portion of a defined contribution plan providing matching contributions— (I) such defined benefit plan must also be aggregated with any portion of such defined contribution plan which provides elective deferrals described in subparagraph (A) or (C) of section 402(g)(3), and (II) such matching contributions shall be treated in the same manner as nonelective contributions, including for purposes of applying the rules of subsection (l). (iii) Plans described A defined benefit plan is described in this clause if— (I) the plan provides benefits to a closed class of participants, (II) for the plan year as of which the class closes and the 2 succeeding plan years, the plan satisfies the requirements of section 410(b) and subsection (a)(4) (without regard to this subparagraph but taking into account the rules of subparagraph (I)), (III) after the date as of which the class was closed, any plan amendment which modifies the closed class or the benefits provided to such closed class does not discriminate significantly in favor of highly compensated employees, and (IV) the class was closed before April 5, 2017, or the plan is described in subparagraph (C). (C) Plans described A plan is described in this subparagraph if, taking into account any predecessor plan— (i) such plan has been in effect for at least 5 years as of the date the class is closed, and (ii) during the 5-year period preceding the date the class is closed, there has not been a substantial increase in the coverage or value of the benefits, rights, or features described in subparagraph (A) or in the coverage or benefits under the plan described in subparagraph (B)(iii) (whichever is applicable). (D) Determination of substantial increase for benefits, rights, and features In applying subparagraph (C)(ii) for purposes of subparagraph (A)(iii), a plan shall be treated as having had a substantial increase in coverage or value of the benefits, rights, or features described in subparagraph (A) during the applicable 5-year period only if, during such period— (i) the number of participants covered by such benefits, rights, or features on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or (ii) such benefits, rights, and features have been modified by 1 or more plan amendments in such a way that, as of the date the class is closed, the value of such benefits, rights, and features to the closed class as a whole is substantially greater than the value as of the first day of such 5-year period, solely as a result of such amendments. (E) Determination of substantial increase for aggregate testing on benefits basis In applying subparagraph (C)(ii) for purposes of subparagraph (B)(iii)(IV), a plan shall be treated as having had a substantial increase in coverage or benefits during the applicable 5-year period only if, during such period— (i) the number of participants benefitting under the plan on the date such period ends is more than 50 percent greater than the number of such participants on the first day of the plan year in which such period began, or (ii) the average benefit provided to such participants on the date such period ends is more than 50 percent greater than the average benefit provided on the first day of the plan year in which such period began. (F) Certain employees disregarded For purposes of subparagraphs (D) and (E), any increase in coverage or value or in coverage or benefits, whichever is applicable, which is attributable to such coverage and value or coverage and benefits provided to employees— (i) who became participants as a result of a merger, acquisition, or similar event which occurred during the 7-year period preceding the date the class is closed, or (ii) who became participants by reason of a merger of the plan with another plan which had been in effect for at least 5 years as of the date of the merger, shall be disregarded, except that clause (ii) shall apply for purposes of subparagraph (D) only if, under the merger, the benefits, rights, or features under 1 plan are conformed to the benefits, rights, or features of the other plan prospectively. (G) Rules relating to average benefit For purposes of subparagraph (E)— (i) the average benefit provided to participants under the plan will be treated as having remained the same between the 2 dates described in subparagraph (E)(ii) if the benefit formula applicable to such participants has not changed between such dates, and (ii) if the benefit formula applicable to 1 or more participants under the plan has changed between such 2 dates, then the average benefit under the plan shall be considered to have increased by more than 50 percent only if— (I) the total amount determined under section 430(b)(1)(A)(i) for all participants benefitting under the plan for the plan year in which the 5-year period described in subparagraph (E) ends, exceeds (II) the total amount determined under section 430(b)(1)(A)(i) for all such participants for such plan year, by using the benefit formula in effect for each such participant for the first plan year in such 5-year period, by more than 50 percent. In the case of a CSEC plan (as defined in section 414(y)), the normal cost of the plan (as determined under section 433(j)(1)(B)) shall be used in lieu of the amount determined under section 430(b)(1)(A)(i). (H) Treatment as single plan For purposes of subparagraphs (E) and (G), a plan described in section 413(c) shall be treated as a single plan rather than as separate plans maintained by each participating employer. (I) Special rules For purposes of subparagraphs (A)(i) and (B)(iii)(II), the following rules shall apply: (i) In applying section 410(b)(6)(C), the closing of the class of participants shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II). (ii) 2 or more plans shall not fail to be eligible to be aggregated and treated as a single plan solely by reason of having different plan years. (iii) Changes in the employee population shall be disregarded to the extent attributable to individuals who become employees or cease to be employees, after the date the class is closed, by reason of a merger, acquisition, divestiture, or similar event. (iv) Aggregation and all other testing methodologies otherwise applicable under subsection (a)(4) and section 410(b) may be taken into account. The rule of clause (ii) shall also apply for purposes of determining whether plans to which subparagraph (B)(i) applies may be aggregated and treated as 1 plan for purposes of determining whether such plans meet the requirements of subsection (a)(4) and section 410(b). (J) Spun-off plans For purposes of this paragraph, if a portion of a defined benefit plan described in subparagraph (A) or (B)(iii) is spun off to another employer and the spun-off plan continues to satisfy the requirements of— (i) subparagraph (A)(i) or (B)(iii)(II), whichever is applicable, if the original plan was still within the 3-year period described in such subparagraph at the time of the spin off, and (ii) subparagraph (A)(ii) or (B)(iii)(III), whichever is applicable, the treatment under subparagraph (A) or (B) of the spun-off plan shall continue with respect to such other employer. (2) Testing of defined contribution plans (A) Testing on a benefits basis A defined contribution plan shall be permitted to be tested on a benefits basis if— (i) such defined contribution plan provides make-whole contributions to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated, (ii) for the plan year of the defined contribution plan as of which the class eligible to receive such make-whole contributions closes and the 2 succeeding plan years, such closed class of participants satisfies the requirements of section 410(b)(2)(A)(i) (determined by applying the rules of paragraph (1)(I)), (iii) after the date as of which the class was closed, any plan amendment to the defined contribution plan which modifies the closed class or the allocations, benefits, rights, and features provided to such closed class does not discriminate significantly in favor of highly compensated employees, and (iv) the class was closed before April 5, 2017, or the defined benefit plan under clause (i) is described in paragraph (1)(C) (as applied for purposes of paragraph (1)(B)(iii)(IV)). (B) Aggregation with plans including matching contributions (i) In general With respect to 1 or more defined contribution plans described in subparagraph (A), for purposes of determining compliance with subsection (a)(4) and section 410(b), the portion of such plans which provides make-whole contributions or other nonelective contributions may be aggregated and tested on a benefits basis with the portion of 1 or more other defined contribution plans which— (I) provides matching contributions (as defined in subsection (m)(4)(A)), (II) provides annuity contracts described in section 403(b) which are purchased with matching contributions or nonelective contributions, or (III) consists of an employee stock ownership plan (within the meaning of section 4975(e)(7)) or a tax credit employee stock ownership plan (within the meaning of section 409(a)). (ii) Special rules for matching contributions Rules similar to the rules of paragraph (1)(B)(ii) shall apply for purposes of clause (i). (C) Special rules for testing defined contribution plan features providing matching contributions to certain older, longer service participants In the case of a defined contribution plan which provides benefits, rights, or features to a closed class of participants whose accruals under a defined benefit plan have been reduced or eliminated, the plan shall not fail to satisfy the requirements of subsection (a)(4) solely by reason of the composition of the closed class or the benefits, rights, or features provided to such closed class if the defined contribution plan and defined benefit plan otherwise meet the requirements of subparagraph (A) but for the fact that the make-whole contributions under the defined contribution plan are made in whole or in part through matching contributions. (D) Spun-off plans For purposes of this paragraph, if a portion of a defined contribution plan described in subparagraph (A) or (C) is spun off to another employer, the treatment under subparagraph (A) or (C) of the spun-off plan shall continue with respect to the other employer if such plan continues to comply with the requirements of clauses (ii) (if the original plan was still within the 3-year period described in such clause at the time of the spin off) and (iii) of subparagraph (A), as determined for purposes of subparagraph (A) or (C), whichever is applicable. (3) Definitions For purposes of this subsection— (A) Make-whole contributions Except as otherwise provided in paragraph (2)(C), the term make-whole contributions means nonelective allocations for each employee in the class which are reasonably calculated, in a consistent manner, to replace some or all of the retirement benefits which the employee would have received under the defined benefit plan and any other plan or qualified cash or deferred arrangement under subsection (k)(2) if no change had been made to such defined benefit plan and such other plan or arrangement. For purposes of the preceding sentence, consistency shall not be required with respect to employees who were subject to different benefit formulas under the defined benefit plan. (B) References to closed class of participants References to a closed class of participants and similar references to a closed class shall include arrangements under which 1 or more classes of participants are closed, except that 1 or more classes of participants closed on different dates shall not be aggregated for purposes of determining the date any such class was closed. (C) Highly compensated employee The term highly compensated employee has the meaning given such term in section 414(q).". . (b) Participation requirements Paragraph (26) of section 401(a) is amended by adding at the end the following new subparagraph: (I) Protected participants (i) In general A plan shall be deemed to satisfy the requirements of subparagraph (A) if— (I) the plan is amended— (aa) to cease all benefit accruals, or (bb) to provide future benefit accruals only to a closed class of participants, (II) the plan satisfies subparagraph (A) (without regard to this subparagraph) as of the effective date of the amendment, and (III) the amendment was adopted before April 5, 2017, or the plan is described in clause (ii). (ii) Plans described A plan is described in this clause if the plan would be described in subsection (o)(1)(C), as applied for purposes of subsection (o)(1)(B)(iii)(IV) and by treating the effective date of the amendment as the date the class was closed for purposes of subsection (o)(1)(C). (iii) Special rules For purposes of clause (i)(II), in applying section 410(b)(6)(C), the amendments described in clause (i) shall not be treated as a significant change in coverage under section 410(b)(6)(C)(i)(II). (iv) Spun-off plans For purposes of this subparagraph, if a portion of a plan described in clause (i) is spun off to another employer, the treatment under clause (i) of the spun-off plan shall continue with respect to the other employer. . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act, without regard to whether any plan modifications referred to in such amendments are adopted or effective before, on, or after such date of enactment. (2) Special rules (A) Election of earlier application At the election of the plan sponsor, the amendments made by this section shall apply to plan years beginning after December 31, 2013. (B) Closed classes of participants For purposes of paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv) of section 401(o) of the Internal Revenue Code of 1986 (as added by this section), a closed class of participants shall be treated as being closed before April 5, 2017, if the plan sponsor’s intention to create such closed class is reflected in formal written documents and communicated to participants before such date. (C) Certain post-enactment plan amendments A plan shall not be treated as failing to be eligible for the application of section 401(o)(1)(A), 401(o)(1)(B)(iii), or 401(a)(26) of such Code (as added by this section) to such plan solely because in the case of— (i) such section 401(o)(1)(A), the plan was amended before the date of the enactment of this Act to eliminate 1 or more benefits, rights, or features, and is further amended after such date of enactment to provide such previously eliminated benefits, rights, or features to a closed class of participants, or (ii) such section 401(o)(1)(B)(iii) or section 401(a)(26), the plan was amended before the date of the enactment of this Act to cease all benefit accruals, and is further amended after such date of enactment to provide benefit accruals to a closed class of participants. Any such section shall only apply if the plan otherwise meets the requirements of such section and in applying such section, the date the class of participants is closed shall be the effective date of the later amendment. G Estate, gift, and generation-skipping transfer taxes 1601. Increase in credit against estate, gift, and generation-skipping transfer tax (a) In general Section 2010(c)(3) is amended by striking $5,000,000 and inserting $10,000,000 . (b) Effective date The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2017. 1602. Repeal of estate and generation-skipping transfer taxes (a) Estate tax repeal (1) In general Subchapter C of chapter 11 is amended by adding at the end the following new section: 2210. Termination (a) In general Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after December 31, 2023. (b) Certain Distributions From Qualified Domestic Trusts In applying section 2056A with respect to the surviving spouse of a decedent dying on or before December 31, 2023— (1) section 2056A(b)(1)(A) shall not apply to distributions made after the 10-year period beginning on such date, and (2) section 2056A(b)(1)(B) shall not apply after such date. . (2) Conforming amendments Section 1014(b) is amended— (A) in paragraph (6), by striking was includible in determining and all that follows through the end and inserting was includible (or would have been includible without regard to section 2210) in determining the value of the decedent’s gross estate under chapter 11 of subtitle B , (B) in paragraph (9), by striking required to be included through Code of 1939 and inserting required to be included (or would have been required to be included without regard to section 2210) in determining the value of the decedent’s gross estate under chapter 11 of subtitle B , and (C) in paragraph (10), by striking Property includible in the gross estate and inserting Property includible (or which would have been includible without regard to section 2210) in the gross estate . (3) Clerical amendment The table of sections for subchapter C of chapter 11 is amended by adding at the end the following new item: Sec. 2210. Termination. . (b) Generation-Skipping transfer tax repeal (1) In general Subchapter G of chapter 13 of subtitle B of such Code is amended by adding at the end the following new section: 2664. Termination This chapter shall not apply to generation-skipping transfers after December 31, 2023. . (2) Clerical amendment The table of sections for subchapter G of chapter 13 of such Code is amended by adding at the end the following new item: Sec. 2664. Termination. . (c) Conforming amendments related to gift tax (1) Computation of gift tax Section 2502 is amended by adding at the end the following new subsection: (d) Gifts made after 2023 (1) In general In the case of a gift made after December 31, 2023, subsection (a) shall be applied by substituting subsection (d)(2) for section 2001(c) and such subsection for such section . (2) Rate schedule If the amount with respect to which the tentative tax to be computed is: The tentative tax is: Not over $10,000 18% of such amount. Over $10,000 but not over $20,000 $1,800, plus 20% of the excess over $10,000. Over $20,000 but not over $40,000 $3,800, plus 22% of the excess over $20,000. Over $40,000 but not over $60,000 $8,200, plus 24% of the excess over $40,000. Over $60,000 but not over $80,000 $13,000, plus 26% of the excess over $60,000. Over $80,000 but not over $100,000 $18,200, plus 28% of the excess over $80,000. Over $100,000 but not over $150,000 $23,800, plus 30% of the excess over $100,000. Over $150,000 but not over $250,000 $38,800, plus 32% of the excess of $150,000. Over $250,000 but not over $500,000 $70,800, plus 34% of the excess over $250,000. Over $500,000 $155,800, plus 35% of the excess of $500,000. . (2) Lifetime gift exemption Section 2505 is amended by adding at the end the following new subsection: (d) Gifts made after 2023 (1) In general In the case of a gift made after December 31, 2023, subsection (a)(1) shall be applied by substituting the amount of the tentative tax which would be determined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $10,000,000 for the applicable credit amount in effect under section 2010(c) which would apply if the donor died as of the end of the calendar year . (2) Inflation adjustment (A) In general In the case of any calendar year after 2023, the dollar amount in subsection (a)(1) (after application of this subsection) 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 such calendar year by substituting calendar year 2011 for calendar year 1992 in subparagraph (B) thereof. (B) Rounding If any amount as adjusted under paragraph (1) is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000. . (3) Other conforming amendments related to gift tax Section 2801 is amended by adding at the end the following new subsection: striking and inserting section 2502(a)(2) (g) Gifts received after 2023 In the case of a gift received after December 31, 2023, subsection (a)(1) shall be applied by substituting section 2502(a)(2) for section 2001(c) as in effect on the date of such receipt . . (d) Effective date The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2023. II Alternative Minimum Tax Repeal 2001. Repeal of alternative minimum tax (a) In general Subchapter A of chapter 1 is amended by striking part VI (and by striking the item relating to such part in the table of parts for subchapter A). (b) Credit for prior year minimum tax liability (1) Limitation Subsection (c) of section 53 is amended to read as follows: (c) Limitation The credit allowable under subsection (a) shall not exceed the regular tax liability of the taxpayer reduced by the sum of the credits allowed under subparts A, B, and D. . (2) Credits treated as refundable Section 53 is amended by adding at the end the following new subsection: (e) Portion of credit treated as refundable (1) In general In the case of any taxable year beginning in 2019, 2020, 2021, or 2022, the limitation under subsection (c) shall be increased by the AMT refundable credit amount for such year. (2) AMT refundable credit amount For purposes of paragraph (1), the AMT refundable credit amount is an amount equal to 50 percent (100 percent in the case of a taxable year beginning in 2022) of the excess (if any) of— (A) the minimum tax credit determined under subsection (b) for the taxable year, over (B) the minimum tax credit allowed under subsection (a) for such year (before the application of this subsection for such year). (3) Credit refundable For purposes of this title (other than this section), the credit allowed by reason of this subsection shall be treated as a credit allowed under subpart C (and not this subpart). (4) Short taxable years In the case of any taxable year of less than 365 days, the AMT refundable credit amount determined under paragraph (2) with respect to such taxable year shall be the amount which bears the same ratio to such amount determined without regard to this paragraph as the number of days in such taxable year bears to 365. . (3) Treatment of references Section 53(d) is amended by adding at the end the following new paragraph: (3) AMT term references Any references in this subsection to section 55, 56, or 57 shall be treated as a reference to such section as in effect before its repeal by the Tax Cuts and Jobs Act . . (c) Conforming amendments related to AMT repeal (1) Section 2(d) is amended by striking sections 1 and 55 and inserting section 1 . (2) Section 5(a) is amended by striking paragraph (4). (3) Section 11(d) is amended by striking the taxes imposed by subsection (a) and section 55 and inserting the tax imposed by subsection (a) . (4) Section 12 is amended by striking paragraph (7). (5) Section 26(a) is amended to read as follows: (a) Limitation based on amount of tax The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer’s regular tax liability for the taxable year. . (6) Section 26(b)(2) is amended by striking subparagraph (A). (7) Section 26 is amended by striking subsection (c). (8) Section 38(c) is amended— (A) by striking paragraphs (1) through (5), (B) by redesignating paragraph (6) as paragraph (2), (C) by inserting before paragraph (2) (as so redesignated) the following new paragraph: (1) In general The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of— (A) the sum of— (i) so much of the regular tax liability as does not exceed $25,000, plus (ii) 75 percent of so much of the regular tax liability as exceeds $25,000, over (B) the sum of the credits allowable under subparts A and B of this part. , and (D) by striking subparagraph (B) of paragraph (1) each place it appears in paragraph (2) (as so redesignated) and inserting clauses (i) and (ii) of paragraph (1)(A) . (9) Section 39(a) is amended— (A) by striking or the eligible small business credits in paragraph (3)(A), and (B) by striking paragraph (4). (10) Section 45D(g)(4)(B) is amended by striking or for purposes of section 55 . (11) Section 54(c)(1) is amended to read as follows: (1) regular tax liability (as defined in section 26(b)), over . (12) Section 54A(c)(1)(A) is amended to read as follows: (A) regular tax liability (as defined in section 26(b)), over . (13) Section 148(b)(3) is amended to read as follows: (3) Tax-exempt bonds not treated as investment property The term investment property does not include any tax-exempt bond. . (14) Section 168(k)(2) is amended by striking subparagraph (G). (15) Section 168(k) is amended by striking paragraph (4). (16) Section 168(k)(5) is amended by striking subparagraph (E). (17) Section 168(m)(2)(B)(i) is amended by striking (determined without regard to paragraph (4) thereof) . (18) Section 168(m)(2) is amended by striking subparagraph (D). (19) Section 173 is amended by striking subsection (b). (20) Section 174(f) is amended to read as follows: (f) Cross reference For adjustments to basis of property for amounts allowed as deductions as deferred expenses under subsection (b), see section 1016(a)(14). . (21) Section 263(c) is amended by striking section 59(e) or 291 and inserting section 291 . (22) Section 263A(c) is amended by striking paragraph (6) and by redesignating paragraph (7) (as amended) as paragraph (6). (23) Section 382(l) is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7). (24) Section 443 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d). (25) Section 616 is amended by striking subsection (e). (26) Section 617 is amended by striking subsection (i). (27) Section 641(c) is amended— (A) in paragraph (2) by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, and (B) in paragraph (3), by striking paragraph (2)(C) and inserting paragraph (2)(B) . (28) Subsections (b) and (c) of section 666 are each amended by striking (other than the tax imposed by section 55) . (29) Section 848 is amended by striking subsection (i). (30) Section 860E(a) is amended by striking paragraph (4). (31) Section 871(b)(1) is amended by striking or 55 . (32) Section 882(a)(1) is amended by striking 55, . (33) Section 897(a) is amended to read as follows: (a) Treatment as effectively connected with united states trade or business For purposes of this title, gain or loss of a nonresident alien individual or a foreign corporation from the disposition of a United States real property interest shall be taken into account— (1) in the case of a nonresident alien individual, under section 871(b)(1), or (2) in the case of a foreign corporation, under section 882(a)(1), as if the taxpayer were engaged in a trade or business within the United States during the taxable year and as if such gain or loss were effectively connected with such trade or business. . (34) Section 904(k) is amended to read as follows: (k) Cross reference For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b). . (35) Section 911(f) is amended to read as follows: (f) Determination of tax liability (1) In general If, for any taxable year, any amount is excluded from gross income of a taxpayer under subsection (a), then, notwithstanding section 1, if such taxpayer has taxable income for such taxable year, the tax imposed by section 1 for such taxable year shall be equal to the excess (if any) of— (A) the tax which would be imposed by section 1 for such taxable year if the taxpayer’s taxable income were increased by the amount excluded under subsection (a) for such taxable year, over (B) the tax which would be imposed by section 1 for such taxable year if the taxpayer’s taxable income were equal to the amount excluded under subsection (a) for such taxable year. For purposes of this paragraph, the amount excluded under subsection (a) shall be reduced by the aggregate amount of any deductions or exclusions disallowed under subsection (d)(6) with respect to such excluded amount. (2) Treatment of capital gain excess (A) In general In applying section 1(h) for purposes of determining the tax under paragraph (1)(A) for any taxable year in which, without regard to this subsection, the taxpayer’s net capital gain exceeds taxable income (hereafter in this subparagraph referred to as the capital gain excess)— (i) the taxpayer’s net capital gain (determined without regard to section 1(h)(11)) shall be reduced (but not below zero) by such capital gain excess, (ii) the taxpayer’s qualified dividend income shall be reduced by so much of such capital gain excess as exceeds the taxpayer’s net capital gain (determined without regard to section 1(h)(11) and the reduction under clause (i)), and (iii) adjusted net capital gain, unrecaptured section 1250 gain, and 28-percent rate gain shall each be determined after increasing the amount described in section 1(h)(4)(B) by such capital gain excess. (B) Definitions Terms used in this paragraph which are also used in section 1(h) shall have the respective meanings given such terms by section 1(h). . (36) Section 962(a)(1) is amended— (A) by striking sections 1 and 55 and inserting section 1 , and (B) by striking sections 11 and 55 and inserting section 11 . (37) Section 1016(a) is amended by striking paragraph (20). (38) Section 1202(a)(4) is amended by inserting and at the end of subparagraph (A), by striking , and and inserting a period at the end of subparagraph (B), and by striking subparagraph (C). (39) Section 1374(b)(3)(B) is amended by striking the last sentence thereof. (40) Section 1561(a) is amended— (A) by inserting and at the end of paragraph (1), by striking , and at the end of paragraph (2) and inserting a period, and by striking paragraph (3), and (B) by striking the last sentence. (41) Section 6015(d)(2)(B) is amended by striking or 55 . (42) Section 6211(b)(4)(A) is amended by striking , 168(k)(4) . (43) Section 6425(c)(1)(A) is amended to read as follows: (A) the tax imposed under section 11 or subchapter L of chapter 1, whichever is applicable, over . (44) Section 6654(d)(2) is amended— (A) in clause (i) of subparagraph (B), by striking , alternative minimum taxable income, , and (B) in clause (i) of subparagraph (C), by striking , alternative minimum taxable income, . (45) Section 6655(e)(2)(B)(i) is