An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

Bill: 115-hr-1
Sponsor: full_name: Rep. Brady, Kevin [R-TX-8]
Introduced: 2017-11-02
Policy area: Taxation
Subjects: Accounting and auditing

Administrative law and regulatory procedures

Adoption and foster care

Agricultural equipment and machinery

Alaska

Alaska Natives and Hawaiians

Alcoholic beverages

Alternative and renewable resources

American Samoa

Arctic and polar regions

Art, artists, authorship

Assault and harassment offenses

Aviation and airports

Bank accounts, deposits, capital

Business expenses

Business investment and capital

Capital gains tax

Caribbean area

Charitable contributions

Child care and development

Civil actions and liability

Commodities markets

Corporate finance and management

Department of the Treasury

Disability and paralysis

Economic development

Elections, voting, political campaign regulation

Electric power generation and transmission

Employee benefits and pensions

Employee hiring

Employee leave

Employee performance

Employment taxes

Energy efficiency and conservation

Energy revenues and royalties

Financial services and investments

Foreign and international corporations

Gambling

Health care costs and insurance

Higher education

Historic sites and heritage areas

Housing finance and home ownership

Income tax credits

Income tax deductions

Income tax deferral

Income tax exclusion

Income tax rates

Inflation and prices

Insurance industry and regulation

Intellectual property

Interest, dividends, interest rates

Life, casualty, property insurance

Low- and moderate-income housing

Marine and coastal resources, fisheries

Members of Congress

Military personnel and dependents

Motor vehicles

Museums, exhibitions, cultural centers

Nuclear power

Oil and gas

Poverty and welfare assistance

Prescription drugs

Public participation and lobbying

Puerto Rico

Religion

Research and development

Residential rehabilitation and home repair

Rural conditions and development

Sales and excise taxes

School athletics

Securities

Separation, divorce, custody, support

Sex offenses

Small business

Social work, volunteer service, charitable organizations

Sports and recreation facilities

Strategic materials and reserves

Student aid and college costs

Tax administration and collection, taxpayers

Tax reform and tax simplification

Tax treatment of families

Tax-exempt organizations

Taxation of foreign income

Transfer and inheritance taxes

U.S. and foreign investments

U.S. territories and protectorates

Unemployment

Veterans' education, employment, rehabilitation

Veterans' loans, housing, homeless programs

Virgin Islands

Wages and earnings

Wilderness and natural areas, wildlife refuges, wild rivers, habitats

Youth employment and child labor
Latest action: action_date: 2017-12-22
text: Signed by President.

Summaries:
action_date: 2017-11-02
action_desc: Introduced in House
text: <p><b>Tax Cuts and Jobs Act </b></p> <p>This bill amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. </p> <p>With respect to individuals, the bill: </p> <ul> <li> replaces the seven existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets (12%, 25%, 35%, and 39.6%),</li> <li>increases the standard deduction, </li> <li> repeals the deduction for personal exemptions,</li> <li> establishes a 25% maximum rate on the business income of individuals, </li> <li> increases the child tax credit and establishes a new family tax credit,</li> <li> repeals the overall limitation on certain itemized deductions, </li> <li> limits the mortgage interest deduction for debt incurred after November 2, 2017, to mortgages of up to $500,000 (currently $1 million),</li> <li>repeals the deduction for state and local income or sales taxes not paid or accrued in a trade or business, </li> <li> repeals the deduction for medical expenses, </li> <li> consolidates and repeals several education-related deductions and credits, </li> <li> repeals the alternative minimum tax, and </li> <li>repeals the estate and generation-skipping transfer taxes in six years. </li> </ul> <p>For businesses, the bill: </p> <ul> <li>reduces the corporate tax rate from a maximum of 35% to a flat 20% rate (25% for personal services corporations), </li> <li> allows increased expensing of the costs of certain property, </li> <li> limits the deductibility of net interest expenses to 30% of the business's adjusted taxable income, </li> <li>repeals the work opportunity tax credit, </li> <li> terminates the exclusion for interest on private activity bonds, </li> <li> modifies or repeals various energy-related deductions and credits, </li> <li> modifies the taxation of foreign income, and</li> <li> imposes an excise tax on certain payments from domestic corporations to related foreign corporations. </li> </ul> <p>The bill also repeals or modifies several additional credits and deductions for individuals and businesses. </p>

action_date: 2017-11-13
action_desc: Reported to House with amendment(s)
text: <p><b>Tax Cuts and Jobs Act </b></p> <p>This bill amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. </p> <p>TITLE I--TAX REFORM FOR INDIVIDUALS </p> <p>Subtitle A--Simplification and Reform of Rates, Standard Deduction, and Exemptions </p> <p>(Sec. 1001) This section replaces the seven existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets (12%, 25%, 35%, and 39.6%) and specifies the income levels that apply for each bracket. </p> <p>Under the bill, most of the income that is currently included in the 10% and 15% brackets is taxed at 12%, and most of the income currently included in the 25% and 28% brackets is taxed at 25%. The bill also raises the threshold for income that is taxed at the 39.6% rate. </p> <p>The bill imposes an additional tax on taxpayers with adjusted gross income that exceeds $1 million ($1.2 million for married taxpayers filing jointly) by phasing out the benefit of the 12% tax bracket, as measured against the 39.6% bracket. </p> <p>The bill also: (1) modifies the taxation of the unearned income of children, and (2) requires the chained Consumer Price Index to be used to index the brackets for inflation. </p> <p>(Sec. 1002) This section increases the standard deduction to $24,400 for married individuals filing a joint return, to $18,300 for head-of-household filers, and to $12,200 for all other taxpayers. (Under current law, the standard deduction for 2017 is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses.) </p> <p>(Sec. 1003) This section: (1) repeals the deduction for personal exemptions (2) modifies the requirements that determine who is required to file a tax return, and (3) repeals the increased deduction for qualified disability trusts. </p> <p>(Sec. 1004) This section establishes a maximum 25% rate on the qualified business income of individuals (i.e., business income of an individual from a partnership, S corporation, or sole proprietorship which is currently taxed using individual income tax rates.) </p> <p>Qualified business income is all net business income from a passive business activity plus the capital percentage of net business income from an active business activity, reduced by carryover business losses and by certain net business losses from the current year, as specified in the bill. </p> <p>The bill provides a reduced tax rate for certain small businesses with net active business income below an indexed threshold of $75,000 for married individuals filing jointly. The amount taxed at the rate is reduced by the excess of taxable income over an indexed threshold of $150,000. </p> <p>(Sec. 1005) This section makes several conforming changes related to the modified individual tax rates. </p> <p>Subtitle B--Simplification and Reform of Family and Individual Tax Credits </p> <p>(Sec. 1101) This section increases the child tax credit and expands it to include a new family tax credit. </p> <p>The bill allows credits of: $1,600 ($1,000 under current law) per qualifying child under the age of 17, and $300 for the taxpayer (both spouses in the case of married taxpayers filing a joint return) and each dependent of the taxpayer who is not a qualifying child under age 17. </p> <p>The credits are phased out at adjusted gross income (AGI) levels of $230,000 for married taxpayers filing joint returns and $115,000 for individuals. </p> <p>The refundable portion of the credit is limited to $1,000 per qualifying child, adjusted for inflation after 2017. The $300 credit for the taxpayer, spouse, and non-child dependents of the taxpayer expires after 2022. </p> <p>(Sec. 1102) This section repeals the nonrefundable credits for: (1) taxpayers who are over 65 or retired on the account of permanent and total disability, (2) interest on certain home mortgages covered by a mortgage credit certificate issued by a qualified governmental unit, and (3) new plug-in electric drive motor vehicles. </p> <p>(Sec. 1103) This section modifies the taxpayer identification number requirements for the child tax credit, the earned income tax credit (EITC), and the American Opportunity tax credit. </p> <p>(Sec. 1104) This section specifies that a taxpayer must claim all allowable deductions when determining net earnings from self-employment for the purpose of the EITC. </p> <p>It also modifies the requirements for employer reporting of wages to require employers to report, along with the aggregate wages paid and employment taxes collected, the name and address of each employee and the amount of reportable wages received by each of those employees. </p> <p>(Sec. 1105) This section limits earned income, for purposes of the EITC, to amounts substantiated by the taxpayer on statements furnished or returns filed under third party information reporting requirements or amounts substantiated by the taxpayer's books and records. </p> <p>Subtitle C--Simplification and Reform of Education Incentives </p> <p>(Sec. 1201) This section repeals the Lifetime Learning credit and modifies the American Opportunity credit, which, under current law, may both be used for qualified tuition and related expenses. </p> <p>The modified American Opportunity credit may be claimed with respect to a student for five taxable years (four years under current law). For a credit claimed with respect to the student's fifth taxable year, the credit is half the value of the American Opportunity credit that is applicable to the first four taxable years. A student may claim the credit for any of the first five years of postsecondary education. </p> <p>(Sec. 1202) This section consolidates and modifies several provisions regarding education savings accounts to replace Coverdell savings accounts with modified rules for tax-exempt qualified tuition programs (known as 529 plans). </p> <p>The bill prohibits new contributions to Coverdell savings accounts after 2017. Rollovers from one Coverdell savings account to another are permitted after this date. 529 plans may receive rollovers from Coverdell savings accounts. </p> <p>The bill modifies 529 plans to allow the plans to distribute up to $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private, or religious elementary or secondary school. The $10,000 limitation applies on a per-student basis for distributions from all 529 accounts. </p> <p>The bill also modifies 529 plans to: (1) allow distributions to be used for certain expenses required for attendance in a registered apprenticeship program, and (2) specify that an unborn child may qualify as a designated beneficiary. </p> <p>(Sec. 1203) This section modifies the exclusion of student loan discharges from gross income, to include within the exclusion certain discharges on account of the death or total and permanent disability of the student. </p> <p>The section also modifies the gross income exclusion for amounts received under the National Health Service Corps loan repayment program or certain state loan repayment programs to include any amount received by an individual under the Indian Health Service loan repayment program. </p> <p>(Sec. 1204) This section repeals several education-related deductions and exclusions, including: </p> <ul> <li> the deduction for interest on education loans, </li> <li> the deduction for qualified tuition and related expenses, </li> <li> the exclusion for income from U.S. savings bonds used to pay higher education tuition and fees, </li> <li> the exclusion for educational assistance programs, and</li> <li>the exclusion for qualified tuition reductions. </li> </ul> <p>(Sec. 1205) This section allows funds from 529 accounts to be rolled over to an ABLE account without penalty if the ABLE account is owned by the designated beneficiary of that 529 account, or a member of the designated beneficiary's family. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.) </p> <p>Subtitle D--Simplification and Reform of Deductions </p> <p>(Sec. 1301) This section repeals the overall limitation on itemized deductions, which currently applies when AGI exceeds a specified amount. </p> <p>(Sec. 1302) This section modifies the deduction for home mortgage interest to: (1) limit the deduction to mortgages for a principal residence, (2) limit the deduction for debt incurred after November 2, 2017, to mortgages of up to $500,000 (currently $1 million), and (3) prohibit the deduction from being used for interest paid on home equity loans. </p> <p>(Sec. 1303) For individual taxpayers, this section prohibits the deductions for state, local, and foreign real property taxes; and state and local personal property taxes unless the taxes are paid or accrued in a trade or business or for expenses for the production of income. </p> <p>The bill includes an exception that allows an individual to deduct up to $10,000 in state and local property taxes, in addition to taxes that may be deducted because they are paid or accrued in a trade or business or for expenses for the production of income. </p> <p>The bill also repeals the deduction for state and local income, war profits, and excess profits taxes of individuals. </p> <p>(Sec. 1304) This section repeals the deduction for personal casualty and theft losses, with an exception for the deduction, as modified by the Disaster Tax Relief and Airport and Airway Extension Act of 2017, for individuals who sustained a personal casualty loss as a result of Hurricanes Harvey, Irma, or Maria. </p> <p>(Sec. 1305) This section modifies a provision that limits the deduction for wagering losses to the extent of the gains from such transactions. The bill specifies that &quot;losses from wagering transactions&quot; include otherwise deductible expenses incurred in carrying out a wagering transaction (e.g., expenses for traveling to or from a casino). </p> <p>(Sec. 1306) This section modifies the deduction for charitable contributions to: (1) increase from 50% to 60% the income-based percentage limitations for contributions of cash to public charities, (2) prohibit a charitable deduction for college athletic event seating rights, (3) replace the statutory charitable mileage rate of 14 cents per mile with a rate that takes into account the variable cost of operating an automobile (adjusted for inflation), (4) repeal the exception to substantiation requirements for certain contributions reported by the donee organization. </p> <p>(Sec. 1307) This section repeals the deduction for expenses paid or incurred in connection with determination, collection, or refund of any tax. </p> <p>(Sec. 1308) This section repeals the deduction for unreimbursed medical expenses. </p> <p>(Sec. 1309) This section repeals the deduction for alimony or separate maintenance payments from the payer spouse and the corresponding inclusion of the payments in the gross income the recipient spouse. </p> <p>(Sec. 1310) This section repeals the deduction for moving expenses, with an exception for moving expense of members of the Armed Forces. </p> <p>(Sec. 1311) This section repeals the deductions and exclusions for contributions to Archer Medical Savings Accounts. </p> <p>(Sec. 1312) This section prohibits any deduction for expenses attributable to the trade or business of being an employee, except for expenses that are deductible from gross income (above-the-line deductions). </p> <p>This section also repeals the above-the-line deductions for: (1) certain expenses of performing artists; (2) expenses of state or local government officials performing services on a fee basis; and (3) expenses of elementary and secondary school teachers for professional development or books, supplies, equipment, and materials used in the classroom. </p> <p>Subtitle E--Simplification and Reform of Exclusions and Taxable Compensation </p> <p>(Sec. 1401) This section modifies the exclusion for employer-provided housing to: (1) limit the exclusion to $50,000 ($25,000 in the case of a married individual filing a separate return), subject to a phase-out for certain highly compensated employees; (2) deny the deduction to 5% owners; and (2) prohibit the exclusion from applying to more than one residence of the taxpayer at any given time. </p> <p>(Sec. 1402) The section modifies the exclusion of gain from the sale of principal residence to: (1) extend the time-period during which a taxpayer must own and use the residence as a principal residence to at least five of the eight years before the sale or exchange (two of five years under current law), (2) limit the exclusion to one sale or exchange during any five-year period, and (3) phase out the exclusion when a taxpayer's average AGI for the tax year and the two preceding years exceeds $250,000 ($500,000 if married filing a joint return). </p> <p>(Sec. 1403) This section repeals: (1) the exclusion from gross income of the value of certain employee achievement awards, and (2) the limitation on the deduction for the cost of employee achievement awards. </p> <p>(Sec. 1404) This section repeals the exclusions from gross income and wages for employer-provided dependent care assistance programs for taxable years beginning after December 31, 2022. </p> <p>(Sec. 1405) This section repeals the exclusion from gross income and wages for qualified moving expense reimbursements. </p> <p>(Sec. 1406) This section repeals the exclusion from gross income for adoption assistance programs. </p> <p>Subtitle F--Simplification and Reform of Savings, Pensions, Retirement </p> <p>(Sec. 1501) This section repeals the rule that allows Individual Retirement Arrangement (IRA) contributions to one type of IRA (traditional or Roth) to be recharacterized as a contribution to the other type of IRA. </p> <p>(Sec. 1502) This section reduces from 62 to 59 1/2 the minimum age for in-service distributions under pension plans and deferred compensation plans of state and local government employers (governmental section 457[b] plans). </p> <p>(Sec. 1503) The Department of the Treasury must modify regulations governing hardship distributions from certain retirement plans to: (1) delete the requirement that an employee be prohibited from making elective deferrals and employee contributions for six months after the receipt of a hardship distribution in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need, and (2) make any other modifications necessary to carry out the purposes of the rule allowing elective deferrals to be distributed in the case of hardship. </p> <p>(Sec. 1504) This section allows earnings on elective deferrals under a section 401(k) plan, as well as qualified nonelective contributions and qualified matching contributions (and associated earnings), to be distributed on account of hardship. A distribution is not treated as failing to be on account of hardship solely because the employee does not take any available plan loan. </p> <p>(Sec. 1505) This section extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution. A &quot;qualified plan loan offset amount&quot; is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the employee's separation from service, whether due to layoff, cessation of business, termination of employment, or otherwise. </p> <p>(Sec. 1506) This section modifies the nondiscrimination requirements for certain defined benefit retirement plans that: (1) limit participation or certain features to a closed class, such as individuals who were hired before a certain date; or (2) have closed or ceased benefit accruals for all participants (frozen plan).