amended by striking The taxable income and alternative minimum taxable income shall and inserting Taxable income shall . (46) Section 6655(g)(1)(A) is amended by adding plus at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii). (47) Section 6662(e)(3)(C) is amended by striking the regular tax (as defined in section 55(c)) and inserting the regular tax liability (as defined in section 26(b)) . (d) Effective dates (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Prior elections with respect to certain tax preferences So much of the amendment made by subsection (a) as relates to the repeal of section 59(e) of the Internal Revenue Code of 1986 shall apply to amounts paid or incurred after December 31, 2017. (3) Treatment of net operating loss carrybacks For purposes of section 56(d) of the Internal Revenue Code of 1986 (as in effect before its repeal), the amount of any net operating loss which may be carried back from a taxable year beginning after December 31, 2017, to taxable years beginning before January 1, 2018, shall be determined without regard to any adjustments under section 56(d)(2)(A) of such Code (as so in effect). III Business tax reform A Tax rates 3001. Reduction in corporate tax rate (a) In general Section 11(b) is amended to read as follows: (b) Amount of tax (1) In general Except as otherwise provided in this subsection, the amount of the tax imposed by subsection (a) shall be 20 percent of taxable income. (2) Special rule for personal service corporations (A) In general In the case of a personal service corporation (as defined in section 448(d)(2)), the amount of the tax imposed by subsection (a) shall be 25 percent of taxable income. (B) References to corporate rate Any reference to the rate imposed under this section or to the highest rate in effect under this section (or any similar reference) shall be determined without regard to the rate imposed with respect to personal service corporations (as so defined). . (b) Conforming amendments (1) (A) Part I of subchapter P of chapter 1 is amended by striking section 1201 (and by striking the item relating to such section in the table of sections for such part). (B) Section 12 is amended by striking paragraph (4). (C) Section 527(b) is amended— (i) by striking paragraph (2), and (ii) by striking all that precedes is hereby imposed and inserting: (b) Tax imposed A tax . (D) Section 594(a) is amended by striking taxes imposed by section 11 or 1201(a) and inserting tax imposed by section 11 . (E) Section 691(c)(4) is amended by striking 1201, . (F) Section 801(a) is amended— (i) by striking paragraph (2), and (ii) by striking all that precedes is hereby imposed and inserting: (a) Tax imposed A tax . (G) Section 831(e) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (H) Sections 832(c)(5) and 834(b)(1)(D) are each amended by striking sec. 1201 and following, . (I) Section 852(b)(3)(A) is amended by striking section 1201(a) and inserting section 11(b)(1) . (J) Section 857(b)(3) is amended— (i) by striking subparagraph (A) and redesignating subparagraphs (B) through (F) as subparagraphs (A) through (E), respectively, (ii) in subparagraph (C), as so redesignated— (I) by striking subparagraph (A)(ii) in clause (i) thereof and inserting paragraph (1) , (II) by striking the tax imposed by subparagraph (A)(ii) in clauses (ii) and (iv) thereof and inserting the tax imposed by paragraph (1) on undistributed capital gain , (iii) in subparagraph (E), as so redesignated, by striking subparagraph (B) or (D) and inserting subparagraph (A) or (C) , and (iv) by adding at the end the following new subparagraph: (F) Undistributed capital gain For purposes of this paragraph, the term undistributed capital gain means the excess of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only. . (K) Section 882(a)(1) is amended by striking , or 1201(a) . (L) Section 1374(b) is amended by striking paragraph (4). (M) Section 1381(b) is amended by striking taxes imposed by section 11 or 1201 and inserting tax imposed by section 11 . (N) Section 6655(g)(1)(A)(i) is amended by striking or 1201(a), . (O) Section 7518(g)(6)(A) is amended by striking or 1201(a) . (2) Section 1445(e)(1) is amended by striking 35 percent (or, to the extent provided in regulations, 20 percent) and inserting 20 percent . (3) Section 1445(e)(2) is amended by striking 35 percent and inserting 20 percent . (4) Section 1445(e)(6) is amended by striking 35 percent (or, to the extent provided in regulations, 20 percent) and inserting 20 percent . (5) (A) Part I of subchapter B of chapter 5 is amended by striking section 1551 (and by striking the item relating to such section in the table of sections for such part). (B) Section 12 is amended by striking paragraph (6). (C) Section 535(c)(5) is amended to read as follows: (5) Cross reference For limitation on credit provided in paragraph (2) or (3) in the case of certain controlled corporations, see section 1561. . (6) (A) Section 1561 , as amended by the preceding provisions of this Act, is amended to read as follows: 1561. Limitation on accumulated earnings credit in the case of certain controlled corporations (a) In general The component members of a controlled group of corporations on a December 31 shall, for their taxable years which include such December 31, be limited for purposes of this subtitle to one $250,000 ($150,000 if any component member is a corporation described in section 535(c)(2)(B)) amount for purposes of computing the accumulated earnings credit under section 535(c)(2) and (3). Such amount shall be divided equally among the component members of such group on such December 31 unless the Secretary prescribes regulations permitting an unequal allocation of such amount. (b) Certain short taxable years If a corporation has a short taxable year which does not include a December 31 and is a component member of a controlled group of corporations with respect to such taxable year, then for purposes of this subtitle, the amount to be used in computing the accumulated earnings credit under section 535(c)(2) and (3) of such corporation for such taxable year shall be the amount specified in subsection (a) with respect to such group, divided by the number of corporations which are component members of such group on the last day of such taxable year. For purposes of the preceding sentence, section 1563(b) shall be applied as if such last day were substituted for December 31. . (B) The table of sections for part II of subchapter B of chapter 5 is amended by striking the item relating to section 1561 and inserting the following new item: Sec. 1561. Limitation on accumulated earnings credit in the case of certain controlled corporations. . (7) Section 7518(g)(6)(A) is amended— (A) by striking With respect to the portion and inserting In the case of a taxpayer other than a corporation, with respect to the portion , and (B) by striking (34 percent in the case of a corporation) . (c) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Certain conforming amendments The amendments made by paragraphs (2), (3), and (4) of subsection (b) shall apply to distributions after December 31, 2017. (d) Normalization requirements (1) In general A normalization method of accounting shall not be treated as being used with respect to any public utility property for purposes of section 167 or 168 of the Internal Revenue Code of 1986 if the taxpayer, in computing its cost of service for ratemaking purposes and reflecting operating results in its regulated books of account, reduces the excess tax reserve more rapidly or to a greater extent than such reserve would be reduced under the average rate assumption method. (2) Alternative Method for Certain Taxpayers If, as of the first day of the taxable year that includes the date of enactment of this Act— (A) the taxpayer was required by a regulatory agency to compute depreciation for public utility property on the basis of an average life or composite rate method, and (B) the taxpayer’s books and underlying records did not contain the vintage account data necessary to apply the average rate assumption method, the taxpayer will be treated as using a normalization method of accounting if, with respect to such jurisdiction, the taxpayer uses the alternative method for public utility property that is subject to the regulatory authority of that jurisdiction. (3) Definitions For purposes of this subsection— (A) Excess tax reserve The term excess tax reserve means the excess of— (i) the reserve for deferred taxes (as described in section 168(i)(9)(A)(ii) of the Internal Revenue Code of 1986 as in effect on the day before the date of the enactment of this Act), over (ii) the amount which would be the balance in such reserve if the amount of such reserve were determined by assuming that the corporate rate reductions provided in this Act were in effect for all prior periods. (B) Average rate assumption method The average rate assumption method is the method under which the excess in the reserve for deferred taxes is reduced over the remaining lives of the property as used in its regulated books of account which gave rise to the reserve for deferred taxes. Under such method, if timing differences for the property reverse, the amount of the adjustment to the reserve for the deferred taxes is calculated by multiplying— (i) the ratio of the aggregate deferred taxes for the property to the aggregate timing differences for the property as of the beginning of the period in question, by (ii) the amount of the timing differences which reverse during such period. (C) Alternative method The alternative method is the method in which the taxpayer— (i) computes the excess tax reserve on all public utility property included in the plant account on the basis of the weighted average life or composite rate used to compute depreciation for regulatory purposes, and (ii) reduces the excess tax reserve ratably over the remaining regulatory life of the property. (4) Tax increased for normalization violation If, for any taxable year ending after the date of the enactment of this Act, the taxpayer does not use a normalization method of accounting, the taxpayer’s tax for the taxable year shall be increased by the amount by which it reduces its excess tax reserve more rapidly than permitted under a normalization method of accounting. B Cost recovery 3101. Increased expensing (a) 100 percent expensing Section 168(k)(1)(A) is amended by striking 50 percent and inserting 100 percent . (b) Extension through January 1, 2023 Section 168(k)(2) is amended— (1) in subparagraph (A)(iii), by striking January 1, 2020 and inserting January 1, 2023 , (2) in subparagraph (B)(i)(II), by striking January 1, 2021 and inserting January 1, 2024 , (3) in subparagraph (B)(i)(III), by striking January 1, 2020 and inserting January 1, 2023 , (4) in subparagraph (B)(ii), by striking January 1, 2020 in each place it appears and inserting January 1, 2023 , and (5) in subparagraph (E)(i), by striking January 1, 2020 and replacing it with January 1, 2023 . (c) Application to used property (1) In general Section 168(k)(2)(A)(ii) is amended to read as follows: (ii) the original use of which begins with the taxpayer or the acquisition of which by the taxpayer meets the requirements of clause (ii) of subparagraph (E), and . (2) Acquisition requirements Section 168(k)(2)(E)(ii) is amended to read as follows: (ii) Acquisition requirements An acquisition of property meets the requirements of this clause if— (I) such property was not used by the taxpayer at any time prior to such acquisition, and (II) the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d). , (3) Anti-abuse rules Section 168(k)(2)(E) is further amended by amending clause (iii)(I) to read as follows: (I) property is used by a lessor of such property and such use is the lessor’s first use of such property, . (d) Exception for certain trades and businesses not subject to limitation on interest expense Section 168(k)(2), as amended by section 2001, is amended by inserting after subparagraph (F) the following new subparagraph: (G) Exception for certain property of real property businesses and regulated utilities The term qualified property shall not include any property used in a trade or business described in subparagraph (B) or (C) of section 163(j)(7). . (e) Coordination with section 280F Section 168(k)(2)(F) is amended— (1) by striking $8,000 in clauses (i) and (iii) and inserting $16,000 , and (2) in clause (iii)— (A) by striking placed in service by the taxpayer after December 31, 2017 and inserting acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017 , and (B) by redesignating subclauses (I) and (II) as subclauses (II) and (III) respectively, and inserting before clause (II), as so redesignated, the following new subclause: (I) in the case of a passenger automobile placed in service before January 1, 2018, $8,000 , . (f) Conforming amendments (1) Section (k)(2)(B)(i)(III), as amended, is amended by inserting binding before contract . (2) Section 168(k)(5) is amended by— (A) by striking January 1, 2020 in subparagraph (A) and inserting January 1, 2023 , (B) by striking 50 percent in subparagraph (A)(i) and inserting 100 percent , and (C) by striking subparagraph (F). (3) Section 168(k)(6) is amended to read as follows: (6) Phase Down In the case of qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017, paragraph (1)(A) shall be applied by substituting for 100 percent — (A) 50 percent in the case of— (i) property placed in service before January 1, 2018, and (ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2018, (B) 40 percent in the case of— (i) property placed in service in 2018 (other than property described in subparagraph (B) or (C) of paragraph (2)), and (ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2019, and (C) 30 percent in the case of— (i) property placed in service in 2019 (other than property described in subparagraph (B) or (C) of paragraph (2)), and (ii) property described in subparagraph (B) or (C) of paragraph (2) which is placed in service in 2020. . (4) The heading of section 168(k) is amended by striking Special allowance for certain property acquired after December 31, 2007, and before January 1, 2020 and inserting Full expensing of certain property . (5) Section 460(c)(6)(B)(ii) is amended by striking January 1, 2020 (January 1, 2021 in the case of property described in section 168(k)(2)(B)) and inserting January 1, 2023 (January 1, 2024 in the case of property described in section 168(k)(2)(B)) . (g) Effective date (1) In general Except at provided by paragraph (2), the amendments made by this section shall apply to property which— (A) is acquired after September 27, 2017, and (B) is placed in service after such date. For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition. (2) Specified plants The amendments made by subsection (f)(2) shall apply to specified plants planted or grafted after September 27, 2017. (3) Transition rule In the case of any taxpayer’s first taxable year ending after September 27, 2017, the taxpayer may elect (at such time and in such form and manner as the Secretary of the Treasury, or his designee, may provide) to apply section 168 of the Internal Revenue Code of 1986 without regard to the amendments made by this section. (4) Limitation on net operating loss carrybacks attributable to full expensing In the case of any taxable year which includes any portion of the period beginning on September 28, 2017, and ending on December 31, 2017, the amount of any net operating loss for such taxable year which may be treated as a net operating loss carryback (including any such carryback attributable to any specified liability loss under section 172(b)(1)(C), any corporate equity reduction interest loss under section 172(b)(1)(D), any eligible loss under section 172(b)(1)(E), and any farming loss under section 172(b)(1)(F)) shall be determined without regard to the amendments made by this section. For purposes of this paragraph, terms which are used in section 172 of the Internal Revenue Code of 1986 (determined without regard to the amendments made by section 3302) shall have the same meaning as when used in such section. C Small business reforms 3201. Expansion of section 179 expensing (a) Increased dollar limitations (1) In general Section 179(b) is amended— (A) by inserting ($5,000,000, in the case of taxable years beginning before January 1, 2023) after $500,000 in paragraph (1), and (B) by inserting ($20,000,000, in the case of taxable years beginning before January 1, 2023) after $2,000,000 in paragraph (2). (2) Inflation adjustment Section 179(b)(6) is amended to read as follows: (6) Inflation adjustment (A) In general In the case of a taxable year beginning after 2015 (2018 in the case of the $5,000,000 and $20,000,000 amounts in subsection (b)), each dollar amount in subsection (b) shall be increased by an amount equal to such dollar amount multiplied by— (i) in the case of the $500,000 and $2,000,000 amounts in subsection (b), the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, determined by substituting calendar year 2014 for calendar year 2016 in subparagraph (A)(ii) thereof, and (ii) in the case of the $5,000,000 and $20,000,000 amounts in subsection (b), the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof. (B) Rounding The amount of any increase under subparagraph (A) shall be rounded to the nearest multiple of $10,000 ($100,000 in the case of the $5,000,000 and $20,000,000 amounts in subsection (b)). . (b) Application to qualified energy efficient heating and air-Conditioning property (1) In general Section 179(f)(2) is amended by striking and at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting , and , and by adding at the end the following new subparagraph: (D) qualified energy efficient heating and air-conditioning property. . (2) Qualified energy efficient heating and air-conditioning property Section 179(f) is amended by adding at the end the following new paragraph: (3) Qualified energy efficient heating and air-conditioning property For purposes of this subsection— (A) In general The term qualified energy efficient heating and air-conditioning property means any section 1250 property— (i) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, (ii) which is installed as part of a building’s heating, cooling, ventilation, or hot water system, and (iii) which is within the scope of Standard 90.1–2007 or any successor standard. (B) Standard 90.1–2007 The term Standard 90.1–2007 means Standard 90.1–2007 of the American Society of Heating, Refrigerating and Air-Conditioning Engineers and the Illuminating Engineering Society of North America (as in effect on the day before the date of the adoption of Standard 90.1–2010 of such Societies). . (c) Effective date (1) Increased dollar limitations The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2017. (2) Application to qualified energy efficient heating and air-conditioning property The amendments made by subsection (b) shall apply to property acquired and placed in service after November 2, 2017. For purposes of the preceding sentence, property shall not be treated as acquired after the date on which a written binding contract is entered into for such acquisition. 3202. Small business accounting method reform and simplification (a) Modification of limitation on cash method of accounting (1) Increased limitation So much of section 448(c) as precedes paragraph (2) is amended to read as follows: (c) Gross receipts test For purposes of this section— (1) In general A corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed $25,000,000. . (2) Application of exception on annual basis Section 448(b)(3) is amended to read as follows: (3) Entities which meet gross receipts test Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity (or any predecessor) meets the gross receipts test of subsection (c) for such taxable year. . (3) Inflation adjustment Section 448(c) is amended by adding at the end the following new paragraph: (4) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(c)(2) for the calendar year in which the taxable year begins, by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof. If any amount as increased under the preceding sentence is not a multiple of $1,000,000, such amount shall be rounded to the nearest multiple of $1,000,000. . (4) Coordination with section 481 Section 448(d)(7) is amended to read as follows: (7) Coordination with section 481 Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (5) Application of exception to corporations engaged in farming (A) In general Section 447(c) is amended— (i) by inserting for any taxable year after not being a corporation in the matter preceding paragraph (1), and (ii) by amending paragraph (2) to read as follows: (2) a corporation which meets the gross receipts test of section 448(c) for such taxable year. . (B) Coordination with section 481 Section 447(f) is amended to read as follows: (f) Coordination with section 481 Any change in method of accounting made pursuant to this section shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (C) Conforming amendments Section 447 is amended— (i) by striking subsections (d), (e), (h), and (i), and (ii) by redesignating subsections (f) and (g) (as amended by subparagraph (B)) as subsections (d) and (e), respectively. (b) Exemption from UNICAP requirements (1) In general Section 263A is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection: (i) Exemption for certain small businesses (1) In general In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, this section shall not apply with respect to such taxpayer for such taxable year. (2) Application of gross receipts test to individuals, etc In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (3) Coordination with section 481 Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (2) Conforming amendment Section 263A(b)(2) is amended to read as follows: (2) Property acquired for resale Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale. . (c) Exemption from inventories Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Exemption for certain small businesses (1) In general In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year— (A) subsection (a) shall not apply with respect to such taxpayer for such taxable year, and (B) the taxpayer’s method of accounting for inventory for such taxable year shall not be treated as failing to clearly reflect income if such method either— (i) treats inventory as non-incidental materials and supplies, or (ii) conforms to such taxpayer’s method of accounting reflected in an applicable financial statement of the taxpayer with respect to such taxable year or, if the taxpayer does not have any applicable financial statement with respect to such taxable year, the books and records of the taxpayer prepared in accordance with the taxpayer’s accounting procedures. (2) Applicable financial statement For purposes of this subsection, the term applicable financial statement means— (A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles and which is— (i) a 10-K (or successor form), or annual statement to shareholders, required to be filed by the taxpayer with the United States Securities and Exchange Commission, (ii) an audited financial statement of the taxpayer which is used for— (I) credit purposes, (II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or (III) any other substantial nontax purpose, but only if there is no statement of the taxpayer described in clause (i), or (iii) filed by the taxpayer with any other Federal or State agency for nontax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), or (B) a financial statement of the taxpayer which— (i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or (ii) filed by the taxpayer with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary, but only if there is no statement of the taxpayer described in subparagraph (A). (3) Application of gross receipts test to individuals, etc In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (4) Coordination with section 481 Any change in method of accounting made pursuant to this subsection shall be treated for purposes of section 481 as initiated by the taxpayer and made with the consent of the Secretary. . (d) Exemption from percentage completion for long-Term contracts (1) In general Section 460(e)(1)(B) is amended— (A) by inserting (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) after taxpayer in the matter preceding clause (i), and (B) by amending clause (ii) to read as follows: (ii) who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into. . (2) Conforming amendments Section 460(e) is amended by striking paragraphs (2) and (3), by redesignating paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), respectively, and by inserting after paragraph (1) the following new paragraph: (2) Rules related to gross receipts test (A) Application of gross receipts test to individuals, etc For purposes of paragraph (1)(B)(ii), in the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if each trade or business of such taxpayer were a corporation or partnership. (B) Coordination with section 481 Any change in method of accounting made pursuant to paragraph (1)(B)(ii) shall be treated as initiated by the taxpayer and made with the consent of the Secretary. Such change shall be effected on a cut-off basis for all similarly classified contracts entered into on or after the year of change. . (e) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Preservation of suspense account rules with respect to any existing suspense accounts So much of the amendments made by subsection (a)(5)(C) as relate to section 447(i) of the Internal Revenue Code of 1986 shall not apply with respect to any suspense account established under such section before the date of the enactment of this Act. (3) Exemption from percentage completion for long-term contracts The amendments made by subsection (d) shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date. 3203. Small business exception from limitation on deduction of business interest (a) In general Section 163(j)(2), as amended by section 3301, is amended to read as follows: (2) Exemption for certain small businesses In the case of any taxpayer (other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3)) which meets the gross receipts test of section 448(c) for any taxable year, paragraph (1) shall not apply to such taxpayer for such taxable year. In the case of any taxpayer which is not a corporation or a partnership, the gross receipts test of section 448(c) shall be applied in the same manner as if such taxpayer were a corporation or partnership. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. D Reform of business-related exclusions, deductions, etc. 3301. Interest (a) In general Section 163(j) is amended to read as follows: (j) Limitation on business interest (1) In general In the case of any taxpayer for any taxable year, the amount allowed as a deduction under this chapter for business interest shall not exceed the sum of— (A) the business interest income of such taxpayer for such taxable year, plus (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year. The amount determined under subparagraph (B) (after any increases in such amount under paragraph (3)(A)(iii)) shall not be less than zero. (2) Exemption for certain small businesses For exemption for certain small businesses, see the amendment made by section 3204 of the Tax Cuts and Jobs Act . (3) Application to partnerships, etc (A) In general In the case of any partnership— (i) this subsection shall be applied at the partnership level and any deduction for business interest shall be taken into account in determining the non-separately stated taxable income or loss of the partnership, (ii) the adjusted taxable income of each partner of such partnership shall be determined without regard to such partner’s distributive share of the non-separately stated taxable income or loss of such partnership, and (iii) the amount determined under paragraph (1)(B) with respect to each partner of such partnership shall be increased by such partner’s distributive share of such partnership’s excess amount. (B) Excess amount The term excess amount means, with respect to any partnership, the excess (if any) of— (i) 30 percent of the adjusted taxable income of the partnership, over (ii) the amount (if any) by which the business interest of the partnership exceeds the business interest income of the partnership. (C) Application to S corporations Rules similar to the rules of subparagraphs (A) and (B) shall apply with respect to any S corporation and its shareholders. (4) Business interest For purposes of this subsection, the term business interest means any interest paid or accrued on indebtedness properly allocable to a trade or business. Such term shall not include investment interest (within the meaning of subsection (d)). (5) Business interest income For purposes of this subsection, the term business interest income means the amount of interest includible in the gross income of the taxpayer for the taxable year which is properly allocable to a trade or business. Such term shall not include investment income (within the meaning of subsection (d)). (6) Adjusted taxable income For purposes of this subsection, the term adjusted taxable income means the taxable income of the taxpayer— (A) computed without regard to— (i) any item of income, gain, deduction, or loss which is not properly allocable to a trade or business, (ii) any business interest or business interest income, (iii) the amount of any net operating loss deduction under section 172, and (iv) any deduction allowable for depreciation, amortization, or depletion, and (B) computed with such other adjustments as the Secretary may provide. (7) Trade or business For purposes of this subsection, the term trade or business shall not include— (A) the trade or business of performing services as an employee, (B) a real property trade or business (as such term is defined in section 469(c)(7)(C)), or (C) the trade or business of the furnishing or sale of— (i) electrical energy, water, or sewage disposal services, (ii) gas or steam through a local distribution system, or (iii) transportation of gas or steam by pipeline, or if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof. (8) Carryforward of disallowed interest For carryforward of interest disallowed under paragraph (1), see subsection (o). . (b) Carryforward of disallowed business interest Section 163 , after amendment by section 4302(a) and before amendment by section 4302(b), is amended by inserting after subsection (n) the following new subsection: (o) Carryforward of disallowed business interest The amount of any business interest not allowed as a deduction for any taxable year by reason of subsection (j) shall be treated as business interest paid or accrued in the succeeding taxable year. Business interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the 5th taxable year following such taxable year, determined by treating business interest as allowed as a deduction on a first-in, first-out basis. . (c) Treatment of carryforward of disallowed business interest in certain corporate acquisitions (1) In general Section 381(c) is amended by inserting after paragraph (19) the following new paragraph: (20) Carryforward of disallowed interest The carryover of disallowed interest described in section 163(o) to taxable years ending after the date of distribution or transfer. . (2) Application of limitation Section 382(d) is amended by adding at the end the following new paragraph: (3) Application to carryforward of disallowed interest The term pre-change loss shall include any carryover of disallowed interest described in section 163(o) under rules similar to the rules of paragraph (1). . (3) Conforming amendment Section 382(k)(1) is amended by inserting after the first sentence the following: Such term shall include any corporation entitled to use a carryforward of disallowed interest described in section 381(c)(20). (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3302. Modification of net operating loss deduction (a) Indefinite carryforward of net operating losses Section 172(b)(1)(A)(ii) is amended by striking to each of the 20 taxable years and inserting to each taxable year . (b) Repeal of net operating loss carrybacks other than 1-Year carryback of eligible disaster losses (1) In general Section 172(b)(1)(A)(i) is amended to read as follows: (i) in the case of any portion of a net operating loss for the taxable year which is an eligible disaster loss with respect to the taxpayer, shall be a net operating loss carryback to the taxable year preceding the taxable year of such loss, and . (2) Conforming amendments (A) Section 172(b)(1) is amended by striking subparagraphs (B) through (F) and inserting the following: (B) Eligible disaster loss (i) In general For purposes of subparagraph (A)(i), the term eligible disaster loss means— (I) in the case of a taxpayer which is a small business, net operating losses attributable to federally declared disasters (as defined by section 165(i)(5)), and (II) in the case of a taxpayer engaged in the trade or business of farming, net operating losses attributable to such federally declared disasters. (ii) Small business For purposes of this subparagraph, the term small business means a corporation or partnership which meets the gross receipts test of section 448(c) (determined by substituting $5,000,000 for $25,000,000 each place it appears therein) for the taxable year in which the loss arose (or, in the case of a sole proprietorship, which would meet such test if such proprietorship were a corporation). (iii) Trade or business of farming For purposes of this subparagraph, the trade or business of farming shall include the trade or business of— (I) operating a nursery or sod farm, or (II) the raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. For purposes of subclause (II), an evergreen tree which is more than 6 years old at the time severed from the roots shall not be treated as an ornamental tree. . (B) Section 172 is amended by striking subsections (f), (g), and (h). (c) Limitation of net operating loss to 90 percent of taxable income (1) In general Section 172(a) is amended to read as follows: (a) Deduction allowed There shall be allowed as a deduction for the taxable year an amount equal to the lesser of— (1) the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, or (2) 90 percent of taxable income computed without regard to the deduction allowable under this section. For purposes of this subtitle, the term net operating loss deduction means the deduction allowed by this subsection. . (2) Coordination of limitation with carrybacks and carryovers Section 172(b)(2) is amended by striking shall be computed— and all that follows and inserting shall— (A) be computed with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter, (B) not be considered to be less than zero, and (C) not exceed the amount determined under subsection (a)(2) for such prior taxable year. . (3) Conforming amendment Section 172(d)(6) is amended by striking and at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ; and , and by adding at the end the following new subparagraph: (C) subsection (a)(2) shall be applied by substituting real estate investment trust taxable income (as defined in section 857(b)(2) but without regard to the deduction for dividends paid (as defined in section 561)) for taxable income . . (d) Annual increase of indefinite carryover amounts Section 172(b) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Annual increase of indefinite carryover amounts For purposes of paragraph (2)— (A) the amount of any indefinite net operating loss which is carried to the next succeeding taxable year after the loss year (within the meaning of paragraph (2)) shall be increased by an amount equal to— (i) the amount of the loss which may be so carried over to such succeeding taxable year (determined without regard to this paragraph), multiplied by (ii) the sum of— (I) the annual Federal short-term rate (determined under section 1274(d)) for the last month ending before the beginning of such taxable year, plus (II) 4 percentage points, and (B) the amount of any indefinite net operating loss which is carried to any succeeding taxable year (after such next succeeding taxable year) shall be an amount equal to— (i) the excess of— (I) the amount of the loss carried to the prior taxable year (after any increase under this paragraph with respect to such amount), over (II) the amount by which such loss was reduced under paragraph (2) by reason of the taxable income for such prior taxable year, multiplied by (ii) a percentage equal to 100 percent plus the percentage determined under subparagraph (A)(ii) with respect to such succeeding taxable year. For purposes of the preceding sentence, the term indefinite net operating loss means any net operating loss arising in a taxable year beginning after December 31, 2017. . (e) Effective date (1) Carryforwards and carrybacks The amendments made by subsections (a) and (b) shall apply to net operating losses arising in taxable years beginning after December 31, 2017. (2) Net operating loss limited to 90 percent of taxable income The amendments made by subsection (c) shall apply to taxable years beginning after December 31, 2017. (3) Annual increase in carryover amounts The amendments made by subsection (d) shall apply to amounts carried to taxable years beginning after December 31, 2017. (4) Special rule for net disaster losses Notwithstanding paragraph (1), the amendments made by subsection (b) shall not apply to the portion of the net operating loss for any taxable year which is a net disaster loss to which section 504(b) of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 applies. 3303. Like-kind exchanges of real property (a) In general Section 1031(a)(1) is amended by striking property each place it appears and inserting real property . (b) Conforming amendments (1) Paragraph (2) of section 1031(a) is amended to read as follows: (2) Exception for real property held for sale This subsection shall not apply to any exchange of real property held primarily for sale. . (2) Section 1031 is amended by striking subsections (e) and (i). (3) Section 1031 , as amended by paragraph (2), is amended by inserting after subsection (d) the following new subsection: (e) Application to certain partnerships For purposes of this section, an interest in a partnership which has in effect a valid election under section 761(a) to be excluded from the application of all of subchapter K shall be treated as an interest in each of the assets of such partnership and not as an interest in a partnership. . (4) Section 1031(h) is amended to read as follows: (h) Special rules for foreign real property Real property located in the United States and real property located outside the United States are not property of a like kind. . (5) The heading of section 1031 is amended by striking property and inserting real property . (6) The table of sections for part III of subchapter O of chapter 1 is amended by striking the item relating to section 1031 and inserting the following new item: Sec. 1031. Exchange of real property held for productive use or investment. . (c) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to exchanges completed after December 31, 2017. (2) Transition rule The amendments made by this section shall not apply to any exchange if— (A) the property disposed of by the taxpayer in the exchange is disposed of on or before December 31 2017, or (B) the property received by the taxpayer in the exchange is received on or before December 31, 2017. 3304. Revision of treatment of contributions to capital (a) Inclusion of contributions to capital Part II of subchapter B of chapter 1 is amended by inserting after section 75 the following new section: 76. Contributions to capital (a) In general Gross income includes any contribution to the capital of any entity. (b) Treatment of contributions in exchange for stock, etc (1) In general In the case of any contribution of money or other property to a corporation in exchange for stock of such corporation— (A) such contribution shall not be treated for purposes of subsection (a) as a contribution to the capital of such corporation (and shall not be includible in the gross income of such corporation), and (B) no gain or loss shall be recognized to such corporation upon the issuance of such stock. (2) Treatment limited to value of stock For purposes of this subsection, a contribution of money or other property to a corporation shall be treated as being in exchange for stock of such corporation only to the extent that the fair market value of such money and other property does not exceed the fair market value of such stock. (3) Application to entities other than corporations In the case of any entity other than a corporation, rules similar to the rules of paragraphs (1) and (2) shall apply in the case of any contribution of money or other property to such entity in exchange for any interest in such entity. (c) Treasury stock treated as stock Any reference in this section to stock shall be treated as including a reference to treasury stock. . (b) Basis of corporation in contributed property (1) Contributions to capital Subsection (c) of section 362 is amended to read as follows: (c) Contributions to capital If property other than money is transferred to a corporation as a contribution to the capital of such corporation (within the meaning of section 76) then the basis of such property shall be the greater of— (1) the basis determined in the hands of the transferor, increased by the amount of gain recognized to the transferor on such transfer, or (2) the amount included in gross income by such corporation under section 76 with respect to such contribution. . (2) Contributions in exchange for stock Paragraph (2) of section 362(a) is amended by striking contribution to capital and inserting contribution in exchange for stock of such corporation (determined under rules similar to the rules of paragraphs (2) and (3) of section 76(b)) . (c) Conforming amendments (1) Section 108(e) is amended by striking paragraph (6). (2) Part III of subchapter B of chapter 1 is amended by striking section 118 (and by striking the item relating to such section in the table of sections for such part). (3) The table of sections for part II of subchapter B of chapter 1 is amended by inserting after the item relating to section 75 the following new item: Sec. 76. Contributions to capital. . (d) Effective date The amendments made by this section shall apply to contributions made, and transactions entered into, after the date of the enactment of this Act. 3305. Repeal of deduction for local lobbying expenses (a) In general Section 162(e) is amended by striking paragraphs (2) and (7) and by redesignating paragraphs (3), (4), (5), (6), and (8) as paragraphs (2), (3), (4), (5), and (6), respectively. (b) Conforming amendment Section 6033(e)(1)(B)(ii) is amended by striking section 162(e)(5)(B)(ii) and inserting section 162(e)(4)(B)(ii) . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 3306. Repeal of deduction for income attributable to domestic production activities (a) In general Part VI of subchapter B of chapter 1 is amended by striking section 199 (and by striking the item relating to such section in the table of sections for such part). (b) Conforming amendments (1) Sections 74(d)(2)(B), 86(b)(2)(A), 137(b)(3)(A), and 246(b)(1) are each amended by striking 199, . (2) Section 170(b)(2)(D), as amended by the preceding provisions of this Act, is amended by striking clause (iv), by redesignating clause (v) as clause (iv), and by inserting and at the end of clause (iii). (3) Section 172(d) is amended by striking paragraph (7). (4) Section 613(a) is amended by striking and without the deduction under section 199 . (5) Section 613A(d)(1) is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) as subparagraphs (B), (C), and (D), respectively. (6) Section 1402(a) is amended by adding and at the end of paragraph (15) and by striking paragraph (16). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3307. Entertainment, etc. expenses (a) Denial of deduction Subsection (a) of section 274 is amended to read as follows: (a) Entertainment, amusement, recreation, and other fringe benefits (1) In general No deduction otherwise allowable under this chapter shall be allowed for amounts paid or incurred for any of the following items: (A) Activity With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation. (B) Membership dues With respect to membership in any club organized for business, pleasure, recreation or other social purposes. (C) Amenity With respect to a de minimis fringe (as defined in section 132(e)(1)) that is primarily personal in nature and involving property or services that are not directly related to the taxpayer’s trade or business. (D) Facility With respect to a facility or portion thereof used in connection with an activity referred to in subparagraph (A), membership dues or similar amounts referred to in subparagraph (B), or an amenity referred to in subparagraph (C). (E) Qualified transportation fringe and parking facility Which is a qualified transportation fringe (as defined in section 132(f)) or which is a parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)). (F) On-premises athletic facility Which is an on-premises athletic facility as defined in section 132(j)(4)(B). (2) Special rules For purposes of applying paragraph (1), an activity described in section 212 shall be treated as a trade or business. (3) Regulations Under the regulations prescribed to carry out this section, the Secretary shall include regulations— (A) defining entertainment, amenities, recreation, amusement, and facilities for purposes of this subsection, (B) providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking or for on-premises athletic facilities, and (C) specifying arrangements a primary purpose of which is the avoidance of this subsection. . (b) Exception for certain expenses includible in income of recipient (1) Expenses treated as compensation Paragraph (2) of section 274(e) is amended to read as follows: (2) Expenses treated as compensation Expenses for goods, services, and facilities, to the extent that the expenses do not exceed the amount of the expenses which are treated by the taxpayer, with respect to the recipient of the entertainment, amusement, or recreation, as compensation to an employee on the taxpayer’s return of tax under this chapter and as wages to such employee for purposes of chapter 24 (relating to withholding of income tax at source on wages). . (2) Expenses includible in income of persons who are not employees Paragraph (9) of section 274(e) is amended by striking to the extent that the expenses and inserting to the extent that the expenses do not exceed the amount of the expenses that . (c) Exceptions for reimbursed expenses Paragraph (3) of section 274(e) is amended to read as follows: (3) Reimbursed expenses (A) In general Expenses paid or incurred by the taxpayer, in connection with the performance by him of services for another person (whether or not such other person is the taxpayer’s employer), under a reimbursement or other expense allowance arrangement with such other person, but this paragraph shall apply— (i) where the services are performed for an employer, only if the employer has not treated such expenses in the manner provided in paragraph (2), or (ii) where the services are performed for a person other than an employer, only if the taxpayer accounts (to the extent provided by subsection (d)) to such person. (B) Exception Except as provided by the Secretary, subparagraph (A) shall not apply— (i) in the case of an arrangement in which the person other than the employer is an entity described in section 168(h)(2)(A), or (ii) to any other arrangement designated by the Secretary as having the effect of avoiding the limitation under subparagraph (A). . (d) 50 percent limitation on meals and entertainment expenses Subsection (n) of section 274 is amended to read as follows: (n) Limitation on certain expenses (1) In general The amount allowable as a deduction under this chapter for any expense for food or beverages (pursuant to subsection (e)(1)) or business meals (pursuant to subsection (k)(1)) shall not exceed 50 percent of the amount of such expense or item which would (but for this paragraph) be allowable as a deduction under this chapter. (2) Exceptions Paragraph (1) shall not apply to any expense if— (A) such expense is described in paragraph (2), (3), (6), (7), or (8) of subsection (e), (B) in the case of an expense for food or beverages, such expense is excludable from the gross income of the recipient under section 132 by reason of subsection (e) thereof (relating to de minimis fringes) or under section 119 (relating to meals and lodging furnished for convenience of employer), or (C) in the case of an employer who pays or reimburses moving expenses of an employee, such expenses are includible in the income of the employee under section 82. (3) Special rule for individuals subject to Federal hours of service In the case of any expenses for food or beverages consumed while away from home (within the meaning of section 162(a)(2)) by an individual during, or incident to, the period of duty subject to the hours of service limitations of the Department of Transportation, paragraph (1) shall be applied by substituting 80 percent for 50 percent . . (e) Conforming amendments (1) Section 274(d) is amended— (A) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and (B) in the flush material following paragraph (3) (as so redesignated)— (i) by striking , entertainment, amusement, recreation, or in item (B), and (ii) by striking (D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift and inserting (D) the business relationship to the taxpayer of the person receiving the benefit . (2) Section 274(e) is amended by striking paragraph (4) and redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), (6), (7), and (8), respectively. (3) Section 274(k)(2)(A) is amended by striking (4), (7), (8), or (9) and inserting (6), (7), or (8) . (4) Section 274 is amended by striking subsection (l). (5) Section 274(m)(1)(B)(ii) is amended by striking (4), (7), (8), or (9) and inserting (6), (7), or (8) . (f) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 3308. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed (a) In general Section 512(a) is amended by adding at the end the following new paragraph: (6) Increase in unrelated business taxable income by disallowed fringe Unrelated business taxable income of an organization shall be increased by any amount for which a deduction is not allowable under this chapter by reason of section 274 and which is paid or incurred by such organization for any qualified transportation fringe (as defined in section 132(f)), any parking facility used in connection with qualified parking (as defined in section 132(f)(5)(C)), or any on-premises athletic facility (as defined in section 132(j)(4)(B)). The preceding sentence shall not apply to the extent the amount paid or incurred is directly connected with an unrelated trade or business which is regularly carried on by the organization. The Secretary may issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations or other guidance providing for the appropriate allocation of depreciation and other costs with respect to facilities used for parking or for on-premises athletic facilities. . (b) Effective date The amendment made by this section shall apply to amounts paid or incurred after December 31, 2017. 3309. Limitation on deduction for FDIC premiums (a) In general Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: (q) Disallowance of FDIC premiums paid by certain large financial institutions (1) In general No deduction shall be allowed for the applicable percentage of any FDIC premium paid or incurred by the taxpayer. (2) Exception for small institutions Paragraph (1) shall not apply to any taxpayer for any taxable year if the total consolidated assets of such taxpayer (determined as of the close of such taxable year) do not exceed $10,000,000,000. (3) Applicable percentage For purposes of this subsection, the term applicable percentage means, with respect to any taxpayer for any taxable year, the ratio (expressed as a percentage but not greater than 100 percent) which— (A) the excess of— (i) the total consolidated assets of such taxpayer (determined as of the close of such taxable year), over (ii) $10,000,000,000, bears to (B) $40,000,000,000. (4) FDIC premiums For purposes of this subsection, the term FDIC premium means any assessment imposed under section 7(b) of the Federal Deposit Insurance Act ( 12 U.S.C. 1817(b) ). (5) Total consolidated assets For purposes of this subsection, the term total consolidated assets has the meaning given such term under section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act ( 12 U.S.C. 5365 ). (6) Aggregation rule (A) In general Members of an expanded affiliated group shall be treated as a single taxpayer for purposes of applying this subsection. (B) Expanded affiliated group For purposes of this paragraph, the term expanded affiliated group means an affiliated group as defined in section 1504(a), determined— (i) by substituting more than 50 percent for at least 80 percent each place it appears, and (ii) without regard to paragraphs (2) and (3) of section 1504(b). A partnership or any other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3310. Repeal of rollover of publicly traded securities gain into specialized small business investment companies (a) In general Part III of subchapter O of chapter 1 is amended by striking section 1044 (and by striking the item relating to such section in the table of sections of such part). (b) Conforming amendments Section 1016(a)(23) is amended— (1) by striking 1044, , and (2) by striking 1044(d), . (c) Effective date The amendments made by this section shall apply to sales after December 31, 2017. 3311. Certain self-created property not treated as a capital asset (a) Patents, etc Section 1221(a)(3) is amended by inserting a patent, invention, model or design (whether or not patented), a secret formula or process, before a copyright . (b) Self-Created musical works Section 1221(b) is amended by striking paragraph (3) and redesignating paragraph (4) as paragraph (3). (c) Conforming amendments (1) Section 170(e)(1)(A) is amended by striking (determined without regard to section 1221(b)(3)) . (2) Section 1231(b)(1)(C) is amended by inserting a patent, invention, model or design (whether or not patented), a secret formula or process, before a copyright . (d) Effective date The amendments made by this section shall apply to dispositions after December 31, 2017. 3312. Repeal of special rule for sale or exchange of patents (a) In general Part IV of subchapter P of chapter 1 is amended by striking section 1235 (and by striking the item relating to such section in the table of sections of such part). (b) Conforming amendments (1) Section 483(d) is amended by striking paragraph (4). (2) Section 901(l)(5) is amended by striking without regard to section 1235 or any similar rule and inserting without regard to any provision which treats a disposition as a sale or exchange of a capital asset held for more than 1 year or any similar provision . (3) Section 1274(c)(3) is amended by striking subparagraph (E) and redesignating subparagraph (F) as subparagraph (E). (c) Effective date The amendments made by this section shall apply to dispositions after December 31, 2017. 3313. Repeal of technical termination of partnerships (a) In general Paragraph (1) of section 708(b) is amended— (1) by striking , or at the end of subparagraph (A) and all that follows and inserting a period, and (2) by striking only if— and all that follows through no part of any business and inserting the following: only if no part of any business . (b) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. E Reform of business credits 3401. Repeal of credit for clinical testing expenses for certain drugs for rare diseases or conditions (a) In general Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45C (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) Section 38(b) is amended by striking paragraph (12). (2) Section 280C is amended by striking subsection (b). (3) Section 6501(m) is amended by striking 45C(d)(4), . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2017. 3402. Repeal of employer-provided child care credit (a) In general Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45F (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) Section 38(b) is amended by striking paragraph (15). (2) Section 1016(a) is amended by striking paragraph (28). (c) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Basis adjustments The amendment made by subsection (b)(2) shall apply to credits determined for taxable years beginning after December 31, 2017. 3403. Repeal of rehabilitation credit (a) In general Subpart E of part IV of subchapter A of chapter 1 is amended by striking section 47 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) Section 170(f)(14)(A) is amended by inserting (as in effect before its repeal by the Tax Cuts and Jobs Act ) after section 47 . (2) Section 170(h)(4) is amended— (A) by striking (as defined in section 47(c)(3)(B)) in subparagraph (C)(ii), and (B) by adding at the end the following new subparagraph: (D) Registered historic district The term registered historic district means— (i) any district listed in the National Register, and (ii) any district— (I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and (II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register. . (3) Section 469(i)(3) is amended by striking subparagraph (B). (4) Section 469(i)(6)(B) is amended— (A) by striking in the case of— and all that follows and inserting in the case of any credit determined under section 42 for any taxable year. , and (B) by striking , rehabilitation credit, in the heading thereof. (5) Section 469(k)(1) is amended by striking , or any rehabilitation credit determined under section 47, . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. (2) Transition rule In the case of qualified rehabilitation expenditures (within the meaning of section 47 of the Internal Revenue Code of 1986 as in effect before its repeal) with respect to any building— (A) owned or leased (as permitted by section 47 of the Internal Revenue Code of 1986 as in effect before its repeal) by the taxpayer at all times after December 31, 2017, and (B) with respect to which the 24-month period selected by the taxpayer under section 47(c)(1)(C) of such Code begins not later than the end of the 180-day period beginning on the date of the enactment of this Act, the amendments made by this section shall apply to such expenditures paid or incurred after the end of the taxable year in which the 24-month period referred to in subparagraph (B) ends. 3404. Repeal of work opportunity tax credit (a) In general Subpart F of part IV of subchapter A of chapter 1 is amended by striking section 51 (and by striking the item relating to such section in the table of sections for such subpart). (b) Clerical amendment The heading of such subpart F (and the item relating to such subpart in the table of subparts for part IV of subchapter A of chapter 1) are each amended by striking Rules for Computing Work Opportunity Credit and inserting Special Rules . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred to individuals who begin work for the employer after December 31, 2017. 3405. Repeal of deduction for certain unused business credits (a) In general Part VI of subchapter B of chapter 1 is amended by striking section 196 (and by striking the item relating to such section in the table of sections for such part). (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3406. Termination of new markets tax credit (a) In general Section 45D(f) is amended— (1) by striking 2019 in paragraph (1)(G) and inserting 2017 , and (2) by striking 2024 in paragraph (3) and inserting 2022 . (b) Effective date The amendments made by this section shall apply to calendar years beginning after December 31, 2017. 3407. Repeal of credit for expenditures to provide access to disabled individuals (a) In general Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 44 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendment Section 38(b) is amended by striking paragraph (7). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3408. Modification of credit for portion of employer social security taxes paid with respect to employee tips (a) Credit determined with respect to minimum wage as in effect Section 45B(b)(1)(B) is amended by striking as in effect on January 1, 2007, and . (b) Information return requirement Section 45B is amended by redesignating subsections (c) and (d) as subsections (d) and (e), respectively, and by inserting after subsection (b) the following new subsection: (c) Information return requirement (1) In general No credit shall be determined under subsection (a) with respect to any food or beverage establishment of any taxpayer for any taxable year unless such taxpayer has, with respect to the calendar year which ends in or with such taxable year— (A) made a report to the Secretary showing the information described in section 6053(c)(1) with respect to such food or beverage establishment, and (B) furnished written statements to each employee of such food or beverage establishment showing the information described in section 6053(c)(2). (2) Allocation of 10 percent of gross receipts For purposes of determining the information referred to in subparagraphs (A) and (B), section 6053(c)(3)(A)(i) shall be applied by substituting 10 percent for 8 percent . For purposes of section 6053(c)(5), any reference to section 6053(c)(3)(B) contained therein shall be treated as including a reference to this paragraph. (3) Food or beverage establishment For purposes of this subsection, the term food or beverage establishment means any trade or business (or portion thereof) which would be a large food or beverage establishment (as defined in section 6053(c)(4)) if such section were applied without regard to subparagraph (C) thereof. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. F Energy credits 3501. Modifications to credit for electricity produced from certain renewable resources (a) Termination of inflation adjustment Section 45(b)(2) is amended— (1) by striking The 1.5 cent amount and inserting the following: (A) In general The 1.5 cent amount , and (2) by adding at the end the following new subparagraph: (B) Termination Subparagraph (A) shall not apply with respect to any electricity or refined coal produced at a facility the construction of which begins after the date of the enactment of this subparagraph. . (b) Special rule for determination of beginning of construction Section 45(e) is amended by adding at the end the following new paragraph: (12) Special rule for determining beginning of construction For purposes of subsection (d), the construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service. . (c) Effective dates (1) Termination of inflation adjustment The amendments made by subsection (a) shall apply to taxable years ending after the date of the enactment of this Act. (2) Special rule for determination of beginning of construction The amendment made by subsection (b) shall apply to taxable years beginning before, on, or after the date of the enactment of this Act. 3502. Modification of the energy investment tax credit (a) Extension of solar energy property Section 48(a)(3)(A)(ii) is amended by striking periods ending before January 1, 2017 and inserting property the construction of which begins before January 1, 2022 . (b) Extension of qualified fuel cell property Section 48(c)(1)(D) is amended by striking for any period after December 31, 2016 and inserting the construction of which does not begin before January 1, 2022 . (c) Extension of qualified microturbine property Section 48(c)(2)(D) is amended by striking for any period after December 31, 2016 and inserting the construction of which does not begin before January 1, 2022 . (d) Extension of combined heat and power system property Section 48(c)(3)(A)(iv) is amended by striking which is placed in service before January 1, 2017 and inserting the construction of which begins before January 1, 2022 . (e) Extension of qualified small wind energy property Section 48(c)(4)(C) is amended by striking for any period after December 31, 2016 and inserting the construction of which does not begin before January 1, 2022 . (f) Extension of thermal energy property Section 48(a)(3)(A)(vii) is amended by striking periods ending before January 1, 2017 and inserting property the construction of which begins before January 1, 2022 . (g) Phaseout of 30 percent credit rate for fuel cell and small wind energy property Section 48(a) is amended by adding at the end the following new paragraph: (7) Phaseout for qualified fuel cell property and qualified small wind energy property (A) In general In the case of qualified fuel cell property or qualified small wind energy property, the construction of which begins before January 1, 2022, the energy percentage determined under paragraph (2) shall be equal to— (i) in the case of any property the construction of which begins after December 31, 2019, and before January 1, 2021, 26 percent, and (ii) in the case of any property the construction of which begins after December 31, 2020, and before January 1, 2022, 22 percent. (B) Placed in service deadline In the case of any qualified fuel cell property or qualified small wind energy property, the construction of which begins before January 1, 2022, and which is not placed in service before January 1, 2024, the energy percentage determined under paragraph (2) shall be equal to 10 percent. . (h) Phaseout for fiber-Optic solar energy property Subparagraphs (A) and (B) of section 48(a)(6) are each amended by inserting or (3)(A)(ii) after paragraph (3)(A)(i) . (i) Termination of solar energy property Section 48(a)(3)(A)(i) is amended by inserting , the construction of which begins before January 1, 2028, and after equipment . (j) Termination of geothermal energy property Section 48(a)(3)(A)(iii) is amended by inserting , the construction of which begins before January 1, 2028, and after equipment . (k) Special rule for determination of beginning of construction Section 48(c) is amended by adding at the end the following new paragraph: (5) Special rule for determining beginning of construction The construction of any facility, modification, improvement, addition, or other property shall not be treated as beginning before any date unless there is a continuous program of construction which begins before such date and ends on the date that such property is placed in service. . (l) Effective date (1) In general Except as otherwise provided in this subsection, the amendments made by this section shall apply to periods after December 31, 2016, under rules similar to the rules of section 48(m) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990). (2) Extension of combined heat and power system property The amendment made by subsection (d) shall apply to property placed in service after December 31, 2016. (3) Phaseouts and terminations The amendments made by subsections (g), (h), (i), and (j) shall take effect on the date of the enactment of this Act. (4) Special rule for determination of beginning of construction The amendment made by subsection (k) shall apply to taxable years beginning before, on, or after the date of the enactment of this Act. 3503. Extension and phaseout of residential energy efficient property (a) Extension Section 25D(h) is amended by striking December 31, 2016 (December 31, 2021, in the case of any qualified solar electric property expenditures and qualified solar water heating property expenditures) and inserting December 31, 2021 . (b) Phaseout (1) In general Paragraphs (3), (4), and (5) of section 25D(a) are amended by striking 30 percent each place it appears and inserting the applicable percentage . (2) Conforming amendment Section 25D(g) of such Code is amended by striking paragraphs (1) and (2) of . (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2016. 3504. Repeal of enhanced oil recovery credit (a) In general Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 43 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) Section 38(b) is amended by striking paragraph (6). (2) Section 6501(m) is amended by striking 43, . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3505. Repeal of credit for producing oil and gas from marginal wells (a) In general Subpart D of part IV of subchapter A of chapter 1 is amended by striking section 45I (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendment Section 38(b) is amended by striking paragraph (19). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3506. Modifications of credit for production from advanced nuclear power facilities (a) Treatment of unutilized limitation amounts Section 45J(b) is amended— (1) in paragraph (4), by inserting or any amendment to after enactment of ; and (2) by adding at the end the following new paragraph: (5) Allocation of unutilized limitation (A) In general Any unutilized national megawatt capacity limitation shall be allocated by the Secretary under paragraph (3) as rapidly as is practicable after December 31, 2020— (i) first to facilities placed in service on or before such date to the extent that such facilities did not receive an allocation equal to their full nameplate capacity; and (ii) then to facilities placed in service after such date in the order in which such facilities are placed in service. (B) Unutilized national megawatt capacity limitation The term unutilized national megawatt capacity limitation means the excess (if any) of— (i) 6,000 megawatts, over (ii) the aggregate amount of national megawatt capacity limitation allocated by the Secretary before January 1, 2021, reduced by any amount of such limitation which was allocated to a facility which was not placed in service before such date. (C) Coordination with other provisions In the case of any unutilized national megawatt capacity limitation allocated by the Secretary pursuant to this paragraph— (i) such allocation shall be treated for purposes of this section in the same manner as an allocation of national megawatt capacity limitation; and (ii) subsection (d)(1)(B) shall not apply to any facility which receives such allocation. . (b) Transfer of credit by certain public entities (1) In general Section 45J is amended— (A) by redesignating subsection (e) as subsection (f); and (B) by inserting after subsection (d) the following new subsection: (e) Transfer of credit by certain public entities (1) In general If, with respect to a credit under subsection (a) for any taxable year— (A) the taxpayer would be a qualified public entity; and (B) such entity elects the application of this paragraph for such taxable year with respect to all (or any portion specified in such election) of such credit, the eligible project partner specified in such election (and not the qualified public entity) shall be treated as the taxpayer for purposes of this title with respect to such credit (or such portion thereof). (2) Definitions For purposes of this subsection— (A) Qualified public entity The term qualified public entity means— (i) a Federal, State, or local government entity, or any political subdivision, agency, or instrumentality thereof; (ii) a mutual or cooperative electric company described in section 501(c)(12) or section 1381(a)(2); or (iii) a not-for-profit electric utility which has or had received a loan or loan guarantee under the Rural Electrification Act of 1936. (B) Eligible project partner The term eligible project partner means— (i) any person responsible for, or participating in, the design or construction of the advanced nuclear power facility to which the credit under subsection (a) relates; (ii) any person who participates in the provision of the nuclear steam supply system to the advanced nuclear power facility to which the credit under subsection (a) relates; (iii) any person who participates in the provision of nuclear fuel to the advanced nuclear power facility to which the credit under subsection (a) relates; or (iv) any person who has an ownership interest in such facility. (3) Special rules (A) Application to partnerships In the case of a credit under subsection (a) which is determined at the partnership level— (i) for purposes of paragraph (1)(A), a qualified public entity shall be treated as the taxpayer with respect to such entity’s distributive share of such credit; and (ii) the term eligible project partner shall include any partner of the partnership. (B) Taxable year in which credit taken into account In the case of any credit (or portion thereof) with respect to which an election is made under paragraph (1), such credit shall be taken into account in the first taxable year of the eligible project partner ending with, or after, the qualified public entity’s taxable year with respect to which the credit was determined. (C) Treatment of transfer under private use rules For purposes of section 141(b)(1), any benefit derived by an eligible project partner in connection with an election under this subsection shall not be taken into account as a private business use. . (2) Special rule for proceeds of transfers for mutual or cooperative electric companies Section 501(c)(12) of such Code is amended by adding at the end the following new subparagraph: (I) In the case of a mutual or cooperative electric company described in this paragraph or an organization described in section 1381(a)(2), income received or accrued in connection with an election under section 45J(e)(1) shall be treated as an amount collected from members for the sole purpose of meeting losses and expenses. . (c) Effective dates (1) Treatment of unutilized limitation amounts The amendment made by subsection (a) shall take effect on the date of the enactment of this Act. (2) Transfer of credit by certain public entities The amendments made by subsection (b) shall apply to taxable years beginning after the date of the enactment of this Act. G Bond reforms 3601. 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) 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 sections for such subpart). (2) Section 25 is amended by adding at the end the following new subsection: (j) Coordination with repeal of private activity 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 Cuts and Jobs Act . . (3) Section 26(b)(2) is amended by striking subparagraph (D). (4) Section 141(b) is amended by striking paragraphs (5) and (9). (5) Section 141(d) is amended by striking paragraph (5). (6) Section 141 is amended by striking subsection (e). (7) Section 148(f)(4) is amended— (A) by striking (determined in accordance with section 147(b)(2)(A)) in the flush matter following subparagraph (A)(ii) and inserting (determined by taking into account the respective issue prices of the bonds issued as part of the issue) , and (B) by striking the last sentence of subparagraph (D)(v). (8) Clause (iv) of section 148(f)(4)(C) is amended to read as follows: (iv) Construction issue For purposes of this subparagraph— (I) In general The term construction issue means any issue if at least 75 percent of the available construction proceeds of such issue are to be used for construction expenditures. (II) Construction The term construction includes reconstruction and rehabilitation . (9) Section 149(b)(3) is amended by striking subparagraph (C). (10) 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), respectively, and (B) by striking the second sentence. (11) Section 149(f)(6) is amended— (A) by striking subparagraph (B), and (B) by striking For purposes of this subsection and all that follows through The term and inserting the following: For purposes of this subsection, the term . (12) 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) (as in effect before its repeal by the Tax Cuts and Jobs Act ). . (13) Section 269A(b)(3) is amended by striking 144(a)(3) and inserting 414(n)(6)(A) . (14) Section 414(m)(5) is amended by striking section 144(a)(3) and inserting subsection (n)(6)(A) . (15) 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 persons 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 appears therein). . (16) Section 6045(e)(4)(B) is amended by inserting (as in effect before its repeal by the Tax Cuts and Jobs Act ) after section 143(m)(3) . (17) Section 6654(f)(1) is amended by inserting (as in effect before its repeal by the Tax Cuts and Jobs Act ) after section 143(m) . (18) 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, 2017. 3602. 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 refund another bond. . (b) Conforming amendments (1) Section 149(d) is amended by striking paragraphs (2), (3), (4), and (6) and by redesignating paragraphs (5) and (7) as paragraphs (2) and (3). (2) Section 148(f)(4)(C) is amended by striking clause (xiv) and by redesignating clauses (xv) to (xvii) as clauses (xiv) to (xvi). (c) Effective date The amendments made by this section shall apply to advance refunding bonds issued after December 31, 2017. 3603. Repeal of tax credit bonds (a) In general Part IV of subchapter A of chapter 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 chapter 65 is amended by striking section 6431 (and by striking the item relating to such section in the table of sections for such subchapter). (c) Conforming amendments (1) Part IV of subchapter U of chapter 1 is amended by striking section 1397E (and by striking the item relating to such section in the table of sections for such part). (2) Section 54(l)(3)(B) is amended by inserting (as in effect before its repeal by the Tax Cuts and Jobs Act ) after section 1397E(I) . (3) Section 6211(b)(4)(A) is amended by striking , and 6431 and inserting and before 36B . (4) 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 December 31, 2017. 3604. No tax exempt bonds for professional stadiums (a) In general Section 103(b), as amended by this Act, is further amended by adding at the end the following new paragraph: (4) Professional stadium bond Any professional stadium bond. . (b) Professional stadium bond defined Subsection (c) of section 103 is amended by adding at the end the following new paragraph: (3) Professional stadium bond The term professional stadium bond means any bond issued as part of an issue any proceeds of which are used to finance or refinance capital expenditures allocable to a facility (or appurtenant real property) which, during at least 5 days during any calendar year, is used as a stadium or arena for professional sports exhibitions, games, or training. . (c) Effective date The amendments made by this section shall apply to bonds issued after November 2, 2017. H Insurance 3701. Net operating losses of life insurance companies (a) In general Section 805(b) is amended by striking paragraph (4) and by redesignating paragraph (5) as paragraph (4). (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 sections for such part). (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 sections for such part). (3) Section 381 is amended by striking subsection (d). (4) Section 805(a)(4)(B)(ii) is amended to read as follows: (ii) the deduction allowed under section 172, . (5) Section 805(a) is amended by striking paragraph (5). (6) Section 953(b)(1)(B) is amended to read as follows: (B) So much of section 805(a)(8) as relates to the deduction allowed under section 172. . (c) Effective date The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2017. 3702. 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 insurance businesses For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if— (i) it is of a type traditionally carried on by life insurance companies for investment 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 administrative 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), as amended by section 3701, is amended by striking clause (i) and by redesignating clauses (ii), (iii), and (iv) as clauses (i), (ii), and (iii), respectively. (6) Section 805(b)(2)(A) is amended by striking clause (iii) and by redesignating clauses (iv) and (v) as clauses (iii) and (iv), respectively. (7) Section 842(c) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (8) Section 953(b)(1), as amended by section 3701, is amended by striking subparagraph (A) and by redesignating subparagraphs (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, 2017. 3703. Computation of life insurance tax reserves (a) In general Section 807 is amended by striking subsections (c), (d), and (e) and inserting the following new subsections: (c) Items described The items described in this subsection are the reserves for future unaccrued claims defined in subsection (e) as determined by applying the method of computing the reserves in subsection (d). (d) Method of computing reserves for purposes of determining income For purposes of this part (other than section 816), the amount of the reserves for future unaccrued claims shall be 76.5 percent of the amount of such reserves as defined in subsection (e). (e) Definitions and special rules For purposes of this section— (1) Reserves for future unaccrued claims The term reserves for future unaccrued claims means— (A) life insurance reserves (as defined in section 816(b)) determined in accordance with the method prescribed by the National Association of Insurance Commissioners and reported by the taxpayer on its annual statement for the calendar year that is the taxable year, (B) unpaid losses included in total reserves under section 816(c)(2), and (C) the amount (not included in subparagraph (A) or (B)) of reserves solely for claims with respect to insurance risks which are determined in accordance with the method prescribed by the National Association of Insurance Commissioners and reported by the taxpayer on its annual statement for the calendar year that is the taxable year, but not including any amount of asset adequacy reserves, contingency reserves, unearned premium reserves, or any other amount not constituting reserves for future unaccrued claims as provided in guidance by the Secretary. For purposes of subparagraph (B) and section 805(a)(1), the amount of the unpaid losses (other than losses on life insurance contracts) shall be the amount of the discounted unpaid losses as defined in section 846. (2) Reporting rules The Secretary shall require reporting (at such time and in such manner as the Secretary shall prescribe) with respect to the opening balance and closing balance of reserves and with respect to the method of computing reserves for purposes of determining income. . (b) Conforming amendments (1) 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 permitted to be used in computing life insurance reserves 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 sentence, the effect of nonforfeiture laws of a State on interest rates for reserves shall not be taken into account. (2) When rate determined The prevailing 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. . (2) Paragraph (1) of section 811(d) is amended by striking the greater of the prevailing State assumed interest rate or applicable Federal interest rate in effect under section 807 and inserting the interest rate in effect under section 808(g) . (3) Subparagraph (A) of section 846(f)(6) is amended by striking except that and all that follows and inserting except that the limitation of subsection (a)(3) shall apply, and . (4) Subparagraph (B) of section 954(i)(5) is amended by striking shall apply, and . (c) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Transition rule For the first taxable year beginning after December 31, 2017, 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. (3) Transition relief (A) In general If— (i) the reserve determined under section 807(d)(2) of the Internal Revenue Code of 1986 (determined without regard to the amendments made by this section) with respect to any contract as of the close of the year preceding the first taxable year beginning after December 31, 2017, differs from (ii) the reserve which would have been determined with respect to such contract as of the close of such taxable year under such section determined without regard to paragraph (2), then the difference between the amount of the reserve described in clause (i) and the amount of the reserve described in clause (ii) shall be taken into account under the method provided in subparagraph (B). (B) Method The method provided in this subparagraph is as follows: (i) if the amount determined under subparagraph (A)(i) exceeds the amount determined under subparagraph (A)(ii), 1/8 of such excess shall be taken into account, for each of the 8 succeeding taxable years, as a deduction under section 805(a)(2) of such Code, or (ii) if the amount determined under subparagraph (A)(ii) exceeds the amount determined under subparagraph (A)(i), 1/8 of such excess shall be included in gross income, for each of the 8 succeeding taxable years, under section 803(a)(2) of such Code. 3704. Adjustment for change in computing reserves (a) In general Paragraph (1) of section 807(f) is amended to read as follows: (1) Treatment as change in method of accounting If the basis for determining any item referred to in subsection (c) as of the close of any taxable year differs from the basis for such determination as of the close of the preceding taxable year, then so much of the difference between— (A) the amount of the item at the close of the taxable year, computed on the new basis, and (B) the amount of the item at the close of the taxable year, computed on the old basis, as is attributable to contracts issued before the taxable year shall be taken into account under section 481 as adjustments attributable to a change in method of accounting initiated by the taxpayer and made with the consent of the Secretary. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3705. Modification of rules for life insurance proration for purposes of determining the dividends received deduction (a) In general Section 812 is amended to read as follows: 812. Definition of company’s share and policyholder’s share (a) Company’s share For purposes of section 805(a)(4), the term company’s share means, with respect to any taxable year beginning after December 31, 2017, 40 percent. (b) Policyholder’s share For purposes of section 807, the term policyholder’s share means, with respect to any taxable year beginning after December 31, 2017, 60 percent. . (b) Conforming amendment Section 817A(e)(2) is amended by striking , 807(d)(2)(B), and 812 and inserting and 807(d)(2)(B) . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3706. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account (a) In general Subpart D of part I of subchapter L is amended by striking section 815 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendment Section 801 is amended by striking subsection (c). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (d) Phased inclusion of remaining balance of policyholders surplus accounts In the case of any stock life insurance company which has a balance (determined as of the close of such company’s last taxable year beginning before January 1, 2018) in an existing policyholders surplus account (as defined in section 815 of the Internal Revenue Code of 1986, as in effect before its repeal), the tax imposed by section 801 of such Code for the first 8 taxable years beginning after December 31, 2017, shall be the amount which would be imposed by such section for such year on the sum of— (1) life insurance company taxable income for such year (within the meaning of such section 801 but not less than zero), plus (2) 1/8 of such balance. 3707. Modification of proration rules for property and casualty insurance companies (a) In general Section 832(b)(5)(B) is amended by striking 15 percent and inserting 26.25 percent . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 3708. Modification of discounting rules for property and casualty insurance companies (a) Modification of rate of interest used To discount unpaid losses Paragraph (2) of section 846(c) is amended to read as follows: (2) Determination of annual rate The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate determined on the basis of the corporate bond yield curve (as defined in section 430(h)(2)(D)(i)). . (b) Modification of computational rules for loss payment patterns Section 846(d)(3) is amended by striking subparagraphs (B) through (G) and inserting the following new subparagraphs: (B) Treatment of certain losses Losses which would have been treated as paid in the last year of the period applicable under subparagraph (A)(i) or (A)(ii) shall be treated as paid in the following manner: (i) 3-year loss payment pattern (I) In general The period taken into account under subparagraph (A)(i) shall be extended to the extent required under subclause (II). (II) Computation of extension The amount of losses which would have been treated as paid in the 3d year after the accident year shall be treated as paid in such 3d year and each subsequent year in an amount equal to the average of the losses treated as paid in the 1st and 2d years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 18th year after the accident year, they shall be treated as paid in such 18th year. (ii) 10-year loss payment pattern (I) In general The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II). (II) Computation of extension The amount of losses which would have been treated as paid in the 10th year after the accident year shall be treated as paid in such 10th year and each subsequent year in an amount equal to the amount of the average of the losses treated as paid in the 7th, 8th, and 9th years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 25th year after the accident year, they shall be treated as paid in such 25th year. . (c) Repeal of historical payment pattern election Section 846 is amended by striking subsection (e) and by redesignating subsections (f) and (g) as subsections (e) and (f), respectively. (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (e) Transitional rule For the first taxable year beginning after December 31, 2017— (1) the unpaid losses and the expenses unpaid (as defined in paragraphs (5)(B) and (6) of section 832(b) of the Internal Revenue Code of 1986) at the end of the preceding taxable year, and (2) the unpaid losses as defined in sections 807(c)(2) and 805(a)(1) of such Code at the end of the preceding taxable year, shall be determined as if the amendments made by this section had applied to such unpaid losses and expenses unpaid in the preceding taxable year and by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 2018, and any adjustment shall be taken into account ratably in such first taxable year and the 7 succeeding taxable years. For subsequent taxable years, such amendments shall be applied with respect to such unpaid losses and expenses unpaid by using the interest rate and loss payment patterns applicable to accident years ending with calendar year 2018. 3709. Repeal of special estimated tax payments (a) In general Part III of subchapter L of chapter 1 is amended by striking section 847 (and by striking the item relating to such section in the table of sections for such part). (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3710. Capitalization of certain policy acquisition expenses (a) In general Paragraph (1) of section 848(c) is amended by striking subparagraphs (A), (B), and (C) and inserting the following new subparagraphs: (A) 4 percent of the net premiums for such taxable year on specified insurance contracts which are group contracts, and (B) 11 percent of the net premiums for such taxable year on specified insurance contracts not described in subparagraph (A). . (b) Group contracts So much of paragraph (2) of section 848(e) as precedes subparagraph (A) thereof is amended to read as follows: (2) Group contract The term group contract means any specified insurance contract— . (c) Conforming amendments Section 848(e) is amended by striking paragraphs (3) and (6) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively. (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. I Compensation 3801. Nonqualified deferred compensation (a) In general Subpart A of part I of subchapter D of chapter 1 is amended by adding at the end the following new section: 409B. Nonqualified deferred compensation (a) In general Any compensation which is deferred under a nonqualified deferred compensation plan shall be includible in the gross income of the person who performed the services to which such compensation relates when there is no substantial risk of forfeiture of the rights of such person to such compensation. (b) Definitions For purposes of this section— (1) Substantial risk of forfeiture The rights of a person to compensation shall be treated as subject to a substantial risk of forfeiture only if such person’s rights to such compensation are conditioned upon the future performance of substantial services by any person. Such rights shall not be treated as subject to a substantial risk of forfeiture solely by reason of a covenant not to compete or the occurrence of a condition related to a purpose of the compensation other than the future performance of services. (2) Nonqualified deferred compensation plan For purposes of this section: (A) Nonqualified deferred compensation plan The term nonqualified deferred compensation plan means any plan that provides for the deferral of compensation, other than— (i) a qualified employer plan, (ii) any bona fide vacation leave, sick leave, compensatory time, disability pay, or death benefit plan, and (iii) any other plan or arrangement designated by the Secretary consistent with the purposes of this section. (B) Equity-based compensation The term nonqualified deferred compensation plan shall include any plan that provides— (i) a right to compensation based on the value of, or appreciation in value of, a specified number of equity units of the service recipient, whether paid in cash or equity, or (ii) stock appreciation rights or stock options. Such term shall not include that portion of any plan which consists of a transfer of property described in section 83 (other than stock options) or which consists of a trust to which section 402(b) applies. (3) Qualified employer plan The term qualified employer plan means any plan, contract, pension, account, or trust described in section 408(p)(2)(D)(ii) or a simple retirement account (within the meaning of section 408(p)). (4) Plan includes arrangements, etc The term plan includes any agreement or arrangement, including an agreement or arrangement that includes one person. (5) Exception Compensation shall not be treated as deferred for purposes of this section if the service provider receives payment of such compensation not later than 2 ½ months after the end of the taxable year of the service recipient during which the right to the payment of such compensation is no longer subject to a substantial risk of forfeiture. (6) Treatment of earnings References to deferred compensation shall be treated as including references to income (whether actual or notional) attributable to such compensation or such income. (7) Aggregation rules Except as provided by the Secretary, rules similar to the rules of subsections (b) and (c) of section 414 shall apply. (c) No inference on earlier income inclusion or requirement of later inclusion Nothing in this section shall be construed to prevent the inclusion of amounts in gross income under any other provision of this chapter or any other rule of law earlier than the time provided in this section. Any amount included in gross income under this section shall not be required to be included in gross income under any other provision of this chapter or any other rule of law later than the time provided in this section. (d) Application to existing deferrals In the case of any amount deferred to which this section does not otherwise apply solely by reason of the fact that the amount is attributable to services performed before January 1, 2018, to the extent such amount is not includible in gross income in a taxable year beginning before 2026, such amounts shall be includible in gross income in the later of— (1) the last taxable year beginning before 2026, or (2) the taxable year in which there is no substantial risk of forfeiture of the rights to such compensation. (e) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations disregarding a substantial risk of forfeiture in cases where necessary to carry out the purposes of this section. . (b) Reporting and withholding requirements (1) Wage withholding The flush sentence at the end of section 3401(a) is amended by inserting or 409B after 409A . (2) Withholding of tax on nonresident aliens Section 1441(c)(4) is amended by inserting (other than under a nonqualified deferred compensation plan (within the meaning of section 409B(b)) after compensation for personal services . (3) Information reporting Section 6041(g) is amended— (A) by inserting or 409B(b) after 409A(d) in paragraph (1), and (B) by inserting or 409B after 409A in paragraph (2). (4) Receipts for employees Section 6051(a)(13), as amended by the preceding provisions of this Act, is amended by inserting or 409B(b) after 409A(d) . (c) Termination of certain other nonqualified deferred compensation rules (1) Nonqualified deferred compensation (A) In general Subpart A of part I of subchapter D of chapter 1 is amended by striking section 409A (and by striking the item relating to such section in the table of sections for such subpart). (B) Conforming amendment Section 26(b)(2) is amended by striking subparagraph (V). (2) 457(b) plans of tax exempt organizations Section 457 is amended by adding at the end the following new subsection: (h) Termination of certain plans (1) Tax-exempt organization plans This section shall not apply to amounts deferred which are attributable to services performed after December 31, 2017, under a plan maintained by an employer described in subsection (e)(1)(B). (2) Ineligible deferred compensation plans Subsection (f) shall not apply to amounts deferred which are attributable to services performed after December 31, 2017. . (3) Nonqualified deferred compensation from certain tax indifferent parties (A) In general Subpart B of part II of subchapter E of chapter 1 is amended by striking section 457A (and by striking the item relating to such section in the table of sections for such subpart). (B) Conforming amendment Section 26(b)(2) is amended by striking subparagraph (X). (d) Clerical amendment The table of sections for part I of subchapter D of chapter 1 is amended by adding at the end the following new item: Sec. 409B. Nonqualified deferred compensation. . (e) Effective date (1) In general Except as otherwise provided in this subsection and section 409B(d) of the Internal Revenue Code of 1986 (as added by this Act), the amendments made by this section shall apply to amounts which are attributable to services performed after December 31, 2017. (2) Accelerated payments No later than 120 days after the date of the enactment of this Act, the Secretary shall issue guidance providing a limited period of time during which a nonqualified deferred compensation arrangement attributable to services performed on or before December 31, 2017, may, without violating the requirements of section 409A of the Internal Revenue Code of 1986, be amended to conform the date of distribution to the date the amounts are required to be included in income. (3) Certain back-to-back arrangements If the taxpayer is also a service recipient and maintains one or more nonqualified deferred compensation arrangements for its service providers under which any amount is attributable to services performed on or before December 31, 2017, the guidance issued under paragraph (3) shall permit such arrangements to be amended to conform the dates of distribution under such arrangement to the date amounts are required to be included in the income of such taxpayer under this subsection. (4) Accelerated payment not treated as material modification Any amendment to a nonqualified deferred compensation arrangement made pursuant to paragraph (3) or (4) shall not be treated as a material modification of the arrangement for purposes of section 409A of the Internal Revenue Code of 1986. 3802. Modification of limitation on excessive employee remuneration (a) Repeal of performance-Based compensation and commission exceptions for limitation on excessive employee remuneration (1) In general Section 162(m)(4) is amended by striking subparagraphs (B) and (C) and by redesignating subparagraphs (D), (E), (F), and (G) as subparagraphs (B), (C), (D), and (E), respectively. (2) Conforming amendments (A) Paragraphs (5)(E) and (6)(D) of section 162(m) are each amended by striking subparagraphs (B), (C), and (D) and inserting subparagraph (B) . (B) Paragraphs (5)(G) and (6)(G) of section 162(m) are each amended by striking (F) and (G) and inserting (D) and (E) . (b) Expansion of applicable employer Section 162(m)(2) is amended to read as follows: (2) Publicly held corporation For purposes of this subsection, the term publicly held corporation means any corporation which is an issuer (as defined in section 3 of the Securities Exchange Act of 1934 ( 15 U.S.C. 78c ))— (A) the securities of which are required to be registered under section 12 of such Act ( 15 U.S.C. 78l ), or (B) that is required to file reports under section 15(d) of such Act ( 15 U.S.C. 78o(d) ). . (c) Modification of definition of covered employees Section 162(m)(3) is amended— (1) in subparagraph (A), by striking as of the close of the taxable year, such employee is the chief executive officer of the taxpayer or is and inserting such employee is the principal executive officer or principal financial officer of the taxpayer at any time during the taxable year, or was , (2) in subparagraph (B)— (A) by striking 4 and inserting 3 , and (B) by striking (other than the chief executive officer) and inserting (other than the principal executive officer) , and (3) by striking or at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting , or , and by adding at the end the following: (C) was a covered employee of the taxpayer (or any predecessor) for any preceding taxable year beginning after December 31, 2016. Such term shall include any employee who would be described in subparagraph (B) if the reporting described in such subparagraph were required as so described. . (d) Special rule for remuneration paid to beneficiaries, etc Section 162(m)(4), as amended by subsection (a), is amended by adding at the end the following new subparagraph: (F) Special rule for remuneration paid to beneficiaries, etc Remuneration shall not fail to be applicable employee remuneration merely because it is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee. . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3803. Excise tax on excess tax-exempt organization executive compensation (a) In general Subchapter D of chapter 42 is amended by adding at the end the following new section: 4960. Tax on excess tax-exempt organization executive compensation (a) Tax imposed There is hereby imposed a tax equal to 20 percent of the sum of— (1) so much of the remuneration paid (other than any excess parachute payment) by an applicable tax-exempt organization for the taxable year with respect to employment of any covered employee in excess of $1,000,000, plus (2) any excess parachute payment paid by such an organization to any covered employee. (b) Liability for tax The employer shall be liable for the tax imposed under subsection (a). (c) Definitions and special rules For purposes of this section— (1) Applicable tax-exempt organization The term applicable tax-exempt organization means any organization that for the taxable year— (A) is exempt from taxation under section 501(a), (B) is a farmers’ cooperative organization described in section 521(b)(1), (C) has income excluded from taxation under section 115(1), or (D) is a political organization described in section 527(e)(1). (2) Covered employee For purposes of this section, the term covered employee means any employee (including any former employee) of an applicable tax-exempt organization if the employee— (A) is one of the 5 highest compensated employees of the organization for the taxable year, or (B) was a covered employee of the organization (or any predecessor) for any preceding taxable year beginning after December 31, 2016. (3) Remuneration For purposes of this section, the term remuneration means wages (as defined in section 3401(a)), except that such term shall not include any designated Roth contribution (as defined in section 402A(c)). (4) Remuneration from related organizations (A) In general Remuneration of a covered employee paid by an applicable tax-exempt organization shall include any remuneration paid with respect to employment of such employee by any related person or governmental entity. (B) Related organizations A person or governmental entity shall be treated as related to an applicable tax-exempt organization if such person or governmental entity— (i) controls, or is controlled by, the organization, (ii) is controlled by one or more persons that control the organization, (iii) is a supported organization (as defined in section 509(f)(2)) during the taxable year with respect to the organization, (iv) is a supporting organization described in section 509(a)(3) during the taxable year with respect to the organization, or (v) in the case of an organization that is a voluntary employees’ beneficiary association described in section 501(a)(9), establishes, maintains, or makes contributions to such voluntary employees’ beneficiary association. (C) Liability for tax In any case in which remuneration from more than one employer is taken into account under this paragraph in determining the tax imposed by subsection (a), each such employer shall be liable for such tax in an amount which bears the same ratio to the total tax determined under subsection (a) with respect to such remuneration as— (i) the amount of remuneration paid by such employer with respect to such employee, bears to (ii) the amount of remuneration paid by all such employers to such employee. (5) Excess parachute payment For purposes determining the tax imposed by subsection (a)(2)— (A) In general The term excess parachute payment means an amount equal to the excess of any parachute payment over the portion of the base amount allocated to such payment. (B) Parachute payment The term parachute payment means any payment in the nature of compensation to (or for the benefit of) a covered employee if— (i) such payment is contingent on such employee’s separation from employment with the employer, and (ii) the aggregate present value of the payments in the nature of compensation to (or for the benefit of) such individual which are contingent on such separation equals or exceeds an amount equal to 3 times the base amount. Such term does not include any payment described in section 280G(b)(6) (relating to exemption for payments under qualified plans) or any payment made under or to an annuity contract described in section 403(b) or a plan described in section 457(b). (C) Base amount Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount. (D) Property transfers; present value Rules similar to the rules of paragraphs (3) and (4) of section 280G(d) shall apply. (6) Coordination with deduction limitation Remuneration the deduction for which is not allowed by reason of section 162(m) shall not be taken into account for purposes of this section. (d) Regulations The Secretary shall prescribe such regulations as may be necessary to prevent avoidance of the purposes of this section through the performance of services other than as an employee. . (b) Clerical amendment The table of sections for subchapter D of chapter 42 is amended by adding at the end the following new item: Sec. 4960. Tax on excess exempt organization executive compensation. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. IV Taxation of foreign income and foreign persons A Establishment of participation exemption system for taxation of foreign income 4001. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations (a) In general Part VIII of subchapter B of chapter 1 is amended by inserting after section 245 the following new section: 245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations (a) In general In the case of any dividend received from a specified 10-percent owned foreign corporation by a domestic corporation which is a United States shareholder with respect to such foreign corporation, there shall be allowed as a deduction an amount equal to the foreign-source portion of such dividend. (b) Specified 10-Percent owned foreign corporation For purposes of this section, the term specified 10-percent owned foreign corporation means any foreign corporation with respect to which any domestic corporation is a United States shareholder. Such term shall not include any passive foreign investment company (within the meaning of subpart D of part VI of subchapter P) that is not a controlled foreign corporation. (c) Foreign-Source portion For purposes of this section— (1) In general The foreign-source portion of any dividend is an amount which bears the same ratio to such dividend as— (A) the post-1986 undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to (B) the total post-1986 undistributed earnings of such foreign corporation. (2) Post-1986 undistributed earnings The term post-1986 undistributed earnings means the amount of the earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986— (A) as of the close of the taxable year of the specified 10-percent owned foreign corporation in which the dividend is distributed, and (B) without diminution by reason of dividends distributed during such taxable year. (3) Post-1986 undistributed foreign earnings The term post-1986 undistributed foreign earnings means the portion of the post-1986 undistributed earnings which is attributable to neither— (A) income described in subparagraph (A) of section 245(a)(5), nor (B) dividends described in subparagraph (B) of such section (determined without regard to section 245(a)(12)). (4) Treatment of distributions from earnings before 1987 (A) In general In the case of any dividend paid out of earnings and profits of the specified 10-percent owned foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning before January 1, 1987— (i) paragraphs (1), (2), and (3) shall be applied without regard to the phrase post-1986 each place it appears, and (ii) paragraph (2) shall be applied by substituting after the date specified in section 316(a)(1) for in taxable years beginning after December 31, 1986 . (B) Dividends paid first out of post-1986 earnings Dividends shall be treated as paid out of post-1986 undistributed earnings to the extent thereof. (5) Treatment of certain dividends in excess of undistributed earnings In the case of any dividend from the specified 10-percent owned foreign corporation which is in excess of undistributed earnings (as determined under paragraph (2) after taking into account the modifications described in clauses (i) and (ii) of paragraph (4)(A)), the foreign-source portion of such dividend is an amount which bears the same ratio to such dividend as— (A) the portion of the earnings and profits described in subparagraph (B) which is attributable to neither income described in paragraph (3)(A) nor dividends described in paragraph (3)(B), bears to (B) the earnings and profits of such corporation for the taxable year in which such distribution is made (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year). (d) Disallowance of foreign tax credit, etc (1) In general No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any dividend for which a deduction is allowed under this section. (2) Denial of deduction No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). (e) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Application of holding period requirement Section 246(c) is amended— (1) by striking or 245 in paragraph (1) and inserting 245, or 245A , and (2) by adding at the end the following new paragraph: (5) Special rules for foreign source portion of dividends received from specified 10-percent owned foreign corporations (A) 6-month holding period requirement For purposes of section 245A— (i) paragraph (1)(A) shall be applied— (I) by substituting 180 days for 45 days each place it appears, and (II) by substituting 361-day period for 91-day period , and (ii) paragraph (2) shall not apply. (B) Status must be maintained during holding period For purposes of applying paragraph (1) with respect to section 245A, the taxpayer shall be treated as holding the stock referred to in paragraph (1) for any period only if— (i) the specified 10-percent owned foreign corporation referred to in section 245A(a) is a specified 10-percent owned foreign corporation for such period, and (ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation for such period. . (c) Application of rules generally applicable to deductions for dividends received (1) Treatment of dividends from certain corporations Section 246(a)(1) is amended by striking and 245 and inserting 245, and 245A . (2) Coordination with section 1059 Section 1059(b)(2)(B) is amended by striking or 245 and inserting 245, or 245A . (d) Coordination with foreign tax credit limitation Section 904(b) is amended by adding at the end the following new paragraph: (5) Treatment of dividends for which deduction is allowed under section 245A For purposes of subsection (a), in the case of a United States shareholder with respect to a specified 10-percent owned foreign corporation, such shareholder’s taxable income from sources without the United States (and entire taxable income) shall be determined without regard to— (A) the foreign-source portion of any dividend received from such foreign corporation, and (B) any deductions properly allocable or apportioned to— (i) income (other than subpart F income (as defined in section 952) and foreign high return amounts (as defined in section 951A(b)) with respect to stock of such specified 10-percent owned foreign corporation, or (ii) such stock (to the extent income with respect to such stock is other than subpart F income (as so defined) or foreign high return amounts (as so defined)). Any term which is used in section 245A and in this paragraph shall have the same meaning for purposes of this paragraph as when used in such section. . (e) Conforming amendments (1) Section 245(a)(4) is amended by striking section 902(c)(1) and inserting section 245A(c)(2) applied by substituting qualified 10-percent owned foreign corporation for specified 10-percent owned foreign corporation each place it appears . (2) Section 951(b) is amended by striking subpart and inserting title . (3) Section 957(a) is amended by striking subpart in the matter preceding paragraph (1) and inserting title . (4) The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after section 245 the following new item: Sec. 245A. Deduction for foreign-source portion of dividends received by domestic corporations from specified 10-percent owned foreign corporations. . (f) Effective date The amendments made by this section shall apply to distributions made after (and, in the case of the amendments made by subsection (d), deductions with respect to taxable years ending after) December 31, 2017. 4002. Application of participation exemption to investments in United States property (a) In general Section 956(a) is amended in the matter preceding paragraph (1) by inserting (other than a corporation) after United States shareholder . (b) Regulatory authority To prevent abuse Section 956(e) is amended by striking including regulations to prevent and inserting including regulations— (1) to address United States shareholders that are partnerships with corporate partners, and (2) to prevent . (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017. 4003. Limitation on losses with respect to specified 10-percent owned foreign corporations (a) Basis in specified 10-Percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss (1) In general Section 961 is amended by adding at the end the following new subsection: (d) Basis in specified 10-Percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable. . (2) Effective date The amendments made by this subsection shall apply to distributions made after December 31, 2017. (b) Treatment of foreign branch losses transferred to specified 10-Percent owned foreign corporations (1) In general Part II of subchapter B of chapter 1 is amended by adding at the end the following new section: 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations (a) In general If a domestic corporation transfers substantially all of the assets of a foreign branch (within the meaning of section 367(a)(3)(C)) to a specified 10-percent owned foreign corporation (as defined in section 245A) with respect to which it is a United States shareholder after such transfer, such domestic corporation shall include in gross income for the taxable year which includes such transfer an amount equal to the transferred loss amount with respect to such transfer. (b) Transferred loss amount For purposes of this section, the term transferred loss amount means, with respect to any transfer of substantially all of the assets of a foreign branch, the excess (if any) of— (1) the sum of losses— (A) which were incurred by the foreign branch after December 31, 2017, and before the transfer, and (B) with respect to which a deduction was allowed to the taxpayer, over (2) the sum of— (A) any taxable income of such branch for a taxable year after the taxable year in which the loss was incurred and through the close of the taxable year of the transfer, and (B) any amount which is recognized under section 904(f)(3) on account of the transfer. (c) Reduction for recognized gains (1) In general In the case of a transfer not described in section 367(a)(3)(C), the transferred loss amount shall be reduced (but not below zero) by the amount of gain recognized by the taxpayer on account of the transfer (other than amounts taken into account under subsection (c)(2)(B)). (2) Coordination with recognition under section 367 In the case of a transfer described in section 367(a)(3)(C), the transferred loss amount shall not exceed the excess (if any) of— (A) the excess of the amount described in section 367(a)(3)(C)(i) over the amount described in section 367(a)(3)(C)(ii) with respect to such transfer, over (B) the amount of gain recognized under section 367(a)(3)(C) with respect to such transfer. (d) Source of income Amounts included in gross income under this section shall be treated as derived from sources within the United States. (e) Basis adjustments Consistent with such regulations or other guidance as the Secretary may prescribe, proper adjustments shall be made in the adjusted basis of the taxpayer’s stock in the specified 10-percent owned foreign corporation to which the transfer is made, and in the transferee’s adjusted basis in the property transferred, to reflect amounts included in gross income under this section. . (2) Amounts recognized under section 367 on transfer of foreign branch with previously deducted losses treated as United States source Section 367(a)(3)(C) is amended by striking outside in the last sentence and inserting within . (3) Clerical amendment The table of sections for part II of subchapter B of chapter 1 is amended by adding at the end the following new item: Sec. 91. Certain foreign branch losses transferred to specified 10-percent owned foreign corporations. . (4) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. 