</p> <p>Subtitle G--Estate, Gift, and Generation-skipping Transfer Taxes </p> <p>(Sec. 1601) This section doubles the estate and gift tax exemption amount for decedents dying and gifts made after December 31, 2017, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.) </p> <p>(Sec. 1602) This section repeals the estate and generation-skipping transfer taxes for the estates of decedents dying or generation-skipping transfers after December 31, 2024. </p> <p>TITLE II--ALTERNATIVE MINIMUM TAX REPEAL </p> <p>(Sec. 2001) This section repeals the individual and corporate alternative minimum taxes. </p> <p>TITLE III--BUSINESS TAX REFORM </p> <p>Subtitle A--Tax Rates </p> <p>(Sec. 3001) This section reduces the corporate tax rate from a maximum of 35% under the existing graduated rate structure to a flat 20% rate (25% for personal services corporations).</p> <p>The bill also reduces the 70% dividends received deduction to 50% and the 80% dividends received deduction to 65%. </p> <p>The bill imposes an increased tax on taxpayers who violate rules requiring the use of a normalization method of accounting. </p> <p>This section applies to tax years beginning after 2017. </p> <p>Subtitle B--Cost Recovery </p> <p>(Sec. 3101) This section allows increased expensing of the costs of certain business property. The bill: </p> <ul> <li> allows 100% expensing for certain business property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024 for longer production period property and certain aircraft); </li> <li> removes the requirement that the original use of qualified property must commence with the taxpayer, subject to certain acquisition requirements and anti-abuse rules; </li> <li> excludes from the definition of &quot;qualified property&quot; the property of certain businesses that are not subject to the limitation on interest expenses; and </li> <li> increases from $8,000 to $16,000 the limit on depreciation deductions for certain passenger automobiles acquired and placed in service after September 27, 2017, and before January 1, 2023.</li> </ul> <p>Subtitle C--Small Business Reforms </p> <p>(Sec. 3201) This section expands the expensing of certain depreciable business assets that is currently permitted under section 179 of the IRC. </p> <p>The provision modifies section 179 to: </p> <ul> <li> increase the maximum amount a taxpayer may expense to $5 million (currently $500,000) for taxable years beginning before January 1, 2023;</li> <li> increase the phaseout threshold amount to $20 million (currently $2 million) for taxable years beginning before January 1, 2023;</li> <li> index the amounts for inflation after 2018, and </li> <li> expand the definition of qualified real property to include qualified energy efficient heating and air-conditioning property acquired and placed in service by the taxpayer after November 2, 2017. </li> </ul> <p>(Sec. 3202) This section modifies the accounting rules for small businesses to: </p> <ul> <li> expand the group of taxpayers who qualify for the cash accounting method by increasing the limit for the gross receipts test from $5 million to $25 million (adjusted for inflation after 2018),</li> <li> allow any farming C corporation (or farming partnership with a C corporation partner) that meets the gross receipts test to use the cash method of accounting, </li> <li> exempt taxpayers that meet the gross receipts test from certain requirements to account for inventories, </li> <li> expand the exceptions for small taxpayers from the uniform capitalization rules to include any producer or reseller that meets the gross receipts test, and </li> <li> expand the exception for small construction contracts from the requirement to use the percentage-of-completion method. </li> </ul> <p>(Sec. 3203) This section exempts certain small businesses that meet the gross receipts test from the limitation on the deduction for business interest. </p> <p>(Sec. 3204) This section modifies the tax treatment of S corporation conversions to C corporations. </p> <p>Subtitle D--Reform of Business-related Exclusions, Deductions, etc. </p> <p>(Sec. 3301) This section limits the deduction for business interest to the sum of: (1) business interest income for the year, (2) 30% of the adjusted taxable income of the taxpayer for the taxable year, and (3) the floor plan financing interest of the taxpayer for the taxable year. </p> <p>The amount of any business interest not allowed as a deduction for any year may be carried forward for up to five years beyond the year in which the business interest was paid or accrued, treating business interest as allowed as a deduction on a first-in, first-out basis. </p> <p>&quot;Business interest income&quot; is 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. It does not include investment interest or investment income. </p> <p>&quot;Floor plan financing interest&quot; is interest paid on debt used to finance the acquisition of motor vehicles held for sale to retail customers and secured by the inventory so acquired. </p> <p>The bill includes exceptions for: </p> <ul> <li> small businesses that meet the gross receipts test, </li> <li> the trade or business of performing services as an employee, </li> <li> a real property trade or business, and </li> <li> certain regulated public utilities. </li> </ul> <p>(Sec. 3302) This section modifies the net operating loss deduction to: (1) limit the deduction to 90% of taxable income, (2) adjust carryover amounts to account for the new limitation allow and allow an indefinite carryforward of net operating losses, (3) repeal the two-year and other specified carryback provisions, and (4) allow a one-year carryback for certain disaster losses incurred in the trade or business of farming or by certain small businesses. </p> <p>(Sec. 3303) This section modifies the rule providing for the nonrecognition of gain in the case of like-kind exchanges to limit the application of the rule to real property that is not held primarily for sale. </p> <p>(Sec. 3304) This section requires a contribution to capital, other than a contribution of money or property made in exchange for stock of a corporation or any interest in an entity, to be included in the gross income of a corporation. </p> <p>(Sec. 3305) This section eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government. </p> <p>(Sec. 3306) This section repeals the deduction for income attributable to domestic production activities. </p> <p>(Sec. 3307) This section modifies the tax treatment of certain expenses for entertainment and fringe benefits. </p> <p>The bill denies deductions for amounts paid or incurred for: </p> <ul> <li> an activity generally considered to be entertainment, amusement or recreation; </li> <li> membership dues for any club organized for business, pleasure, recreation or other social purposes; </li> <li> a de minimis fringe that is primarily personal in nature and involving property or services that are not directly related to the taxpayer's trade or business; </li> <li> a facility or portion thereof used in connection with any of the above items; </li> <li> a qualified transportation fringe, including costs of operating a facility used for qualified parking, and </li> <li> an on-premises athletic facility provided by an employer to its employees. </li> </ul> <p>The bill specifies requirements for the IRS regulations implementing this section. </p> <p>The bill also: (1) includes exceptions for certain expenses that are treated as compensation or includible in the income of the recipient, (2) modifies the rules regarding reimbursed expenses, and (3) specifies that the exception to the 50% deduction limit for food or beverages applies to any expense excludible from the gross income of the recipient related to meals furnished for the convenience of the employer. </p> <p>(Sec. 3308) This section includes in unrelated business taxable income of a tax-exempt organization any expenses paid or incurred by the organization for certain fringe benefits for which a deduction is not allowed under section 274 of the IRC, including qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility. </p> <p>(Sec. 3309) This section limits the deduction for Federal Deposit Insurance Corporation premiums for certain financial institutions with consolidated assets that exceed $10 billion. </p> <p>(Sec. 3310) This section repeals a provision that permits the tax-free rollover of certain gains from the sale of publicly traded securities into common stock or a partnership interest in a specialized small business investment company. </p> <p>(Sec. 3311) This section excludes certain patents, inventions, models, designs, secret formulas, or processes created by the taxpayer from the definition of a ''capital asset.'' </p> <p>(Sec. 3312) This section repeals the special rule for the sale or exchange of patents by the holder of the patent that treats the sale or exchange as the sale of a capital asset. </p> <p>(Sec. 3313) This section repeals the rule that provides for a technical termination of partnerships if, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. </p> <p>(Sec. 3314) This section requires a three-year holding period (one year under current law) for certain net long-term capital gains with respect to partnership interests held in connection with the performance of investment services. If the holder of an applicable partnership interest is allocated gain from the sale of property held for less than three years, that gain is treated as short-term capital gain and is taxed as ordinary income. </p> <p>(Sec. 3315) This section adjusts the amortization rules and schedules for certain research and experimentation expenditures. </p> <p>(Sec. 3316) This section prohibits attorneys from deducting legal expenses paid or incurred for contingency fee cases until the contingency is resolved. </p> <p>Subtitle E--Reform of Business Credits </p> <p>(Sec. 3401) This section repeals the credit for clinical testing expenses incurred in testing certain drugs for rare diseases or conditions (commonly referred to as orphan drugs). </p> <p>(Sec. 3402) This section repeals the credit for employer-provided child care. </p> <p>(Sec. 3403) This section repeals the credit for rehabilitation expenditures for certain buildings. </p> <p>(Sec. 3404) This section repeals the work opportunity tax credit.</p> <p>(Sec. 3405) This section repeal the deduction for certain unused business credits. </p> <p>(Sec. 3406) This section repeals the new markets tax credit. </p> <p>(Sec. 3407) This section repeals the credit for eligible expenditures of a small business to comply with requirements under the Americans with Disabilities Act of 1990. </p> <p>(Sec. 3408) This section revises the amount of the credit for the portion of employer Social Security taxes that are paid with respect to employee tips. </p> <p>Subtitle F--Energy Credits </p> <p>(Sec. 3501) This section modifies the credit for electricity produced from certain renewable resources to: (1) terminate the inflation adjustment for wind facilities with construction that begins after enactment of this bill to allow a credit of 1.5 cents per kilowatt hour (currently 2.4 cents for 2017), and (2) specify requirements for determining the beginning of construction. </p> <p>(Sec. 3502) This section modifies the credit for investment in energy property to extend the energy credit for fiber optic solar, fuel cell, microturbine, and combined heat and power system, geothermal heat pump, and small wind property for property with construction that begins before January 1, 2022. </p> <p>With respect to fiber optic solar, fuel cell, and small wind property, the bill reduces the 30% credit rate to 26% for property with construction that begins in 2020 and to 22% for property with construction that begins in 2021. For fuel cell property or small wind energy property, the credit rate is reduced to 10% if the property is not placed in service before 2024.</p> <p> The bill terminates the permanent credits for solar and geothermal property after 2027. </p> <p>The bill also specifies that construction may not be treated as beginning before any date unless there is a continuous program of construction which begins before the date and ends on the date that the property is placed in service.</p> <p>(Sec. 3503) This section extends the residential energy efficient property credit for fuel cell, small wind, and geothermal heat pump property expenditures through December 31, 2021. The bill reduces the credit rate for the property from 30% to 26% for property placed in service in 2020 and to 22% for property placed in service in 2021. </p> <p>(Sec. 3504) This section repeals the enhanced oil recovery credit. </p> <p>(Sec. 3505) This section repeals the credit for producing oil and gas from marginal wells. </p> <p>(Sec. 3506) This section modifies the tax credit for the production of electricity from advanced nuclear power facilities to: (1) establish requirements for the allocation of unutilized portions of the national megawatt capacity limitation, and (2) allow public entities to transfer the credit to project partners. </p> <p>Subtitle G--Bond Reforms </p> <p>(Sec. 3601) This section terminates the exclusion for interest on qualified private activity bonds. </p> <p>(Sec. 3602) This section repeals the exclusion from gross income for interest on a bond issued to advance refund another bond. </p> <p>(Sec. 3603) This section repeals the authority to issue tax-credit bonds and direct-pay bonds. </p> <p>(Sec. 3604) This section prohibits tax-exempt bonds from being used to finance professional sports stadiums.</p> <p>Subtitle H--Insurance </p> <p>(Sec. 3701) This section repeals the operations losses deduction for life insurance companies and allows the net operating loss deduction under section 172 of the IRC. </p> <p>(Sec. 3702) This section repeals the small life insurance company deduction. </p> <p>(Sec. 3703) This section imposes an additional 8% income tax on life insurance company taxable income. </p> <p>(Sec. 3704) This section revises the tax treatment of income or loss resulting from a change in the method of computing life insurance company reserves. The bill eliminates the 10-year period for taking into account the changes and requires the changes to be taken into account as adjustments attributable to a change in method of accounting.</p> <p>(Sec. 3705) This section repeals the special rule for distributions to shareholders of a stock life insurance company from a pre-1984 policyholders surplus account, which provides that amounts in the account are not taxed unless the amounts are treated as distributed to shareholders or subtracted from the account. The bill requires a life insurance company with such an account to pay taxes on the balance of the account ratably over the first eight taxable years beginning after December 31, 2017. </p> <p>(Sec. 3706) This section modifies the proration rules for property and casualty insurance companies to replace the 15% reduction under current law with a 26.25% reduction. (Under the proration rules, in calculating the deductible amount of its reserve for losses incurred, a property or casualty insurance company must reduce the amount of the losses incurred by a specified percentage of: (1) the insurer's tax-exempt interest, (2) the deductible portion of dividends received, and (3) the increase for the taxable year in the cash value of life insurance, endowment, or annuity contracts the company owns.) </p> <p>(Sec. 3707) This section modifies the reserve discounting rules applicable to property and casualty insurance companies to: (1) modify the interest rate, (2) extend the periods applicable under the loss payment pattern, and (3) repeal the election to use a taxpayer's historical loss payment pattern. </p> <p>(Sec. 3708) This section repeals the special estimated tax payment rules for insurance companies. </p> <p>Subtitle I--Compensation </p> <p>(Sec. 3801) This section modifies a provision that limits the deduction for compensation of covered employees of a publicly held corporation to salaries of no more than $1 million per year. The bill: (1) repeals the performance-based compensation and commission exceptions, (2) modifies the definition of &quot;covered employee,&quot; and (3) expands the definition of &quot;publicly held corporation.&quot; </p> <p>(Sec. 3802) This section imposes an excise tax on excess tax-exempt organization executive compensation. The tax is equal to 20% of the sum of: (1) any remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and (2) any excess parachute payment (separation pay), as specified in the bill. </p> <p>(Sec. 3803) This section allows qualified employees to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer. </p> <p>Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) have been one of the four highest compensated officers of the corporation during any of the 10 preceding taxable years. </p> <p>TITLE IV--TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS </p> <p>Under current law, the earnings of foreign subsidiaries of U.S. multinational corporations are not taxed until the income is repatriated (paid as dividends) into the United States. The corporations are allowed a tax credit against U.S. taxes for taxes paid to foreign jurisdictions. This title establishes a territorial system in which foreign source income is not subject to regular U.S. taxes. </p> Subtitle A--Establishment of Participation Exemption System for Taxation of Foreign Income <p>(Sec. 4001) This section establishes a participation exemption system for foreign income. Under the system, the bill allows a 100% deduction for the foreign-source portion of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations. </p> <p>A &quot;specified 10% owned foreign corporation&quot; is any foreign corporation with respect to which any domestic corporation is a U.S. shareholder. It does not include a passive foreign investment company that is not a controlled foreign corporation (CFC). </p> <p>No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to any dividend for which a deduction is allowed under this section</p> <p>The bill establishes a six-month holding period requirement for dividends of a domestic corporation to be eligible for a participation dividends received deduction. </p> <p>(Sec. 4002) This section applies the participation exemption to investments in U.S. property by specifying that the tax for CFC investments in U.S. property with respect to a domestic corporation is zero. </p> <p>(Sec. 4003) This section specifies that, solely for the purpose of determining a loss, a domestic corporate shareholder's adjusted basis in the stock of a specified 10% owned foreign corporation is reduced by the portion of any dividend received with respect to such stock from such foreign corporation that was not taxed by reason of a dividends received deduction. </p> <p>If a domestic corporation transfers substantially all of the assets of a foreign branch to a foreign corporation which, after such transfer, is a specified 10% owned foreign corporation with respect to which the domestic corporation is a U.S. shareholder, the domestic corporation must include in gross income an amount equal to the transferred loss amount, subject to certain limitations. </p> <p>(Sec. 4004) This section specifies rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. The bill deems the earnings to be repatriated and impose taxes of: (1) 14% for earnings held in liquid form, and (2) 7% for accumulated foreign earnings that have been reinvested in the foreign subsidiary's business. </p> <p>Subtitle B--Modifications Related to Foreign Tax Credit System </p> <p>(Sec. 4101) This section repeals the deemed-paid credit with respect to dividends received by a domestic corporation that owns 10% or more of the voting stock of a foreign corporation. The bill allows a deemed-paid credit with respect to any income inclusion under subpart F. The credit is limited to the amount of foreign income taxes properly attributable to the subpart F inclusion.</p> <p>(Sec. 4102) This section requires gains, profits, and income from the sale or exchange of inventory property produced partly in, and partly outside, the United States to 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. </p> <p>Subtitle C--Modification of Subpart F Provisions </p> <p>(Sec. 4201) This section repeals the requirement for a U.S. shareholder in a CFC that invested previously excluded subpart F income in foreign base company shipping operations to include in income a pro rata share of the previously excluded subpart F income when the CFC decreases the investments. </p> <p>(Sec. 4202) This section repeals provisions that treat foreign base company oil related income as category of subpart F income. </p> <p>(Sec. 4203) This section adds an inflation adjustment for the de minimis exception for foreign base company income. </p> <p>(Sec. 4204) The provision makes permanent the exclusion from foreign personal holding company income for certain dividends, interest, rents, and royalties received or accrued by one CFC from a related CFC. </p> <p>(Sec. 4205) This section modifies the stock attribution rules for determining status as a CFC. Certain stock of a foreign corporation owned by a foreign person must be attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation.</p> <p>(Sec. 4206) This section eliminates the requirement for a corporation to be controlled for an uninterrupted period of 30 days before subpart F inclusions apply. </p> <p>Subtitle D--Prevention of Base Erosion </p> <p>(Sec. 4301) This section requires a U.S. shareholder of any CFC to include in gross income 50% of shareholder's foreign high return amount for the year, as calculated using a formula specified in this bill. </p> <p>(Sec. 4302) This section limits the deduction for interest expenses of domestic corporations which are members of an international financial reporting group. </p> <p>For a domestic corporation which is a member of any international financial reporting group, the deduction for interest paid or accrued during the year may not exceed the sum of the member's interest income plus the allowable percentage of 110% of net interest expense. </p> <p>An &quot;international financial reporting group&quot; is a group that: (1) includes at least one foreign corporation engaged in a U.S. trade or business or at least one domestic corporation and one foreign corporation at any time during the group's reporting year, (2) prepares consolidated financial statements in accordance specified principles or standards, and (3) has average annual gross receipts that exceed $100 million. </p> <p>(Sec. 4303) This section imposes a 20% excise tax on payments from domestic corporations to related foreign corporations to the extent that the amounts are deductible by the U.S. payor. The excise tax does not apply if the foreign recipient elects to be subject to U.S. income tax on the amounts received. </p> <p>Subtitle E--Provisions Related to Possessions of the United States </p> <p>(Sec. 4401) This section extends the rules that apply to the deduction for income attributable to domestic production activities in Puerto Rico.</p> <p> (Sec. 4402) This section extends for six years the increase in the limit on the amount of excise taxes on rum covered over to Puerto Rico and the Virgin Islands. (Under the provision, the limitation of $13.25 per proof gallon is extended for rum brought into the United States after December 31, 2016, and before January 1, 2023. After December 31, 2022, the limit reverts to $10.50 per proof gallon.) </p> <p>(Sec. 4403) This section extends the American Samoa economic development credit for five years. </p> <p>Subtitle F--Other International Reforms </p> <p>(Sec. 4501) This section modifies the exception from the passive foreign investment company rules for insurance businesses. The bill replaces the test based on whether a corporation is predominantly engaged in an insurance business with a test based on the corporation's insurance liabilities. </p> <p>TITLE V--EXEMPT ORGANIZATIONS </p> <p>Subtitle A--Unrelated Business Income Tax </p> <p>(Sec. 5001) This section specifies that a tax-exempt organization does not fail to be subject to tax on its unrelated business income solely because the organization also is exempt, or excludes amounts from gross income, by reason of another provision of the IRC. </p> <p>(Sec. 5002) This section modifies the exclusion of research income from the tax on unrelated business income to limit the exclusion to fundamental research the results of which are freely available to the general public. </p> <p>Subtitle B--Excise Taxes </p> <p>(Sec. 5101) This section replaces the two excise tax rates for the net investment income of tax-exempt private foundations with a single tax rate of 1.4%. It repeals the reduced excise tax rate for private foundations that exceed their historical level of qualifying distributions. </p> <p>(Sec. 5102) This section prohibits an organization that operates an art museum as a substantial activity from qualifying as a private operating foundation unless the museum is open during normal business hours to the public for at least 1,000 hours during the taxable year. </p> <p>(Sec. 5103) This section imposes a 1.4% excise tax on the net investment income of certain private colleges and universities that have at least 500 students. </p> <p>(Sec. 5104) This section creates an exception to the excise taxes on excess business holdings for the holdings of a private foundation in any business enterprise that meets specified requirements relating to exclusive ownership, minimum distribution of net operating income for the charitable purpose (all profits to charity distribution requirement), and independent operation (not controlled by a substantial contributor or family members) from the excise taxes on excess business holdings. </p> <p>Subtitle C--Requirements for Organizations Exempt From Tax </p> <p>(Sec. 5201) This section permits a tax-exempt organization to make certain statements related to a political campaign without losing its tax-exempt status. </p> <p>An organization may not lose its tax-exempt status under section 501(c)(3) or 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 statement that: (1) is made in the ordinary course of the organization's regular and customary activities in carrying out its exempt purpose, and (2) results in the organization incurring not more than de minimis incremental expenses. </p> <p>(Sec. 5202) This section establishes additional reporting requirements for organizations that sponsor donor advised funds. (A donor advised fund is a fund or account that is separately identified by reference to contributions of a donor or donors. The account is owned and controlled by a sponsoring charitable organization, while the donor retains advisory privileges with respect to the distribution and investment of funds in the account.) </p>