4004. Treatment of deferred foreign income upon transition to participation exemption system of taxation (a) In general Section 965 is amended to read as follows: 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation (a) Treatment of deferred foreign income as subpart F income In the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the greater of— (1) the accumulated post-1986 deferred foreign income of such corporation determined as of November 2, 2017, or (2) the accumulated post-1986 deferred foreign income of such corporation determined as of December 31, 2017. (b) Reduction in amounts included in gross income of United States shareholders of specified foreign corporations with deficits in earnings and profits (1) In general In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)(1) by reason of subsection (a) as such United States shareholder’s pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced (but not below zero) by the amount of such United States shareholder’s aggregate foreign E&P deficit which is allocated under paragraph (2) to such deferred foreign income corporation. (2) Allocation of aggregate foreign E&P deficit The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as— (A) such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to (B) the aggregate of such United States shareholder’s pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder. (3) Definitions related to E&P deficits For purposes of this subsection— (A) Aggregate foreign E&P deficit The term aggregate foreign E&P deficit means, with respect to any United States shareholder, the aggregate of such shareholder’s pro rata shares of the specified E&P deficits of the E&P deficit foreign corporations of such shareholder. (B) E&P deficit foreign corporation The term E&P deficit foreign corporation means, with respect to any taxpayer, any specified foreign corporation with respect to which such taxpayer is a United States shareholder, if— (i) such specified foreign corporation has a deficit in post-1986 earnings and profits, and (ii) as of November 2, 2017— (I) such corporation was a specified foreign corporation, and (II) such taxpayer was a United States shareholder of such corporation. (C) Specified E&P deficit The term specified E&P deficit means, with respect to any E&P deficit foreign corporation, the amount of the deficit referred to in subparagraph (B). (4) Netting among United States shareholders in same affiliated group (A) In general In the case of any affiliated group which includes at least one E&P net surplus shareholder and one E&P net deficit shareholder, the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by each such E&P net surplus shareholder shall be reduced (but not below zero) by such shareholder’s applicable share of the affiliated group’s aggregate unused E&P deficit. (B) E&P net surplus shareholder For purposes of this paragraph, the term E&P net surplus shareholder means any United States shareholder which would (determined without regard to this paragraph) take into account an amount greater than zero under section 951(a)(1) by reason of subsection (a). (C) E&P net deficit shareholder For purposes of this paragraph, the term E&P net deficit shareholder means any United States shareholder if— (i) the aggregate foreign E&P deficit with respect to such shareholder (as defined in paragraph (3)(A)), exceeds (ii) the amount which would (but for this subsection) be taken into account by such shareholder under section 951(a)(1) by reason of subsection (a). (D) Aggregate unused E&P deficit For purposes of this paragraph— (i) In general The term aggregate unused E&P deficit means, with respect to any affiliated group, the lesser of— (I) the sum of the excesses described in subparagraph (C), determined with respect to each E&P net deficit shareholder in such group, or (II) the amount determined under subparagraph (E)(ii). (ii) Reduction with respect to E&P net deficit shareholders which are not wholly owned by the affiliated group If the group ownership percentage of any E&P net deficit shareholder is less than 100 percent, the amount of the excess described in subparagraph (C) which is taken into account under clause (i)(I) with respect to such E&P net deficit shareholder shall be such group ownership percentage of such amount. (E) Applicable share For purposes of this paragraph, the term applicable share means, with respect to any E&P net surplus shareholder in any affiliated group, the amount which bears the same proportion to such group’s aggregate unused E&P deficit as— (i) the product of— (I) such shareholder’s group ownership percentage, multiplied by (II) the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by such shareholder, bears to (ii) the aggregate amount determined under clause (i) with respect to all E&P net surplus shareholders in such group. (F) Group ownership percentage For purposes of this paragraph, the term group ownership percentage means, with respect to any United States shareholder in any affiliated group, the percentage of the value of the stock of such United States shareholder which is held by other includible corporations in such affiliated group. Notwithstanding the preceding sentence, the group ownership percentage of the common parent of the affiliated group is 100 percent. Any term used in this subparagraph which is also used in section 1504 shall have the same meaning as when used in such section. (c) Application of participation exemption to included income (1) In general In the case of a United States shareholder of a deferred foreign income corporation, there shall be allowed as a deduction for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section an amount equal to the sum of— (A) the United States shareholder’s 5 percent rate equivalent percentage of the excess (if any) of— (i) the amount so included as gross income, over (ii) the amount of such United States shareholder’s aggregate foreign cash position, plus (B) the United States shareholder’s 12 percent rate equivalent percentage of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i). (2) 5 and 12 percent rate equivalent percentages For purposes of this subsection— (A) 5 percent rate equivalent percentage The term 5 percent rate equivalent percentage means, with respect to any United States shareholder for any taxable year, the percentage which would result in the amount to which such percentage applies being subject to a 5 percent rate of tax determined by only taking into account a deduction equal to such percentage of such amount and the highest rate of tax specified in section 11 for such taxable year. In the case of any taxable year of a United States shareholder to which section 15 applies, the highest rate of tax under section 11 before the effective date of the change in rates and the highest rate of tax under section 11 after the effective date of such change shall each be taken into account under the preceding sentence in the same proportions as the portion of such taxable year which is before and after such effective date, respectively. (B) 12 percent rate equivalent percentage The term 12 percent rate equivalent percentage means, with respect to any United States shareholder for any taxable year, the percentage determined under subparagraph (A) applied by substituting 12 percent rate of tax for 5 percent rate of tax . (3) Aggregate foreign cash position For purposes of this subsection— (A) In general The term aggregate foreign cash position means, with respect to any United States shareholder, one-third of the sum of— (i) the aggregate of such United States shareholder’s pro rata share of the cash position of each specified foreign corporation of such United States shareholder determined as of November 2, 2017, (ii) the aggregate described in clause (i) determined as of the close of the last taxable year of each such specified foreign corporation which ends before November 2, 2017, and (iii) the aggregate described in clause (i) determined as of the close of the taxable year of each such specified foreign corporation which precedes the taxable year referred to in clause (ii). In the case of any foreign corporation which did not exist as of the determination date described in clause (ii) or (iii), this subparagraph shall be applied separately to such foreign corporation by not taking into account such clause and by substituting one-half (100 percent in the case that both clauses (ii) and (iii) are disregarded) for one-third . (B) Cash position For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of— (i) cash held by such foreign corporation, (ii) the net accounts receivable of such foreign corporation, plus (iii) the fair market value of the following assets held by such corporation: (I) Actively traded personal property for which there is an established financial market. (II) Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government. (III) Any foreign currency. (IV) Any obligation with a term of less than one year. (V) Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph. (C) Net accounts receivable For purposes of this paragraph, the term net accounts receivable means, with respect to any specified foreign corporation, the excess (if any) of— (i) such corporation’s accounts receivable, over (ii) such corporation’s accounts payable (determined consistent with the rules of section 461). (D) Prevention of double counting (i) In general The applicable percentage of each specified cash position of a specified foreign corporation shall not be taken into account by— (I) the United States shareholder referred to in clause (ii) with respect to such position, or (II) any United States shareholder which is an includible corporation in the same affiliated group as such United States shareholder referred to in clause (ii). (ii) Specified cash position For purposes of this subparagraph, the term specified cash position means— (I) amounts described in subparagraph (B)(ii) to the extent such amounts are receivable from another specified foreign corporation with respect to any United States shareholder, (II) amounts described in subparagraph (B)(iii)(I) to the extent such amounts consist of an equity interest in another specified foreign corporation with respect to any United States shareholder, and (III) amounts described in subparagraph (B)(iii)(IV) to the extent that another specified foreign corporation with respect to any United States shareholder is obligated to repay such amount. (iii) Applicable percentage For purposes of this subparagraph, the term applicable percentage means— (I) with respect to each specified cash position described in subclause (I) or (III) of clause (ii), the pro rata share of the United States shareholder referred to in clause (ii) with respect to the specified foreign corporation referred to in such clause, and (II) with respect to each specified cash position described in clause (ii)(II), the ratio (expressed as a percentage and not in excess of 100 percent) of the United States shareholder’s pro rata share of the cash position of the specified foreign corporation referred to in such clause divided by the amount of such specified cash position. For purposes of this subparagraph, a separate applicable percentage shall be determined under each of subclauses (I) and (II) with respect to each specified foreign corporation referred to in clause (ii) with respect to which a specified cash position is determined for the specified foreign corporation referred to in clause (i). (iv) Reduction with respect to affiliated group members not wholly owned by the affiliated group For purposes of clause (i)(II), in the case of an includible corporation the group ownership percentage of which is less than 100 percent (as determined under subsection (b)(4)(F)), the amount not take into account by reason of such clause shall be the group ownership percentage of such amount (determined without regard to this clause). (E) Certain blocked assets not taken into account A cash position of a specified foreign corporation shall not be taken into account under subparagraph (A) if such position could not (as of the date that it would otherwise have been taken into account under clause (i), (ii), or (iii) of subparagraph (A)) have been distributed by such specified foreign corporation to United States shareholders of such specified foreign corporation because of currency or other restrictions or limitations imposed under the laws of any foreign country (within the meaning of section 964(b)). (F) Cash positions of certain non-corporate entities taken into account An entity (other than a domestic corporation) shall be treated as a specified foreign corporation of a United States shareholder for purposes of determining such United States shareholder’s aggregate foreign cash position if any interest in such entity is held by a specified foreign corporation of such United States shareholder (determined after application of this subparagraph) and such entity would be a specified foreign corporation of such United States shareholder if such entity were a foreign corporation (G) Time of certain determinations For purposes of this paragraph, the determination of whether a person is a United States shareholder, whether a person is a specified foreign corporation, and the pro rata share of a United States shareholder with respect to a specified foreign corporation, shall be determined as of the end of the taxable year described in subsection (a). (H) Anti-abuse If the Secretary determines that the principal purpose of any transaction was to reduce the aggregate foreign cash position taken into account under this subsection, such transaction shall be disregarded for purposes of this subsection. (d) Deferred foreign income corporation; accumulated post-1986 deferred foreign income For purposes of this section— (1) Deferred foreign income corporation The term deferred foreign income corporation means, with respect to any United States shareholder, any specified foreign corporation of such United States shareholder which has accumulated post-1986 deferred foreign income (as of the date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation) greater than zero. (2) Accumulated post-1986 deferred foreign income The term accumulated post-1986 deferred foreign income means the post-1986 earnings and profits except to the extent such earnings— (A) are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or (B) if distributed, would be excluded from the gross income of a United States shareholder under section 959. To the extent provided in regulations or other guidance prescribed by the Secretary, in the case of any controlled foreign corporation which has shareholders which are not United States shareholders, accumulated post-1986 deferred foreign income shall be appropriately reduced by amounts which would be described in subparagraph (B) if such shareholders were United States shareholders. (3) Post-1986 earnings and profits The term post-1986 earnings and profits means the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986, and determined— (A) as of the date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation, (B) without diminution by reason of dividends distributed during the taxable year ending with or including such date, and (C) increased by the amount of any qualified deficit (within the meaning of section 952(c)(1)(B)(ii)) arising before January 1, 2018, which is treated as a qualified deficit (within the meaning of such section as amended by the Tax Cuts and Jobs Act ) for purposes of such foreign corporation’s first taxable year beginning after December 31, 2017. (e) Specified foreign corporation (1) In general For purposes of this section, the term specified foreign corporation means— (A) any controlled foreign corporation, and (B) any foreign corporation with respect to which one or more domestic corporations is a United States shareholder (determined without regard to section 958(b)(4)). (2) Application to certain foreign corporations For purposes of sections 951 and 961, a foreign corporation described in paragraph (1)(B) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)). (3) Exception for passive foreign investment companies The term specified foreign corporation shall not include any passive foreign investment company (within the meaning of subpart D of part VI of subchapter P) that is not a controlled foreign corporation. (f) Determinations of pro rata share For purposes of this section, the determination of any United States shareholder’s pro rata share of any amount with respect to any specified foreign corporation shall be determined under rules similar to the rules of section 951(a)(2) by treating such amount in the same manner as subpart F income (and by treating such specified foreign corporation as a controlled foreign corporation). (g) Disallowance of foreign tax credit, etc (1) In general No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section. (2) Applicable percentage For purposes of this subsection, the term applicable percentage means the amount (expressed as a percentage) equal to the sum of— (A) 85.7 percent of the ratio of— (i) the excess to which subsection (c)(1)(A) applies, divided by (ii) the sum of such excess plus the amount to which subsection (c)(1)(B) applies, plus (B) 65.7 percent of the ratio of— (i) the amount to which subsection (c)(1)(B) applies, divided by (ii) the sum described in subparagraph (A)(ii). (3) Denial of deduction No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). (4) Coordination with section 78 Section 78 shall not apply to any tax for which credit is not allowable under section 901 by reason of paragraph (1). (5) Extension of foreign tax credit carryover period With respect to any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section, section 904(c) shall be applied by substituting first 20 succeeding taxable years for first 10 succeeding taxable years . (h) Election To pay liability in installments (1) In general In the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder may elect to pay the net tax liability under this section in 8 equal installments. (2) Date for payment of installments If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection (a) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made. (3) Acceleration of payment If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer. (4) Proration of deficiency to installments If an election is made under paragraph (1) to pay the net tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax. (5) Election Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a) and shall be made in such manner as the Secretary may provide. (6) Net tax liability under this section For purposes of this subsection— (A) In general The net tax liability under this section with respect to any United States shareholder is the excess (if any) of— (i) such taxpayer’s net income tax for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section, over (ii) such taxpayer’s net income tax for such taxable year determined— (I) without regard to this section, and (II) without regard to any income, deduction, or credit, properly attributable to a dividend received by such United States shareholder from any deferred foreign income corporation. (B) Net income tax The term net income tax means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A. (i) Special rules for S corporation shareholders (1) In general In the case of any S corporation which is a United States shareholder of a deferred foreign income corporation, each shareholder of such S corporation may elect to defer payment of such shareholder’s net tax liability under this section with respect to such S corporation until the shareholder’s taxable year which includes the triggering event with respect to such liability. Any net tax liability payment of which is deferred under the preceding sentence shall be assessed on the return as an addition to tax in the shareholder’s taxable year which includes such triggering event. (2) Triggering event (A) In general In the case of any shareholder’s net tax liability under this section with respect to any S corporation, the triggering event with respect to such liability is whichever of the following occurs first: (i) Such corporation ceases to be an S corporation (determined as of the first day of the first taxable year that such corporation is not an S corporation). (ii) A liquidation or sale of substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance. (iii) A transfer of any share of stock in such S corporation by the taxpayer (including by reason of death, or otherwise). (B) Partial transfers of stock In the case of a transfer of less than all of the taxpayer’s shares of stock in the S corporation, such transfer shall only be a triggering event with respect to so much of the taxpayer’s net tax liability under this section with respect to such S corporation as is properly allocable to such stock. (C) Transfer of liability A transfer described in clause (iii) shall not be treated as a triggering event if the transferee enters into an agreement with the Secretary under which such transferee is liable for net tax liability with respect to such stock in the same manner as if such transferee were the taxpayer. (3) Net tax liability A shareholder’s net tax liability under this section with respect to any S corporation is the net tax liability under this section which would be determined under subsection (h)(6) if the only subpart F income taken into account by such shareholder by reason of this section were allocations from such S corporation. (4) Election to pay deferred liability in installments In the case of a taxpayer which elects to defer payment under paragraph (1)— (A) subsection (h) shall be applied separately with respect to the liability to which such election applies, (B) an election under subsection (h) with respect to such liability shall be treated as timely made if made not later than the due date for the return of tax for the taxable year in which the triggering event with respect to such liability occurs, (C) the first installment under subsection (h) with respect to such liability shall be paid not later than such due date (but determined without regard to any extension of time for filing the return), and (D) if the triggering event with respect to any net tax liability is described in paragraph (2)(A)(ii), an election under subsection (h) with respect to such liability may be made only with the consent of the Secretary. (5) Joint and several liability of S corporation If any shareholder of an S corporation elects to defer payment under paragraph (1), such S corporation shall be jointly and severally liable for such payment and any penalty, addition to tax, or additional amount attributable thereto. (6) Extension of limitation on collection Notwithstanding any other provision of law, any limitation on the time period for the collection of a liability deferred under this subsection shall not be treated as beginning before the date of the triggering event with respect to such liability. (7) Annual reporting of net tax liability (A) In general Any shareholder of an S corporation which makes an election under paragraph (1) shall report the amount of such shareholder’s deferred net tax liability on such shareholder’s return of tax for the taxable year for which such election is made and on the return of tax for each taxable year thereafter until such amount has been fully assessed on such returns. (B) Deferred net tax liability For purposes of this paragraph, the term deferred net tax liability means, with respect to any taxable year, the amount of net tax liability payment of which has been deferred under paragraph (1) and which has not been assessed on a return of tax for any prior taxable year. (C) Failure to report In the case of any failure to report any amount required to be reported under subparagraph (A) with respect to any taxable year before the due date for the return of tax for such taxable year, there shall be assessed on such return as an addition to tax 5 percent of such amount. (8) Election Any election under paragraph (1)— (A) shall be made by the shareholder of the S corporation not later than the due date for such shareholder’s return of tax for the taxable year which includes the close of the taxable year of such S corporation in which the amount described in subsection (a) is taken into account, and (B) shall be made in such manner as the Secretary may provide. (j) Reporting by S corporation Each S corporation which is a United States shareholder of a deferred foreign income corporation shall report in its return of tax under section 6037(a) the amount includible in its gross income for such taxable year by reason of this section and the amount of the deduction allowable by subsection (c). Any copy provided to a shareholder under section 6037(b) shall include a statement of such shareholder’s pro rata share of such amounts. (k) Inclusion of deferred foreign income under this section not To trigger recapture of overall foreign loss, etc For purposes of sections 904(f)(1) and 907(c)(4), in the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder’s taxable income from sources without the United States and combined foreign oil and gas income shall be determined without regard to this section. (l) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Clerical amendment The table of section for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 965 and inserting the following: Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation. . B Modifications related to foreign tax credit system 4101. Repeal of section 902 indirect foreign tax credits; determination of section 960 credit on current year basis (a) Repeal of section 902 indirect foreign tax credits Subpart A of part III of subchapter N of chapter 1 is amended by striking section 902. (b) Determination of section 960 credit on current year basis Section 960 is amended— (1) by striking subsection (c), by redesignating subsection (b) as subsection (c), by striking all that precedes subsection (c) (as so redesignated) and inserting the following: 960. Deemed paid credit for subpart F inclusions (a) In general For purposes of this subpart, if there is included in the gross income of a domestic corporation any item of income under section 951(a)(1) with respect to any controlled foreign corporation with respect to which such domestic corporation is a United States shareholder, such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as are properly attributable to such item of income. (b) Special rules for distributions from previously taxed earnings and profits For purposes of this subpart— (1) In general If any portion of a distribution from a controlled foreign corporation to a domestic corporation which is a United States shareholder with respect to such controlled foreign corporation is excluded from gross income under section 959(a), such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as— (A) are properly attributable to such portion, and (B) have not been deemed to have to been paid by such domestic corporation under this section for the taxable year or any prior taxable year. (2) Tiered controlled foreign corporations If section 959(b) applies to any portion of a distribution from a controlled foreign corporation to another controlled foreign corporation, such controlled foreign corporation shall be deemed to have paid so much of such other controlled foreign corporation’s foreign income taxes as— (A) are properly attributable to such portion, and (B) have not been deemed to have been paid by a domestic corporation under this section for the taxable year or any prior taxable year. , (2) and by adding after subsection (c) (as so redesignated) the following new subsections: (d) Foreign income taxes The term foreign income taxes means any income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States. (e) Regulations The Secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (c) Conforming amendments (1) Section 78 is amended to read as follows: 78. Gross up for deemed paid foreign tax credit If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under subsections (a) and (b) of section 960 for such taxable year shall be treated for purposes of this title (other than sections 959, 960, and 961) as an item of income required to be included in the gross income of such domestic corporation under section 951(a) for such taxable year. . (2) Section 245(a)(10)(C) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (3) Sections 535(b)(1) and 545(b)(1) are each amended by striking section 902(a) or 960(a)(1) and inserting section 960 . (4) Section 814(f)(1) is amended— (A) by striking subparagraph (B), and (B) by striking all that precedes No income and inserting the following: (1) Treatment of foreign taxes . (5) Section 865(h)(1)(B) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (6) Section 901(a) is amended by striking sections 902 and 960 and inserting section 960 . (7) Section 901(e)(2) is amended by striking but is not limited to— and all that follows through that portion and inserting but is not limited to, that portion . (8) Section 901(f) is amended by striking sections 902 and 960 and inserting section 960 . (9) Section 901(j)(1)(A) is amended by striking 902 or . (10) Section 901(j)(1)(B) is amended by striking sections 902 and 960 and inserting section 960 . (11) Section 901(k)(2) is amended by striking section 853, 902, or 960 and inserting section 853 or 960 . (12) Section 901(k)(6) is amended by striking 902 or . (13) Section 901(m)(1) is amended by striking relevant foreign assets— and all that follows and inserting relevant foreign assets shall not be taken into account in determining the credit allowed under subsection (a). . (14) Section 904(d)(1) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (15) Section 904(d)(6)(A) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (16) Section 904(h)(10)(A) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (17) Section 904 is amended by striking subsection (k). (18) Section 905(c)(1) is amended by striking the last sentence. (19) Section 905(c)(2)(B)(i) is amended to read as follows: (i) shall be taken into account for the taxable year to which such taxes relate, and . (20) Section 906(a) is amended by striking (or deemed, under section 902, paid or accrued during the taxable year) . (21) Section 906(b) is amended by striking paragraphs (4) and (5). (22) Section 907(b)(2)(B) is amended by striking 902 or . (23) Section 907(c)(3) is amended— (A) by striking subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and (B) by striking section 960(a) in subparagraph (A) (as so redesignated) and inserting section 960 . (24) Section 907(c)(5) is amended by striking 902 or . (25) Section 907(f)(2)(B)(i) is amended by striking 902 or . (26) Section 908(a) is amended by striking 902 or . (27) Section 909(b) is amended— (A) by striking section 902 corporation in the matter preceding paragraph (1) and inserting 10/50 corporation , (B) by striking 902 or in paragraph (1), (C) by striking by such section 902 corporation and all that follows in the matter following paragraph (2) and inserting by such 10/50 corporation or a domestic corporation which is a United States shareholder with respect to such 10/50 corporation. , and (D) by striking section 902 corporations in the heading thereof and inserting 10/50 corporations . (28) Section 909(d)(5) is amended to read as follows: (5) 10/50 corporation The term 10/50 corporation means any foreign corporation with respect to which one or more domestic corporations is a United States shareholder. . (29) Section 958(a)(1) is amended by striking 960(a)(1) and inserting 960 . (30) Section 959(d) is amended by striking Except as provided in section 960(a)(3), any and inserting Any . (31) Section 959(e) is amended by striking section 960(b) and inserting section 960(c) . (32) Section 1291(g)(2)(A) is amended by striking any distribution— and all that follows through but only if and inserting any distribution, any withholding tax imposed with respect to such distribution, but only if . (33) Section 6038(c)(1)(B) is amended by striking sections 902 (relating to foreign tax credit for corporate stockholder in foreign corporation) and 960 (relating to special rules for foreign tax credit) and inserting section 960 . (34) Section 6038(c)(4) is amended by striking subparagraph (C). (35) The table of sections for subpart A of part III of subchapter N of chapter 1 is amended by striking the item relating to section 902. (36) The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 960 and inserting the following: Sec. 960. Deemed paid credit for subpart F inclusions. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 4102. Source of income from sales of inventory determined solely on basis of production activities (a) In general Section 863(b) is amended by adding at the end the following: Gains, profits, and income from the sale or exchange of inventory property described in paragraph (2) shall be allocated and apportioned between sources within and without the United States solely on the basis of the production activities with respect to the property. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. C Modification of subpart F provisions 4201. Repeal of inclusion based on withdrawal of previously excluded subpart F income from qualified investment (a) In general Subpart F of part III of subchapter N of chapter 1 is amended by striking section 955. (b) Conforming amendments (1) (A) Section 951(a)(1)(A) is amended to read as follows: (A) his pro rata share (determined under paragraph (2)) of the corporation’s subpart F income for such year, and . (B) Section 851(b)(3) is amended by striking section 951(a)(1)(A)(i) in the flush language at the end and inserting section 951(a)(1)(A) . (C) Section 952(c)(1)(B)(i) is amended by striking section 951(a)(1)(A)(i) and inserting section 951(a)(1)(A) . (D) Section 953(c)(1)(C) is amended by striking section 951(a)(1)(A)(i) and inserting section 951(a)(1)(A) . (2) Section 951(a) is amended by striking paragraph (3). (3) Section 953(d)(4)(B)(iv)(II) is amended by striking or amounts referred to in clause (ii) or (iii) of section 951(a)(1)(A) . (4) Section 964(b) is amended by striking , 955, . (5) Section 970 is amended by striking subsection (b). (6) The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 955. (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4202. Repeal of treatment of foreign base company oil related income as subpart F income (a) In general Section 954(a) is amended by striking paragraph (5), by striking the comma at the end of paragraph (3) and inserting a period, and by inserting and at the end of paragraph (2). (b) Conforming amendments (1) Section 952(c)(1)(B)(iii) is amended by striking subclause (I) and by redesignating subclauses (II) through (V) as subclauses (I) through (IV), respectively. (2) Section 954(b)(4) is amended by striking the last sentence. (3) Section 954(b)(5) is amended by striking the foreign base company services income, and the foreign base company oil related income and inserting and the foreign base company services income . (4) Section 954(b) is amended by striking paragraph (6). (5) Section 954 is amended by striking subsection (g). (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4203. Inflation adjustment of de minimis exception for foreign base company income (a) In general Section 954(b)(3) is amended by adding at the end the following new subparagraph: (D) Inflation adjustment In the case of any taxable year beginning after 2017, the dollar amount in subparagraph (A)(ii) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(c)(2)(A) for the calendar year in which the taxable year begins. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50,000. . (b) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4204. Look-thru rule for related controlled foreign corporations made permanent (a) In general Paragraph (6) of section 954(c) is amended by striking subparagraph (C). (b) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2019, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4205. Modification of stock attribution rules for determining status as a controlled foreign corporation (a) In general Section 958(b) is amended— (1) by striking paragraph (4), and (2) by striking Paragraphs (1) and (4) in the last sentence and inserting Paragraph (1) . (b) Application of certain reporting requirements Section 6038(e)(2) is amended by striking except that— and all that follows through in applying subparagraph (C) and inserting except that in applying subparagraph (C) . (c) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4206. Elimination of requirement that corporation must be controlled for 30 days before subpart F inclusions apply (a) In general Section 951(a)(1) is amended by striking for an uninterrupted period of 30 days or more and inserting at any time . (b) Effective date The amendment made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end. D Prevention of base erosion 4301. Current year inclusion by United States shareholders with foreign high returns (a) In general Subpart F of part III of subchapter N of chapter 1 is amended by inserting after section 951 the following new section: 951A. Foreign high return amount included in gross income of United States shareholders (a) In general Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income for such taxable year 50 percent of such shareholder’s foreign high return amount for such taxable year. (b) Foreign high return amount For purposes of this section— (1) In general The term foreign high return amount means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of— (A) such shareholder’s net CFC tested income for such taxable year, over (B) the excess (if any) of— (i) the applicable percentage of the aggregate of such shareholder’s pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over (ii) the amount of interest expense taken into account under subsection (c)(2)(A)(ii) in determining the shareholder’s net CFC tested income for the taxable year. (2) Applicable percentage The term applicable percentage means, with respect to any taxable year, the Federal short-term rate (determined under section 1274(d) for the month in which or with which such taxable year ends) plus 7 percentage points. (c) Net CFC tested income For purposes of this section— (1) In general The term net CFC tested income means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of— (A) the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over (B) the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder). (2) Tested income; tested loss For purposes of this section— (A) Tested income The term tested income means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of— (i) the gross income of such corporation determined without regard to— (I) any item of income which is effectively connected with the conduct by such corporation of a trade or business within the United States if subject to tax under this chapter, (II) any gross income taken into account in determining the subpart F income of such corporation, (III) except as otherwise provided by the Secretary, any amount excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of section 954(c)(6) but only to the extent that any deduction allowable for the payment or accrual of such amount does not result in a reduction in the foreign high return amount of any United States shareholder (determined without regard to this subclause), (IV) any gross income excluded from the foreign personal holding company income (as defined in section 954) of such corporation by reason of subsection (h) or (i) of section 954, (V) any gross income excluded from the insurance income (as defined in section 953) of such corporation by reason of section 953(a)(2), (VI) any gross income excluded from foreign base company income (as defined in section 954) or insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4), (VII) any dividend received from a related person (as defined in section 954(d)(3)), and (VIII) any commodities gross income of such corporation, over (ii) the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5) (or which would be so properly allocable if such corporation had such gross income). (B) Tested loss The term tested loss means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of the amount described in subparagraph (A)(ii) over the amount described in subparagraph (A)(i). (d) Qualified business asset investment For purposes of this section— (1) In general The term qualified business asset investment means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the aggregate of the corporation’s adjusted bases (determined as of the close of such taxable year and after any adjustments with respect to such taxable year) in specified tangible property— (A) used in a trade or business of the corporation, and (B) of a type with respect to which a deduction is allowable under section 168. (2) Specified tangible property The term specified tangible property means any tangible property to the extent such property is used in the production of tested income or tested loss. (3) Partnership property For purposes of this subsection, if a controlled foreign corporation holds an interest in a partnership at the close of such taxable year of the controlled foreign corporation, such controlled foreign corporation shall take into account under paragraph (1) the controlled foreign corporation’s distributive share of the aggregate of the partnership’s adjusted bases (determined as of such date in the hands of the partnership) in tangible property held by such partnership to the extent such property— (A) is used in the trade or business of the partnership, and (B) is used in the production of tested income or tested loss (determined with respect to such controlled foreign corporation’s distributive share of income or loss with respect to such property). For purposes of this paragraph, the controlled foreign corporation’s distributive share of the adjusted basis of any property shall be the controlled foreign corporation’s distributive share of income and loss with respect to such property. (4) Determination of adjusted basis For purposes of this subsection, the adjusted basis in any property shall be determined without regard to any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section. (5) Regulations The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection, including regulations or other guidance which provide for the treatment of property if— (A) such property is transferred, or held, temporarily, or (B) the avoidance of the purposes of this paragraph is a factor in the transfer or holding of such property. (e) Commodities gross income For purposes of this section— (1) Commodities gross income The term commodities gross income means, with respect to any corporation, the gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation. (2) Commodity The term commodity means any commodity described in section 475(e)(2)(A) or section 475(e)(2)(D) (determined without regard to clause (i) thereof and by substituting a commodity described in subparagraph (A) for such a commodity in clause (ii) thereof). (f) Taxable years for which persons are treated as United States shareholders of controlled foreign corporations For purposes of this section— (1) In general A United States shareholder of a controlled foreign corporation shall be treated as a United States shareholder of such controlled foreign corporation for any taxable year of such United States shareholder if— (A) a taxable year of such controlled foreign corporation ends in or with such taxable year of such person, and (B) such person owns (within the meaning of section 958(a)) stock in such controlled foreign corporation on the last day, in such taxable year of such foreign corporation, on which the foreign corporation is a controlled foreign corporation. (2) Treatment as a controlled foreign corporation Except for purposes of paragraph (1)(B) and the application of section 951(a)(2) to this section pursuant to subsection (g), a foreign corporation shall be treated as a controlled foreign corporation for any taxable year of such foreign corporation if such foreign corporation is a controlled foreign corporation at any time during such taxable year. (g) Determination of pro rata share For purposes of this section, the pro rata shares referred to in subsections (b)(2), (c)(1)(A), (c)(1)(B), and (c)(2)(B)(ii), respectively, shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income. (h) Coordination with subpart F (1) Treatment as subpart F income for certain purposes Except as otherwise provided by the Secretary any foreign high return amount included in gross income under subsection (a) shall be treated in the same manner as an amount included under section 951(a)(1)(A) for purposes of applying sections 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962(c), 962(d), 993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 6655(e)(4). (2) Entire foreign high return amount taken into account for purposes of certain sections For purposes of applying paragraph (1) with respect to sections 168(h)(2)(B), 851(b), 959, 961, 962(c), 962(d), 1248(b)(1), and 1248(d)(1), the foreign high return amount included in gross income under subsection (a) shall be determined by substituting 100 percent for 50 percent in such subsection. (3) Allocation of foreign high return amount to controlled foreign corporations For purposes of the sections referred to in paragraph (1), with respect to any controlled foreign corporation any pro rata amount from which is taken into account in determining the foreign high return amount included in gross income of a United States shareholder under subsection (a), the portion of such foreign high return amount which is treated as being with respect to such controlled foreign corporation is— (A) in the case of a controlled foreign corporation with tested loss, zero, and (B) in the case of a controlled foreign corporation with tested income, the portion of such foreign high return amount which bears the same ratio to such foreign high return amount as— (i) such United States shareholder’s pro rata amount of the tested income of such controlled foreign corporation, bears to (ii) the aggregate amount determined under subsection (c)(1)(A) with respect to such United States shareholder. (4) Coordination with subpart F to deny double benefit of losses In the case of any United States shareholder of any controlled foreign corporation, the amount included in gross income under section 951(a)(1)(A) shall be determined by increasing the earnings and profits of such controlled foreign corporation (solely for purposes of determining such amount) by an amount that bears the same ratio (not greater than 1) to such shareholder’s pro rata share of the tested loss of such controlled foreign corporation as— (A) the aggregate amount determined under subsection (c)(1)(A) with respect to such shareholder, bears to (B) the aggregate amount determined under subsection (c)(1)(B) with respect to such shareholder. . (b) Foreign tax credit (1) Application of deemed paid foreign tax credit Section 960, as amended by the preceding provisions of this Act, is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection: (d) Deemed paid credit for taxes properly attributable to tested income (1) In general For purposes of this subpart, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 80 percent of— (A) such domestic corporation’s foreign high return percentage, multiplied by (B) the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations with respect to which such domestic corporation is a United States shareholder. (2) Foreign high return percentage For purposes of paragraph (1), the term foreign high return percentage means, with respect to any domestic corporation, the ratio (expressed as a percentage) of— (A) such corporation’s foreign high return amount (as defined in section 951A(b)), divided by (B) the aggregate amount determined under section 951A(c)(1)(A) with respect to such corporation. (3) Tested foreign income taxes For purposes of paragraph (1), the term tested foreign income taxes means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to gross income described in section 951A(c)(2)(A)(i). . (2) Application of foreign tax credit limitation (A) Separate basket for foreign high return amount Section 904(d)(1) is amended by redesignating subparagraphs (A) and (B) as subparagraphs (B) and (C), respectively, and by inserting before subparagraph (B) (as so redesignated) the following new subparagraph: (A) any amount includible in gross income under section 951A, . (B) No carryover of excess taxes Section 904(c) is amended by adding at the end the following: This subsection shall not apply to taxes paid or accrued with respect to amounts described in subsection (d)(1)(A). (3) Gross up for deemed paid foreign tax credit Section 78, as amended by the preceding provisions of this Act, is amended— (A) by striking any taxable year, an amount and inserting any taxable year— (1) an amount , and (B) by striking the period at the end and inserting , and (2) an amount equal to the taxes deemed to be paid by such corporation under section 960(d) for such taxable year (determined by substituting 100 percent for 80 percent in such section) shall be treated for purposes of this title (other than sections 959, 960, and 961) as an increase in the foreign high return amount of such domestic corporation under section 951A for such taxable year. . (c) Conforming amendments (1) Section 170(b)(2)(D) is amended by striking computed without regard to and all that follows and inserting computed— (i) without regard to— (I) this section, (II) part VIII (except section 248), (III) any net operating loss carryback to the taxable year under section 172, (IV) any capital loss carryback to the taxable year under section 1212(a)(1), and (ii) by substituting 100 percent for 50 percent in section 951A(a). . (2) Section 246(b)(1) is amended by— (A) striking and without regard to and inserting without regard to , and (B) by striking the period at the end and inserting , and by substituting 100 percent for 50 percent in section 951A(a). . (3) Section 469(i)(3)(F) is amended by striking determined without regard to and all that follows and inserting determined— (i) without regard to— (I) any amount includible in gross income under section 86, (II) the amounts allowable as a deduction under section 219, and (III) any passive activity loss or any loss allowable by reason of subsection (c)(7), and (ii) by substituting 100 percent for 50 percent in section 951A(a). . (4) Section 856(c)(2) is amended by striking and at the end of subparagraph (H), by adding and at the end of subparagraph (I), and by inserting after subparagraph (I) the following new subparagraph: (J) amounts includible in gross income under section 951A(a); . (5) Section 856(c)(3)(D) is amended by striking dividends or other distributions on, and gain and inserting dividends, other distributions on, amounts includible in gross income under section 951A(a) with respect to, and gain . (6) The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by inserting after the item relating to section 951 the following new item: Sec. 951A. Foreign high return amount included in gross income of United States shareholders. . (d) Effective date The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 4302. Limitation on deduction of interest by domestic corporations which are members of an international financial reporting group (a) In general Section 163 is amended by redesignating subsection (n) as subsection (p) and by inserting after subsection (m) the following new subsection: (n) Limitation on deduction of interest by domestic corporations in international financial reporting groups (1) In general In the case of any domestic corporation which is a member of any international financial reporting group, the deduction under this chapter for interest paid or accrued during the taxable year shall not exceed the sum of— (A) the allowable percentage of 110 percent of the excess (if any) of— (i) the amount of such interest so paid or accrued, over (ii) the amount described in subparagraph (B), plus (B) the amount of interest includible in gross income of such corporation for such taxable year. (2) International financial reporting group (A) For purposes of this subsection, the term international financial reporting group means, with respect to any reporting year, any group of entities which— (i) includes— (I) at least one foreign corporation engaged in a trade or business within the United States, or (II) at least one domestic corporation and one foreign corporation, (ii) prepares consolidated financial statements with respect to such year, and (iii) reports in such statements average annual gross receipts (determined in the aggregate with respect to all entities which are part of such group) for the 3-reporting-year period ending with such reporting year in excess of $100,000,000. (B) Rules relating to determination of average gross receipts For purposes of subparagraph (A)(iii), rules similar to the rules of section 448(c)(3) shall apply. (3) Allowable percentage For purposes of this subsection— (A) In general The term allowable percentage means, with respect to any domestic corporation for any taxable year, the ratio (expressed as a percentage and not greater than 100 percent) of— (i) such corporation’s allocable share of the international financial reporting group’s reported net interest expense for the reporting year of such group which ends in or with such taxable year of such corporation, over (ii) such corporation’s reported net interest expense for such reporting year of such group. (B) Reported net interest expense The term reported net interest expense means— (i) with respect to any international financial reporting group for any reporting year, the excess of— (I) the aggregate amount of interest expense reported in such group’s consolidated financial statements for such taxable year, over (II) the aggregate amount of interest income reported in such group’s consolidated financial statements for such taxable year, and (ii) with respect to any domestic corporation for any reporting year, the excess of— (I) the amount of interest expense of such corporation reported in the books and records of the international financial reporting group which are used in preparing such group’s consolidated financial statements for such taxable year, over (II) the amount of interest income of such corporation reported in such books and records. (C) Allocable share of reported net interest expense With respect to any domestic corporation which is a member of any international financial reporting group, such corporation’s allocable share of such group’s reported net interest expense for any reporting year is the portion of such expense which bears the same ratio to such expense as— (i) the EBITDA of such corporation for such reporting year, bears to (ii) the EBITDA of such group for such reporting year. (D) EBITDA (i) In general The term EBITDA means, with respect to any reporting year, earnings before interest, taxes, depreciation, and amortization— (I) as determined in the international financial reporting group’s consolidated financial statements for such year, or (II) for purposes of subparagraph (A)(i), as determined in the books and records of the international financial reporting group which are used in preparing such statements if not determined in such statements. (ii) Treatment of disregarded entities The EBITDA of any domestic corporation shall not fail to include the EBITDA of any entity which is disregarded for purposes of this chapter. (iii) Treatment of intra-group distributions The EBITDA of any domestic corporation shall be determined without regard to any distribution received by such corporation from any other member of the international financial reporting group. (E) Special rules for non-positive EBITDA (i) Non-positive group EBITDA In the case of any international financial reporting group the EBITDA of which is zero or less, paragraph (1) shall not apply to any member of such group the EBITDA of which is above zero. (ii) Non-positive entity EBITDA In the case of any group member the EBITDA of which is zero or less, paragraph (1) shall be applied without regard to subparagraph (A) thereof. (4) Consolidated financial statement For purposes of this subsection, the term consolidated financial statement means any consolidated financial statement described in paragraph (2)(A)(ii) if such statement is— (A) a financial statement which is certified as being prepared in accordance with generally accepted accounting principles, international financial reporting standards, or any other comparable method of accounting identified by the Secretary, and which is— (i) a 10-K (or successor form), or annual statement to shareholders, required to be filed with the United States Securities and Exchange Commission, (ii) an audited financial statement which is used for— (I) credit purposes, (II) reporting to shareholders, partners, or other proprietors, or to beneficiaries, or (III) any other substantial nontax purpose, but only if there is no statement described in clause (i), or (iii) filed with any other Federal or State agency for nontax purposes, but only if there is no statement described in clause (i) or (ii), or (B) a financial statement which— (i) is used for a purpose described in subclause (I), (II), or (III) of subparagraph (A)(ii), or (ii) filed with any regulatory or governmental body (whether domestic or foreign) specified by the Secretary, but only if there is no statement described in subparagraph (A). (5) Reporting year For purposes of this subsection, the term reporting year means, with respect to any international financial reporting group, the year with respect to which the consolidated financial statements are prepared. (6) Application to certain entities (A) Partnerships Except as otherwise provided by the Secretary in paragraph (8), this subsection shall apply to any partnership which is a member of any international financial reporting group under rules similar to the rules of section 163(j)(3). (B) Foreign corporations engaged in trade or business within the United States Except as otherwise provided by the Secretary in paragraph (8), any deduction for interest paid or accrued by a foreign corporation engaged in a trade or business within the United States shall be limited in a manner consistent with the principles of this subsection. (C) Consolidated groups For purposes of this subsection, the members of any group that file (or are required to file) a consolidated return with respect to the tax imposed by chapter 1 for a taxable year shall be treated as a single corporation. (7) Regulations The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection. . (b) Carryforward of disallowed interest (1) In general Section 163(o) is amended to read as follows: (o) Carryforward of certain disallowed interest The amount of any interest not allowed as a deduction for any taxable year by reason of subsection (j)(1) or (n)(1) (whichever imposes the lower limitation with respect to such taxable year) shall be treated as interest (and as business interest for purposes of subsection (j)(1)) paid or accrued in the succeeding taxable year. Interest paid or accrued in any taxable year (determined without regard to the preceding sentence) shall not be carried past the 5th taxable year following such taxable year, determined by treating interest as allowed as a deduction on a first-in, first-out basis. . (2) Treatment of carryforward of disallowed interest in certain corporate acquisitions For rules related to the carryforward of disallowed interest in certain corporate acquisitions, see the amendments made by section 3301(c). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 4303. Excise tax on certain payments from domestic corporations to related foreign corporations; election to treat such payments as effectively connected income (a) Excise tax on certain amounts from domestic corporations to foreign affiliates (1) In general Chapter 36 is amended by adding at the end the following new subchapter: E Tax on certain amounts to foreign affiliates Sec. 4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates. 4491. Imposition of tax on certain amounts from domestic corporations to foreign affiliates (a) In general There is hereby imposed on each specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation a tax equal to the highest rate of tax in effect under section 11 multiplied by such amount. (b) By whom paid The tax imposed by subsection (a) shall be paid by the domestic corporation described in such subsection. (c) Exception for effectively connected income Subsection (a) shall not apply to so much of any specified amount as is effectively connected with the conduct of a trade or business within the United States if such amount is subject to tax under chapter 1. In the case of any amount which is treated as effectively connected with the conduct of a trade or business within the United States by reason of section 882(g), the preceding sentence shall apply to such amount only if the domestic corporation provides to the Secretary (at such time and in such form and manner as the Secretary may provide) a copy of the election made under section 882(g) by the foreign corporation referred to in subsection (a). (d) Definitions and special rules Terms used in this section that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this section. . (2) Denial of deduction for tax imposed Section 275(a) is amended by inserting after paragraph (6) the following new paragraph: (7) Taxes imposed by section 4491. . (3) Clerical amendment The table of subchapters for chapter 36 is amended by adding at the end the following new item: Subchapter E. Tax on certain amounts to foreign affiliates. . (b) Election To treat certain payments from domestic corporations to related foreign corporations as effectively connected income Section 882 is amended by adding at the end the following new subsection: (g) Election To treat certain payments from domestic corporations to related foreign corporations as effectively connected income (1) In general In the case of any specified amount paid or incurred by a domestic corporation to a foreign corporation which is a member of the same international financial reporting group as such domestic corporation and which has elected to be subject to the provisions of this subsection— (A) such amount shall be taken into account (other than for purposes of sections 245, 245A, and 881) as if such foreign corporation were engaged in a trade or business within the United States and had a permanent establishment in the United States during the taxable year and as if such payment were effectively connected with the conduct of a trade or business within the United States and were attributable to such permanent establishment, (B) for purposes of subsection (c)(1)(A), no deduction shall be allowed with respect to such amount and such subsection shall be applied without regard to such amount, and (C) there shall be allowed as a deduction the deemed expenses with respect such amount. (2) Specified amount For purposes of this subsection— (A) In general The term specified amount means any amount which is, with respect to the payor, allowable as a deduction or includible in costs of goods sold, inventory, or the basis of a depreciable or amortizable asset. (B) Exceptions The term specified amount shall not include— (i) interest, (ii) any amount paid or incurred for the acquisition of any commodity described in section 475(e)(2)(A) or section 475(e)(2)(D) (determined without regard to subclause (i) thereof), (iii) except as provided in subparagraph (C), any amount with respect to which tax is imposed under section 881(a), and (iv) in the case of a payor which has elected to use a services cost method for purposes of section 482, any amount paid or incurred for services if such amount is the total services cost with no markup. (C) Amounts treated as effectively connected to extent of gross-basis tax Subparagraph (B)(iii) shall not apply to any specified amount to the extent of the same proportion of such amount as— (i) the rate of tax imposed under section 881(a) with respect to such amount, bears to (ii) 30 percent. (3) Deemed expenses (A) In general The deemed expenses with respect to any specified amount received by a foreign corporation during any reporting year is the amount of expenses such that the net income ratio of such foreign corporation with respect to such amount (taking into account only such deemed expenses) is equal to the net income ratio of the international financial reporting group determined for such reporting year with respect to the product line to which the specified amount relates. (B) Net income ratio For purposes of this paragraph, the term net income ratio means the ratio of— (i) net income determined without regard to interest income, interest expense, and income taxes, divided by (ii) revenues. (C) Method of determination Amounts described in subparagraph (B) shall be determined on the basis of the consolidated financial statements referred to in paragraph (5)(A)(i) and the book and records of the members of the internal financial reporting group which are used in preparing such statements. (4) International financial reporting group For purposes of this subsection— (A) In general The term international financial reporting group means any group of entities, with respect to any specified amount, if such amount is paid or incurred during a reporting year of such group with respect to which— (i) such group prepares consolidated financial statements (within the meaning of section 163(n)(4)) with respect to such year, and (ii) the average annual aggregate payment amount of such group for the 3-reporting-year period ending with such reporting year exceeds $100,000,000. (B) Annual aggregate payment amount The term annual aggregate payment amount means, with respect to any reporting year of the group referred to in subparagraph (A)(i), the aggregate specified amounts to which paragraph (1) applies (or would apply if such group were an international financial reporting group). (C) Application of certain rules Rules similar to the rules of subparagraphs (A), (B), and (D) of section 448(c)(3) shall apply for purposes of this paragraph. (5) Treatment of partnerships Any specified amount paid, incurred, or received by a partnership which is a member of any international financial reporting group (and any amount treated as paid, incurred, or received by a partnership under this paragraph) shall be treated for purposes of this subsection as amounts paid, incurred, or received, respectively, by each partner of such partnership in an amount equal to such partner’s distributive share of the items of income, gain, deduction, or loss to which such amounts relate. (6) Treatment of amounts in connection with United States trade or business Any specified amount paid, incurred, or received by a foreign corporation in connection with the conduct of a trade or business within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) shall be treated for purposes of this subsection as an amount paid, incurred, or received, respectively, by a domestic corporation. For purposes of the preceding sentence, a foreign corporation shall be deemed to pay, incur, and receive amounts with respect to a trade or business it conducts within the United States (other than a trade or business it is deemed to conduct pursuant to this subsection) to the extent such foreign corporation would be treated as paying, incurring, or receiving such amounts from such trade or business if such trade or business were a domestic corporation. (7) Joint and several liability of members of internal financial reporting group In the case of any underpayment with respect to any taxable year of a foreign corporation which is a member of an international financial accounting group, each domestic corporation which is a member of such group at any time during such taxable year shall be jointly and severally liable for— (A) so much of such underpayment as does not exceed the excess (if any) of such underpayment over the amount of such underpayment determined without regard to this subsection, and (B) any penalty, addition to tax, or additional amount attributable to the amount described in subparagraph (A). (8) Disallowance of foreign tax credit, etc (A) In general No credit shall be allowed under section 901 for any taxes paid or accrued (or treated as paid or accrued) with respect to any specified amount to which paragraph (1) applies. (B) Denial of deduction No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N). (9) Rules related to election Any election under paragraph (1) shall— (A) be made at such time and in such form and manner as the Secretary may provide, and (B) apply for the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary. (10) Regulations The Secretary may issue such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance— (A) to provide for the proper determination of product lines, and (B) to prevent the avoidance of the purposes of this subsection through the use of conduit transactions or by other means. . (c) Reporting requirements (1) Reporting by foreign corporation Section 6038C(b) is amended to read as follows: (b) Required information (1) In general The information described in this subsection is— (A) the information described in section 6038A(b), and (B) such other information as the Secretary may prescribe by regulations relating to any item not directly connected with a transaction for which information is required under subparagraph (A). (2) Certain payments from related domestic corporations (A) In general In the case of any reporting corporation that receives during the taxable year any amount to which section 882(g)(1) applies, the information described in this subsection shall include, with respect to each member of the international financial reporting group from which any such amount is received— (i) the name and taxpayer identification number of such member, (ii) the aggregate amounts received from such member, (iii) the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and (iv) a summary of any changes in financial accounting methods that affect the computation of any net income ratio described in clause (iii). (B) Definitions and special rules Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this paragraph. . (2) Reporting by domestic group members (A) In general Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6038D the following new section: 6038E. Information with respect to certain payments from domestic corporations to related foreign corporations (a) In general In the case of any domestic corporation which pays or accrues any amount to which section 882(g)(1) applies, such person shall— (1) make a return according to the forms and regulations prescribed the Secretary, setting forth the information described in subsection (b), and (2) maintain (at the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine liability for tax pursuant to paragraphs (1) and (7) of section 882(g). (b) Required information The information described in this subsection is— (1) the name and taxpayer identification number of the common parent of the international financial reporting group in which such domestic corporation is a member, and (2) with respect to any person who receives an amount described in subsection (a) from such domestic corporation— (A) the name and taxpayer identification number of such person, (B) the aggregate amounts received by such person, (C) the product lines to which such amounts relate, the aggregate amounts relating to each such product line, and the net income ratio for each such product line (determined under section 882(g)(3)(B) with respect to the international financial reporting group), and (D) a summary of any changes in financial accounting methods that affect the computation of any net income ratios described in subparagraph (C). (c) Definitions and special rules Terms used in this paragraph that are also used in section 882(g) shall have the same meaning as when used in such section and rules similar to the rules of paragraphs (5) and (6) of such section shall apply for purposes of this paragraph. . (B) Clerical amendment The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6038D the following new item: Sec. 6038E. Information with respect to certain payments from domestic corporations to related foreign corporations. . (d) Effective date The amendments made by this section shall apply to amounts paid or accrued after December 31, 2018. E Provisions related to possessions of the United States 4401. Extension of deduction allowable with respect to income attributable to domestic production activities in Puerto Rico (a) In general Section 199(d)(8)(C), prior to its repeal by this Act, is amended— (1) by striking first 11 taxable years and inserting first 12 taxable years , and (2) by striking January 1, 2017 and inserting January 1, 2018 . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016. 4402. Extension of temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands (a) In general Section 7652(f)(1) is amended by striking January 1, 2017 and inserting January 1, 2023 . (b) Effective date The amendment made by this section shall apply to distilled spirits brought into the United States after December 31, 2016. 4403. Extension of American Samoa economic development credit (a) In general Section 119(d) of division A of the Tax Relief and Health Care Act of 2006 is amended— (1) by striking January 1, 2017 each place it appears and inserting January 1, 2023 , (2) by striking first 11 taxable years in paragraph (1) and inserting first 17 taxable years , and (3) by striking first 5 taxable years in paragraph (2) and inserting first 11 taxable years . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2016. F Other international reforms 4501. Restriction on insurance business exception to passive foreign investment company rules (a) In general Section 1297(b)(2)(B) is amended to read as follows: (B) derived in the active conduct of an insurance business by a qualifying insurance corporation (as defined in subsection (f)), . (b) Qualifying insurance corporation defined Section 1297 is amended by adding at the end the following new subsection: (f) Qualifying insurance corporation For purposes of subsection (b)(2)(B)— (1) In general The term qualifying insurance corporation means, with respect to any taxable year, a foreign corporation— (A) which would be subject to tax under subchapter L if such corporation were a domestic corporation, and (B) the applicable insurance liabilities of which constitute more than 25 percent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s applicable financial statement for the last year ending with or within the taxable year. (2) Alternative facts and circumstances test for certain corporations If a corporation fails to qualify as a qualified insurance corporation under paragraph (1) solely because the percentage determined under paragraph (1)(B) is 25 percent or less, a United States person that owns stock in such corporation may elect to treat such stock as stock of a qualifying insurance corporation if— (A) the percentage so determined for the corporation is at least 10 percent, and (B) under regulations provided by the Secretary, based on the applicable facts and circumstances— (i) the corporation is predominantly engaged in an insurance business, and (ii) such failure is due solely to runoff-related or rating-related circumstances involving such insurance business. (3) Applicable insurance liabilities For purposes of this subsection— (A) In general The term applicable insurance liabilities means, with respect to any life or property and casualty insurance business— (i) loss and loss adjustment expenses, and (ii) reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks. (B) Limitations on amount of liabilities Any amount determined under clause (i) or (ii) of subparagraph (A) shall not exceed the lesser of such amount— (i) as reported to the applicable insurance regulatory body in the applicable financial statement described in paragraph (4)(A) (or, if less, the amount required by applicable law or regulation), or (ii) as determined under regulations prescribed by the Secretary. (4) Other definitions and rules For purposes of this subsection— (A) Applicable financial statement The term applicable financial statement means a statement for financial reporting purposes which— (i) is made on the basis of generally accepted accounting principles, (ii) is made on the basis of international financial reporting standards, but only if there is no statement that meets the requirement of clause (i), or (iii) except as otherwise provided by the Secretary in regulations, is the annual statement which is required to be filed with the applicable insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii). (B) Applicable insurance regulatory body The term applicable insurance regulatory body means, with respect to any insurance business, the entity established by law to license, authorize, or regulate such business and to which the statement described in subparagraph (A) is provided. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 4502. Limitation on treaty benefits for certain deductible payments (a) In general Section 894 is amended by adding at the end the following new subsection: (d) Limitation on treaty benefits for certain deductible payments (1) In general In the case of any deductible related-party payment, any withholding tax imposed under chapter 3 (and any tax imposed under subpart A or B of this part) with respect to such payment may not be reduced under any treaty of the United States unless any such withholding tax would be reduced under a treaty of the United States if such payment were made directly to the foreign parent corporation. (2) Deductible related-party payment For purposes of this subsection, the term deductible related-party payment means any payment made, directly or indirectly, by any person to any other person if the payment is allowable as a deduction under this chapter and both persons are members of the same foreign controlled group of entities. (3) Foreign controlled group of entities For purposes of this subsection— (A) In general The term foreign controlled group of entities means a controlled group of entities the common parent of which is a foreign corporation. (B) Controlled group of entities The term controlled group of entities means a controlled group of corporations as defined in section 1563(a)(1), except that— (i) more than 50 percent shall be substituted for at least 80 percent each place it appears therein, and (ii) the determination shall be made without regard to subsections (a)(4) and (b)(2) of section 1563. A partnership or any other entity (other than a corporation) shall be treated as a member of a controlled group of entities if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this sentence). (4) Foreign parent corporation For purposes of this subsection, the term foreign parent corporation means, with respect to any deductible related-party payment, the common parent of the foreign controlled group of entities referred to in paragraph (3)(A). (5) Regulations The Secretary may prescribe such regulations or other guidance as are necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which provide for— (A) the treatment of two or more persons as members of a foreign controlled group of entities if such persons would be the common parent of such group if treated as one corporation, and (B) the treatment of any member of a foreign controlled group of entities as the common parent of such group if such treatment is appropriate taking into account the economic relationships among such entities. . (b) Effective date The amendment made by this section shall apply to payments made after the date of the enactment of this Act. V Exempt organizations A Unrelated Business Income Tax 5001. Clarification of unrelated business income tax treatment of entities treated as exempt from taxation under section 501(a) (a) In general Section 511 is amended by adding at the end the following new subsection: (d) Organizations and trusts exempt from taxation not solely by reason of section 501(a) For purposes of subsections (a)(2) and (b)(2), an organization or trust shall not fail to be treated as exempt from taxation under this subtitle by reason of section 501(a) solely because such organization is also so exempt, or excludes amounts from gross income, by reason of any other provision of this title. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5002. Exclusion of research income limited to publicly available research (a) In general Section 512(b)(9) is amended by striking from research and inserting from such research . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. B Excise Taxes 5101. Simplification of excise tax on private foundation investment income (a) Rate reduction Section 4940(a) is amended by striking 2 percent and inserting 1.4 percent . (b) Repeal of special rules for certain private foundations Section 4940 is amended by striking subsection (e). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5102. Private operating foundation requirements relating to operation of art museum (a) In general Section 4942(j) is amended by adding at the end the following new paragraph: (6) Organization operating art museum For purposes of this section, the term operating foundation shall not include an organization which operates an art museum as a substantial activity unless such museum is open during normal business hours to the public for at least 1,000 hours during the taxable year. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5103. Excise tax based on investment income of private colleges and universities (a) In general Chapter 42 is amended by adding at the end the following new subchapter: H Excise tax based on investment income of private colleges and universities Sec. 4969. Excise tax based on investment income of private colleges and universities. 4969. Excise tax based on investment income of private colleges and universities (a) Tax imposed There is hereby imposed on each applicable educational institution for the taxable year a tax equal to 1.4 percent of the net investment income of such institution for the taxable year. (b) Applicable educational institution For purposes of this subchapter— (1) In general The term applicable educational institution means an eligible educational institution (as defined in section 25A(e)(3))— (A) which has at least 500 students during the preceding taxable year, (B) which is not described in the first sentence of section 511(a)(2)(B), and (C) the aggregate fair market value of the assets of which at the end of the preceding taxable year (other than those assets which are used directly in carrying out the institution’s exempt purpose) is at least $100,000 per student of the institution. (2) Students For purposes of paragraph (1), the number of students of an institution shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis). (c) Net investment income For purposes of this section, net investment income shall be determined under rules similar to the rules of section 4940(c). . (b) Clerical amendment The table of subchapters for chapter 42 is amended by adding at the end the following new item: Subchapter H—Excise tax based on investment income of private colleges and universities . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 5104. Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings (a) In general Section 4943 is amended by adding at the end the following new subsection: (g) Exception for certain holdings limited to independently-Operated philanthropic business (1) In general Subsection (a) shall not apply with respect to the holdings of a private foundation in any business enterprise which for the taxable year meets— (A) the ownership requirements of paragraph (2), (B) the all profits to charity distribution requirement of paragraph (3), and (C) the independent operation requirements of paragraph (4). (2) Ownership The ownership requirements of this paragraph are met if— (A) 100 percent of the voting stock in the business enterprise is held by the private foundation at all times during the taxable year, and (B) all the private foundation’s ownership interests in the business enterprise were acquired not by purchase. (3) All profits to charity (A) In general The all profits to charity distribution requirement of this paragraph is met if the business enterprise, not later than 120 days after the close of the taxable year, distributes an amount equal to its net operating income for such taxable year to the private foundation. (B) Net operating income For purposes of this paragraph, the net operating income of any business enterprise for any taxable year is an amount equal to the gross income of the business enterprise for the taxable year, reduced by the sum of— (i) the deductions allowed by chapter 1 for the taxable year which are directly connected with the production of such income, (ii) the tax imposed by chapter 1 on the business enterprise for the taxable year, and (iii) an amount for a reasonable reserve for working capital and other business needs of the business enterprise. (4) Independent operation The independent operation requirements of this paragraph are met if, at all times during the taxable year— (A) no substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation, or family member of such a contributor (determined under section 4958(f)(4)) is a director, officer, trustee, manager, employee, or contractor of the business enterprise (or an individual having powers or responsibilities similar to any of the foregoing), (B) at least a majority of the board of directors of the private foundation are not— (i) also directors or officers of the business enterprise, or (ii) members of the family (determined under section 4958(f)(4)) of a substantial contributor (as defined in section 4958(c)(3)(C)) to the private foundation, and (C) there is no loan outstanding from the business enterprise to a substantial contributor (as so defined) to the private foundation or a family member of such contributor (as so determined). (5) Certain deemed private foundations excluded This subsection shall not apply to— (A) any fund or organization treated as a private foundation for purposes of this section by reason of subsection (e) or (f), (B) any trust described in section 4947(a)(1) (relating to charitable trusts), and (C) any trust described in section 4947(a)(2) (relating to split-interest trusts). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. C Requirements for organizations exempt from tax 5201. Churches permitted to make statements relating to political campaign in ordinary course of religious services and activities (a) In general Section 501 is amended by adding at the end the following new subsection: (s) Special rule relating to political campaign statements of churches, integrated auxiliaries, etc (1) In general For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization described in section 508(c)(1)(A) shall not fail to be treated as organized and operated exclusively for a religious purpose, nor shall it be deemed to have participated in, or intervened in any political campaign on behalf of (or in opposition to) any candidate for public office, solely because of the content of any homily, sermon, teaching, dialectic, or other presentation made during religious services or gatherings, but only if the preparation and presentation of such content— (A) is in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose, and (B) results in the organization incurring not more than de minimis incremental expenses. . (b) Effective date The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. 5202. Additional reporting requirements for donor advised fund sponsoring organizations (a) In general Section 6033(k) is amended by striking and at the end of paragraph (2), by striking the period at the end of paragraph (3), and by adding at the end the following new paragraphs: (4) indicate the average amount of grants made from such funds during such taxable year (expressed as a percentage of the value of assets held in such funds at the beginning of such taxable year), and (5) indicate whether the organization has a policy with respect to donor advised funds (as so defined) for frequency and minimum level of distributions. Such organization shall include with such return a copy of any policy described in paragraph (5). . (b) Effective date The amendment made by this section shall apply for returns filed for taxable years beginning after December 31, 2017.