action_date: 2017-11-16
action_desc: Passed House amended
text: <p>(This measure has not been amended since it was reported to the House on November 13, 2017. The summary of that version is repeated here.)</p> <p><b>Tax Cuts and Jobs Act </b></p> <p>This bill amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. </p> <p>TITLE I--TAX REFORM FOR INDIVIDUALS </p> <p>Subtitle A--Simplification and Reform of Rates, Standard Deduction, and Exemptions </p> <p>(Sec. 1001) This section replaces the seven existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with four brackets (12%, 25%, 35%, and 39.6%) and specifies the income levels that apply for each bracket. </p> <p>Under the bill, most of the income that is currently included in the 10% and 15% brackets is taxed at 12%, and most of the income currently included in the 25% and 28% brackets is taxed at 25%. The bill also raises the threshold for income that is taxed at the 39.6% rate. </p> <p>The bill imposes an additional tax on taxpayers with adjusted gross income that exceeds $1 million ($1.2 million for married taxpayers filing jointly) by phasing out the benefit of the 12% tax bracket, as measured against the 39.6% bracket. </p> <p>The bill also: (1) modifies the taxation of the unearned income of children, and (2) requires the chained Consumer Price Index to be used to index the brackets for inflation. </p> <p>(Sec. 1002) This section increases the standard deduction to $24,400 for married individuals filing a joint return, to $18,300 for head-of-household filers, and to $12,200 for all other taxpayers. (Under current law, the standard deduction for 2017 is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses.) </p> <p>(Sec. 1003) This section: (1) repeals the deduction for personal exemptions (2) modifies the requirements that determine who is required to file a tax return, and (3) repeals the increased deduction for qualified disability trusts. </p> <p>(Sec. 1004) This section establishes a maximum 25% rate on the qualified business income of individuals (i.e., business income of an individual from a partnership, S corporation, or sole proprietorship which is currently taxed using individual income tax rates.) </p> <p>Qualified business income is all net business income from a passive business activity plus the capital percentage of net business income from an active business activity, reduced by carryover business losses and by certain net business losses from the current year, as specified in the bill. </p> <p>The bill provides a reduced tax rate for certain small businesses with net active business income below an indexed threshold of $75,000 for married individuals filing jointly. The amount taxed at the rate is reduced by the excess of taxable income over an indexed threshold of $150,000. </p> <p>(Sec. 1005) This section makes several conforming changes related to the modified individual tax rates. </p> <p>Subtitle B--Simplification and Reform of Family and Individual Tax Credits </p> <p>(Sec. 1101) This section increases the child tax credit and expands it to include a new family tax credit. </p> <p>The bill allows credits of: $1,600 ($1,000 under current law) per qualifying child under the age of 17, and $300 for the taxpayer (both spouses in the case of married taxpayers filing a joint return) and each dependent of the taxpayer who is not a qualifying child under age 17. </p> <p>The credits are phased out at adjusted gross income (AGI) levels of $230,000 for married taxpayers filing joint returns and $115,000 for individuals. </p> <p>The refundable portion of the credit is limited to $1,000 per qualifying child, adjusted for inflation after 2017. The $300 credit for the taxpayer, spouse, and non-child dependents of the taxpayer expires after 2022. </p> <p>(Sec. 1102) This section repeals the nonrefundable credits for: (1) taxpayers who are over 65 or retired on the account of permanent and total disability, (2) interest on certain home mortgages covered by a mortgage credit certificate issued by a qualified governmental unit, and (3) new plug-in electric drive motor vehicles. </p> <p>(Sec. 1103) This section modifies the taxpayer identification number requirements for the child tax credit, the earned income tax credit (EITC), and the American Opportunity tax credit. </p> <p>(Sec. 1104) This section specifies that a taxpayer must claim all allowable deductions when determining net earnings from self-employment for the purpose of the EITC. </p> <p>It also modifies the requirements for employer reporting of wages to require employers to report, along with the aggregate wages paid and employment taxes collected, the name and address of each employee and the amount of reportable wages received by each of those employees. </p> <p>(Sec. 1105) This section limits earned income, for purposes of the EITC, to amounts substantiated by the taxpayer on statements furnished or returns filed under third party information reporting requirements or amounts substantiated by the taxpayer's books and records. </p> <p>Subtitle C--Simplification and Reform of Education Incentives </p> <p>(Sec. 1201) This section repeals the Lifetime Learning credit and modifies the American Opportunity credit, which, under current law, may both be used for qualified tuition and related expenses. </p> <p>The modified American Opportunity credit may be claimed with respect to a student for five taxable years (four years under current law). For a credit claimed with respect to the student's fifth taxable year, the credit is half the value of the American Opportunity credit that is applicable to the first four taxable years. A student may claim the credit for any of the first five years of postsecondary education. </p> <p>(Sec. 1202) This section consolidates and modifies several provisions regarding education savings accounts to replace Coverdell savings accounts with modified rules for tax-exempt qualified tuition programs (known as 529 plans). </p> <p>The bill prohibits new contributions to Coverdell savings accounts after 2017. Rollovers from one Coverdell savings account to another are permitted after this date. 529 plans may receive rollovers from Coverdell savings accounts. </p> <p>The bill modifies 529 plans to allow the plans to distribute up to $10,000 in expenses for tuition incurred during the taxable year in connection with the enrollment or attendance of the designated beneficiary at a public, private, or religious elementary or secondary school. The $10,000 limitation applies on a per-student basis for distributions from all 529 accounts. </p> <p>The bill also modifies 529 plans to: (1) allow distributions to be used for certain expenses required for attendance in a registered apprenticeship program, and (2) specify that an unborn child may qualify as a designated beneficiary. </p> <p>(Sec. 1203) This section modifies the exclusion of student loan discharges from gross income, to include within the exclusion certain discharges on account of the death or total and permanent disability of the student. </p> <p>The section also modifies the gross income exclusion for amounts received under the National Health Service Corps loan repayment program or certain state loan repayment programs to include any amount received by an individual under the Indian Health Service loan repayment program. </p> <p>(Sec. 1204) This section repeals several education-related deductions and exclusions, including: </p> <ul> <li> the deduction for interest on education loans, </li> <li> the deduction for qualified tuition and related expenses, </li> <li> the exclusion for income from U.S. savings bonds used to pay higher education tuition and fees, </li> <li> the exclusion for educational assistance programs, and</li> <li>the exclusion for qualified tuition reductions. </li> </ul> <p>(Sec. 1205) This section allows funds from 529 accounts to be rolled over to an ABLE account without penalty if the ABLE account is owned by the designated beneficiary of that 529 account, or a member of the designated beneficiary's family. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.) </p> <p>Subtitle D--Simplification and Reform of Deductions </p> <p>(Sec. 1301) This section repeals the overall limitation on itemized deductions, which currently applies when AGI exceeds a specified amount. </p> <p>(Sec. 1302) This section modifies the deduction for home mortgage interest to: (1) limit the deduction to mortgages for a principal residence, (2) limit the deduction for debt incurred after November 2, 2017, to mortgages of up to $500,000 (currently $1 million), and (3) prohibit the deduction from being used for interest paid on home equity loans. </p> <p>(Sec. 1303) For individual taxpayers, this section prohibits the deductions for state, local, and foreign real property taxes; and state and local personal property taxes unless the taxes are paid or accrued in a trade or business or for expenses for the production of income. </p> <p>The bill includes an exception that allows an individual to deduct up to $10,000 in state and local property taxes, in addition to taxes that may be deducted because they are paid or accrued in a trade or business or for expenses for the production of income. </p> <p>The bill also repeals the deduction for state and local income, war profits, and excess profits taxes of individuals. </p> <p>(Sec. 1304) This section repeals the deduction for personal casualty and theft losses, with an exception for the deduction, as modified by the Disaster Tax Relief and Airport and Airway Extension Act of 2017, for individuals who sustained a personal casualty loss as a result of Hurricanes Harvey, Irma, or Maria. </p> <p>(Sec. 1305) This section modifies a provision that limits the deduction for wagering losses to the extent of the gains from such transactions. The bill specifies that &quot;losses from wagering transactions&quot; include otherwise deductible expenses incurred in carrying out a wagering transaction (e.g., expenses for traveling to or from a casino). </p> <p>(Sec. 1306) This section modifies the deduction for charitable contributions to: (1) increase from 50% to 60% the income-based percentage limitations for contributions of cash to public charities, (2) prohibit a charitable deduction for college athletic event seating rights, (3) replace the statutory charitable mileage rate of 14 cents per mile with a rate that takes into account the variable cost of operating an automobile (adjusted for inflation), (4) repeal the exception to substantiation requirements for certain contributions reported by the donee organization. </p> <p>(Sec. 1307) This section repeals the deduction for expenses paid or incurred in connection with determination, collection, or refund of any tax. </p> <p>(Sec. 1308) This section repeals the deduction for unreimbursed medical expenses. </p> <p>(Sec. 1309) This section repeals the deduction for alimony or separate maintenance payments from the payer spouse and the corresponding inclusion of the payments in the gross income of the recipient spouse. </p> <p>(Sec. 1310) This section repeals the deduction for moving expenses, with an exception for moving expense of members of the Armed Forces. </p> <p>(Sec. 1311) This section repeals the deductions and exclusions for contributions to Archer Medical Savings Accounts. </p> <p>(Sec. 1312) This section prohibits any deduction for expenses attributable to the trade or business of being an employee, except for expenses that are deductible from gross income (above-the-line deductions). </p> <p>This section also repeals the above-the-line deductions for: (1) certain expenses of performing artists; (2) expenses of state or local government officials performing services on a fee basis; and (3) expenses of elementary and secondary school teachers for professional development or books, supplies, equipment, and materials used in the classroom. </p> <p>Subtitle E--Simplification and Reform of Exclusions and Taxable Compensation </p> <p>(Sec. 1401) This section modifies the exclusion for employer-provided housing to: (1) limit the exclusion to $50,000 ($25,000 in the case of a married individual filing a separate return), subject to a phase-out for certain highly compensated employees; (2) deny the deduction to 5% owners; and (2) prohibit the exclusion from applying to more than one residence of the taxpayer at any given time. </p> <p>(Sec. 1402) The section modifies the exclusion of gain from the sale of principal residence to: (1) extend the time-period during which a taxpayer must own and use the residence as a principal residence to at least five of the eight years before the sale or exchange (two of five years under current law), (2) limit the exclusion to one sale or exchange during any five-year period, and (3) phase out the exclusion when a taxpayer's average AGI for the tax year and the two preceding years exceeds $250,000 ($500,000 if married filing a joint return). </p> <p>(Sec. 1403) This section repeals: (1) the exclusion from gross income of the value of certain employee achievement awards, and (2) the limitation on the deduction for the cost of employee achievement awards. </p> <p>(Sec. 1404) This section repeals the exclusions from gross income and wages for employer-provided dependent care assistance programs for taxable years beginning after December 31, 2022. </p> <p>(Sec. 1405) This section repeals the exclusion from gross income and wages for qualified moving expense reimbursements. </p> <p>(Sec. 1406) This section repeals the exclusion from gross income for adoption assistance programs. </p> <p>Subtitle F--Simplification and Reform of Savings, Pensions, Retirement </p> <p>(Sec. 1501) This section repeals the rule that allows Individual Retirement Arrangement (IRA) contributions to one type of IRA (traditional or Roth) to be recharacterized as a contribution to the other type of IRA. </p> <p>(Sec. 1502) This section reduces from 62 to 59 1/2 the minimum age for in-service distributions under pension plans and deferred compensation plans of state and local government employers (governmental section 457[b] plans). </p> <p>(Sec. 1503) The Department of the Treasury must modify regulations governing hardship distributions from certain retirement plans to: (1) delete the requirement that an employee be prohibited from making elective deferrals and employee contributions for six months after the receipt of a hardship distribution in order for the distribution to be deemed necessary to satisfy an immediate and heavy financial need, and (2) make any other modifications necessary to carry out the purposes of the rule allowing elective deferrals to be distributed in the case of hardship. </p> <p>(Sec. 1504) This section allows earnings on elective deferrals under a section 401(k) plan, as well as qualified nonelective contributions and qualified matching contributions (and associated earnings), to be distributed on account of hardship. A distribution is not treated as failing to be on account of hardship solely because the employee does not take any available plan loan. </p> <p>(Sec. 1505) This section extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution. A &quot;qualified plan loan offset amount&quot; is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the employee's separation from service, whether due to layoff, cessation of business, termination of employment, or otherwise. </p> <p>(Sec. 1506) This section modifies the nondiscrimination requirements for certain defined benefit retirement plans that: (1) limit participation or certain features to a closed class, such as individuals who were hired before a certain date; or (2) have closed or ceased benefit accruals for all participants (frozen plan).</p> <p>Subtitle G--Estate, Gift, and Generation-skipping Transfer Taxes </p> <p>(Sec. 1601) This section doubles the estate and gift tax exemption amount for decedents dying and gifts made after December 31, 2017, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.) </p> <p>(Sec. 1602) This section repeals the estate and generation-skipping transfer taxes for the estates of decedents dying or generation-skipping transfers after December 31, 2024. </p> <p>TITLE II--ALTERNATIVE MINIMUM TAX REPEAL </p> <p>(Sec. 2001) This section repeals the individual and corporate alternative minimum taxes. </p> <p>TITLE III--BUSINESS TAX REFORM </p> <p>Subtitle A--Tax Rates </p> <p>(Sec. 3001) This section reduces the corporate tax rate from a maximum of 35% under the existing graduated rate structure to a flat 20% rate (25% for personal services corporations).</p> <p>The bill also reduces the 70% dividends received deduction to 50% and the 80% dividends received deduction to 65%. </p> <p>The bill imposes an increased tax on taxpayers who violate rules requiring the use of a normalization method of accounting. </p> <p>This section applies to tax years beginning after 2017. </p> <p>Subtitle B--Cost Recovery </p> <p>(Sec. 3101) This section allows increased expensing of the costs of certain business property. The bill: </p> <ul> <li> allows 100% expensing for certain business property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024 for longer production period property and certain aircraft); </li> <li> removes the requirement that the original use of qualified property must commence with the taxpayer, subject to certain acquisition requirements and anti-abuse rules; </li> <li> excludes from the definition of &quot;qualified property&quot; the property of certain businesses that are not subject to the limitation on interest expenses; and </li> <li> increases from $8,000 to $16,000 the limit on depreciation deductions for certain passenger automobiles acquired and placed in service after September 27, 2017, and before January 1, 2023.</li> </ul> <p>Subtitle C--Small Business Reforms </p> <p>(Sec. 3201) This section expands the expensing of certain depreciable business assets that is currently permitted under section 179 of the IRC. </p> <p>The provision modifies section 179 to: </p> <ul> <li> increase the maximum amount a taxpayer may expense to $5 million (currently $500,000) for taxable years beginning before January 1, 2023;</li> <li> increase the phaseout threshold amount to $20 million (currently $2 million) for taxable years beginning before January 1, 2023;</li> <li> index the amounts for inflation after 2018, and </li> <li> expand the definition of qualified real property to include qualified energy efficient heating and air-conditioning property acquired and placed in service by the taxpayer after November 2, 2017. </li> </ul> <p>(Sec. 3202) This section modifies the accounting rules for small businesses to: </p> <ul> <li> expand the group of taxpayers who qualify for the cash accounting method by increasing the limit for the gross receipts test from $5 million to $25 million (adjusted for inflation after 2018),</li> <li> allow any farming C corporation (or farming partnership with a C corporation partner) that meets the gross receipts test to use the cash method of accounting, </li> <li> exempt taxpayers that meet the gross receipts test from certain requirements to account for inventories, </li> <li> expand the exceptions for small taxpayers from the uniform capitalization rules to include any producer or reseller that meets the gross receipts test, and </li> <li> expand the exception for small construction contracts from the requirement to use the percentage-of-completion method. </li> </ul> <p>(Sec. 3203) This section exempts certain small businesses that meet the gross receipts test from the limitation on the deduction for business interest. </p> <p>(Sec. 3204) This section modifies the tax treatment of S corporation conversions to C corporations. </p> <p>Subtitle D--Reform of Business-related Exclusions, Deductions, etc. </p> <p>(Sec. 3301) This section limits the deduction for business interest to the sum of: (1) business interest income for the year, (2) 30% of the adjusted taxable income of the taxpayer for the taxable year, and (3) the floor plan financing interest of the taxpayer for the taxable year. </p> <p>The amount of any business interest not allowed as a deduction for any year may be carried forward for up to five years beyond the year in which the business interest was paid or accrued, treating business interest as allowed as a deduction on a first-in, first-out basis. </p> <p>&quot;Business interest income&quot; is 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. It does not include investment interest or investment income. </p> <p>&quot;Floor plan financing interest&quot; is interest paid on debt used to finance the acquisition of motor vehicles held for sale to retail customers and secured by the inventory so acquired. </p> <p>The bill includes exceptions for: </p> <ul> <li> small businesses that meet the gross receipts test, </li> <li> the trade or business of performing services as an employee, </li> <li> a real property trade or business, and </li> <li> certain regulated public utilities. </li> </ul> <p>(Sec. 3302) This section modifies the net operating loss deduction to: (1) limit the deduction to 90% of taxable income, (2) adjust carryover amounts to account for the new limitation allow and allow an indefinite carryforward of net operating losses, (3) repeal the two-year and other specified carryback provisions, and (4) allow a one-year carryback for certain disaster losses incurred in the trade or business of farming or by certain small businesses. </p> <p>(Sec. 3303) This section modifies the rule providing for the nonrecognition of gain in the case of like-kind exchanges to limit the application of the rule to real property that is not held primarily for sale. </p> <p>(Sec. 3304) This section requires a contribution to capital, other than a contribution of money or property made in exchange for stock of a corporation or any interest in an entity, to be included in the gross income of a corporation. </p> <p>(Sec. 3305) This section eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government. </p> <p>(Sec. 3306) This section repeals the deduction for income attributable to domestic production activities. </p> <p>(Sec. 3307) This section modifies the tax treatment of certain expenses for entertainment and fringe benefits. </p> <p>The bill denies deductions for amounts paid or incurred for: </p> <ul> <li> an activity generally considered to be entertainment, amusement or recreation; </li> <li> membership dues for any club organized for business, pleasure, recreation or other social purposes; </li> <li> a de minimis fringe that is primarily personal in nature and involving property or services that are not directly related to the taxpayer's trade or business; </li> <li> a facility or portion thereof used in connection with any of the above items; </li> <li> a qualified transportation fringe, including costs of operating a facility used for qualified parking, and </li> <li> an on-premises athletic facility provided by an employer to its employees. </li> </ul> <p>The bill specifies requirements for the IRS regulations implementing this section. </p> <p>The bill also: (1) includes exceptions for certain expenses that are treated as compensation or includible in the income of the recipient, (2) modifies the rules regarding reimbursed expenses, and (3) specifies that the exception to the 50% deduction limit for food or beverages applies to any expense excludible from the gross income of the recipient related to meals furnished for the convenience of the employer. </p> <p>(Sec. 3308) This section includes in unrelated business taxable income of a tax-exempt organization any expenses paid or incurred by the organization for certain fringe benefits for which a deduction is not allowed under section 274 of the IRC, including qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility. </p> <p>(Sec. 3309) This section limits the deduction for Federal Deposit Insurance Corporation premiums for certain financial institutions with consolidated assets that exceed $10 billion. </p> <p>(Sec. 3310) This section repeals a provision that permits the tax-free rollover of certain gains from the sale of publicly traded securities into common stock or a partnership interest in a specialized small business investment company. </p> <p>(Sec. 3311) This section excludes certain patents, inventions, models, designs, secret formulas, or processes created by the taxpayer from the definition of a ''capital asset.'' </p> <p>(Sec. 3312) This section repeals the special rule for the sale or exchange of patents by the holder of the patent that treats the sale or exchange as the sale of a capital asset. </p> <p>(Sec. 3313) This section repeals the rule that provides for a technical termination of partnerships if, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. </p> <p>(Sec. 3314) This section requires a three-year holding period (one year under current law) for certain net long-term capital gains with respect to partnership interests held in connection with the performance of investment services. If the holder of an applicable partnership interest is allocated gain from the sale of property held for less than three years, that gain is treated as short-term capital gain and is taxed as ordinary income. </p> <p>(Sec. 3315) This section adjusts the amortization rules and schedules for certain research and experimentation expenditures. </p> <p>(Sec. 3316) This section prohibits attorneys from deducting legal expenses paid or incurred for contingency fee cases until the contingency is resolved. </p> <p>Subtitle E--Reform of Business Credits </p> <p>(Sec. 3401) This section repeals the credit for clinical testing expenses incurred in testing certain drugs for rare diseases or conditions (commonly referred to as orphan drugs). </p> <p>(Sec. 3402) This section repeals the credit for employer-provided child care. </p> <p>(Sec. 3403) This section repeals the credit for rehabilitation expenditures for certain buildings. </p> <p>(Sec. 3404) This section repeals the work opportunity tax credit.</p> <p>(Sec. 3405) This section repeal the deduction for certain unused business credits. </p> <p>(Sec. 3406) This section repeals the new markets tax credit. </p> <p>(Sec. 3407) This section repeals the credit for eligible expenditures of a small business to comply with requirements under the Americans with Disabilities Act of 1990. </p> <p>(Sec. 3408) This section revises the amount of the credit for the portion of employer Social Security taxes that are paid with respect to employee tips. </p> <p>Subtitle F--Energy Credits </p> <p>(Sec. 3501) This section modifies the credit for electricity produced from certain renewable resources to: (1) terminate the inflation adjustment for wind facilities with construction that begins after enactment of this bill to allow a credit of 1.5 cents per kilowatt hour (currently 2.4 cents for 2017), and (2) specify requirements for determining the beginning of construction. </p> <p>(Sec. 3502) This section modifies the credit for investment in energy property to extend the energy credit for fiber optic solar, fuel cell, microturbine, and combined heat and power system, geothermal heat pump, and small wind property for property with construction that begins before January 1, 2022. </p> <p>With respect to fiber optic solar, fuel cell, and small wind property, the bill reduces the 30% credit rate to 26% for property with construction that begins in 2020 and to 22% for property with construction that begins in 2021. For fuel cell property or small wind energy property, the credit rate is reduced to 10% if the property is not placed in service before 2024.</p> <p> The bill terminates the permanent credits for solar and geothermal property after 2027. </p> <p>The bill also specifies that construction may not be treated as beginning before any date unless there is a continuous program of construction which begins before the date and ends on the date that the property is placed in service.</p> <p>(Sec. 3503) This section extends the residential energy efficient property credit for fuel cell, small wind, and geothermal heat pump property expenditures through December 31, 2021. The bill reduces the credit rate for the property from 30% to 26% for property placed in service in 2020 and to 22% for property placed in service in 2021. </p> <p>(Sec. 3504) This section repeals the enhanced oil recovery credit. </p> <p>(Sec. 3505) This section repeals the credit for producing oil and gas from marginal wells. </p> <p>(Sec. 3506) This section modifies the tax credit for the production of electricity from advanced nuclear power facilities to: (1) establish requirements for the allocation of unutilized portions of the national megawatt capacity limitation, and (2) allow public entities to transfer the credit to project partners. </p> <p>Subtitle G--Bond Reforms </p> <p>(Sec. 3601) This section terminates the exclusion for interest on qualified private activity bonds. </p> <p>(Sec. 3602) This section repeals the exclusion from gross income for interest on a bond issued to advance refund another bond. </p> <p>(Sec. 3603) This section repeals the authority to issue tax-credit bonds and direct-pay bonds. </p> <p>(Sec. 3604) This section prohibits tax-exempt bonds from being used to finance professional sports stadiums.</p> <p>Subtitle H--Insurance </p> <p>(Sec. 3701) This section repeals the operations losses deduction for life insurance companies and allows the net operating loss deduction under section 172 of the IRC. </p> <p>(Sec. 3702) This section repeals the small life insurance company deduction. </p> <p>(Sec. 3703) This section imposes an additional 8% income tax on life insurance company taxable income. </p> <p>(Sec. 3704) This section revises the tax treatment of income or loss resulting from a change in the method of computing life insurance company reserves. The bill eliminates the 10-year period for taking into account the changes and requires the changes to be taken into account as adjustments attributable to a change in method of accounting.</p> <p>(Sec. 3705) This section repeals the special rule for distributions to shareholders of a stock life insurance company from a pre-1984 policyholders surplus account, which provides that amounts in the account are not taxed unless the amounts are treated as distributed to shareholders or subtracted from the account. The bill requires a life insurance company with such an account to pay taxes on the balance of the account ratably over the first eight taxable years beginning after December 31, 2017. </p> <p>(Sec. 3706) This section modifies the proration rules for property and casualty insurance companies to replace the 15% reduction under current law with a 26.25% reduction. (Under the proration rules, in calculating the deductible amount of its reserve for losses incurred, a property or casualty insurance company must reduce the amount of the losses incurred by a specified percentage of: (1) the insurer's tax-exempt interest, (2) the deductible portion of dividends received, and (3) the increase for the taxable year in the cash value of life insurance, endowment, or annuity contracts the company owns.) </p> <p>(Sec. 3707) This section modifies the reserve discounting rules applicable to property and casualty insurance companies to: (1) modify the interest rate, (2) extend the periods applicable under the loss payment pattern, and (3) repeal the election to use a taxpayer's historical loss payment pattern. </p> <p>(Sec. 3708) This section repeals the special estimated tax payment rules for insurance companies. </p> <p>Subtitle I--Compensation </p> <p>(Sec. 3801) This section modifies a provision that limits the deduction for compensation of covered employees of a publicly held corporation to salaries of no more than $1 million per year. The bill: (1) repeals the performance-based compensation and commission exceptions, (2) modifies the definition of &quot;covered employee,&quot; and (3) expands the definition of &quot;publicly held corporation.&quot; </p> <p>(Sec. 3802) This section imposes an excise tax on excess tax-exempt organization executive compensation. The tax is equal to 20% of the sum of: (1) any remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and (2) any excess parachute payment (separation pay), as specified in the bill. </p> <p>(Sec. 3803) This section allows qualified employees to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer. </p> <p>Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) have been one of the four highest compensated officers of the corporation during any of the 10 preceding taxable years. </p> <p>TITLE IV--TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS </p> <p>Under current law, the earnings of foreign subsidiaries of U.S. multinational corporations are not taxed until the income is repatriated (paid as dividends) into the United States. The corporations are allowed a tax credit against U.S. taxes for taxes paid to foreign jurisdictions. This title establishes a territorial system in which foreign source income is not subject to regular U.S. taxes. </p> Subtitle A--Establishment of Participation Exemption System for Taxation of Foreign Income <p>(Sec. 4001) This section establishes a participation exemption system for foreign income. Under the system, the bill allows a 100% deduction for the foreign-source portion of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations. </p> <p>A &quot;specified 10% owned foreign corporation&quot; is any foreign corporation with respect to which any domestic corporation is a U.S. shareholder. It does not include a passive foreign investment company that is not a controlled foreign corporation (CFC). </p> <p>No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to any dividend for which a deduction is allowed under this section</p> <p>The bill establishes a six-month holding period requirement for dividends of a domestic corporation to be eligible for a participation dividends received deduction. </p> <p>(Sec. 4002) This section applies the participation exemption to investments in U.S. property by specifying that the tax for CFC investments in U.S. property with respect to a domestic corporation is zero. </p> <p>(Sec. 4003) This section specifies that, solely for the purpose of determining a loss, a domestic corporate shareholder's adjusted basis in the stock of a specified 10% owned foreign corporation is reduced by the portion of any dividend received with respect to such stock from such foreign corporation that was not taxed by reason of a dividends received deduction. </p> <p>If a domestic corporation transfers substantially all of the assets of a foreign branch to a foreign corporation which, after such transfer, is a specified 10% owned foreign corporation with respect to which the domestic corporation is a U.S. shareholder, the domestic corporation must include in gross income an amount equal to the transferred loss amount, subject to certain limitations. </p> <p>(Sec. 4004) This section specifies rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. The bill deems the earnings to be repatriated and impose taxes of: (1) 14% for earnings held in liquid form, and (2) 7% for accumulated foreign earnings that have been reinvested in the foreign subsidiary's business. </p> <p>Subtitle B--Modifications Related to Foreign Tax Credit System </p> <p>(Sec. 4101) This section repeals the deemed-paid credit with respect to dividends received by a domestic corporation that owns 10% or more of the voting stock of a foreign corporation. The bill allows a deemed-paid credit with respect to any income inclusion under subpart F. The credit is limited to the amount of foreign income taxes properly attributable to the subpart F inclusion.</p> <p>(Sec. 4102) This section requires gains, profits, and income from the sale or exchange of inventory property produced partly in, and partly outside, the United States to 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. </p> <p>Subtitle C--Modification of Subpart F Provisions </p> <p>(Sec. 4201) This section repeals the requirement for a U.S. shareholder in a CFC that invested previously excluded subpart F income in foreign base company shipping operations to include in income a pro rata share of the previously excluded subpart F income when the CFC decreases the investments. </p> <p>(Sec. 4202) This section repeals provisions that treat foreign base company oil related income as category of subpart F income. </p> <p>(Sec. 4203) This section adds an inflation adjustment for the de minimis exception for foreign base company income. </p> <p>(Sec. 4204) The provision makes permanent the exclusion from foreign personal holding company income for certain dividends, interest, rents, and royalties received or accrued by one CFC from a related CFC. </p> <p>(Sec. 4205) This section modifies the stock attribution rules for determining status as a CFC. Certain stock of a foreign corporation owned by a foreign person must be attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation.</p> <p>(Sec. 4206) This section eliminates the requirement for a corporation to be controlled for an uninterrupted period of 30 days before subpart F inclusions apply. </p> <p>Subtitle D--Prevention of Base Erosion </p> <p>(Sec. 4301) This section requires a U.S. shareholder of any CFC to include in gross income 50% of shareholder's foreign high return amount for the year, as calculated using a formula specified in this bill. </p> <p>(Sec. 4302) This section limits the deduction for interest expenses of domestic corporations which are members of an international financial reporting group. </p> <p>For a domestic corporation which is a member of any international financial reporting group, the deduction for interest paid or accrued during the year may not exceed the sum of the member's interest income plus the allowable percentage of 110% of net interest expense. </p> <p>An &quot;international financial reporting group&quot; is a group that: (1) includes at least one foreign corporation engaged in a U.S. trade or business or at least one domestic corporation and one foreign corporation at any time during the group's reporting year, (2) prepares consolidated financial statements in accordance specified principles or standards, and (3) has average annual gross receipts that exceed $100 million. </p> <p>(Sec. 4303) This section imposes a 20% excise tax on payments from domestic corporations to related foreign corporations to the extent that the amounts are deductible by the U.S. payor. The excise tax does not apply if the foreign recipient elects to be subject to U.S. income tax on the amounts received. </p> <p>Subtitle E--Provisions Related to Possessions of the United States </p> <p>(Sec. 4401) This section extends the rules that apply to the deduction for income attributable to domestic production activities in Puerto Rico.</p> <p> (Sec. 4402) This section extends for six years the increase in the limit on the amount of excise taxes on rum covered over to Puerto Rico and the Virgin Islands. (Under the provision, the limitation of $13.25 per proof gallon is extended for rum brought into the United States after December 31, 2016, and before January 1, 2023. After December 31, 2022, the limit reverts to $10.50 per proof gallon.) </p> <p>(Sec. 4403) This section extends the American Samoa economic development credit for five years. </p> <p>Subtitle F--Other International Reforms </p> <p>(Sec. 4501) This section modifies the exception from the passive foreign investment company rules for insurance businesses. The bill replaces the test based on whether a corporation is predominantly engaged in an insurance business with a test based on the corporation's insurance liabilities. </p> <p>TITLE V--EXEMPT ORGANIZATIONS </p> <p>Subtitle A--Unrelated Business Income Tax </p> <p>(Sec. 5001) This section specifies that a tax-exempt organization does not fail to be subject to tax on its unrelated business income solely because the organization also is exempt, or excludes amounts from gross income, by reason of another provision of the IRC. </p> <p>(Sec. 5002) This section modifies the exclusion of research income from the tax on unrelated business income to limit the exclusion to fundamental research the results of which are freely available to the general public. </p> <p>Subtitle B--Excise Taxes </p> <p>(Sec. 5101) This section replaces the two excise tax rates for the net investment income of tax-exempt private foundations with a single tax rate of 1.4%. It repeals the reduced excise tax rate for private foundations that exceed their historical level of qualifying distributions. </p> <p>(Sec. 5102) This section prohibits an organization that operates an art museum as a substantial activity from qualifying as a private operating foundation unless the museum is open during normal business hours to the public for at least 1,000 hours during the taxable year. </p> <p>(Sec. 5103) This section imposes a 1.4% excise tax on the net investment income of certain private colleges and universities that have at least 500 students. </p> <p>(Sec. 5104) This section creates an exception to the excise taxes on excess business holdings for the holdings of a private foundation in any business enterprise that meets specified requirements relating to exclusive ownership, minimum distribution of net operating income for the charitable purpose (all profits to charity distribution requirement), and independent operation (not controlled by a substantial contributor or family members) from the excise taxes on excess business holdings. </p> <p>Subtitle C--Requirements for Organizations Exempt From Tax </p> <p>(Sec. 5201) This section permits a tax-exempt organization to make certain statements related to a political campaign without losing its tax-exempt status. </p> <p>An organization may not lose its tax-exempt status under section 501(c)(3) or 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 statement that: (1) is made in the ordinary course of the organization's regular and customary activities in carrying out its exempt purpose, and (2) results in the organization incurring not more than de minimis incremental expenses. </p> <p>(Sec. 5202) This section establishes additional reporting requirements for organizations that sponsor donor advised funds. (A donor advised fund is a fund or account that is separately identified by reference to contributions of a donor or donors. The account is owned and controlled by a sponsoring charitable organization, while the donor retains advisory privileges with respect to the distribution and investment of funds in the account.) </p>

action_date: 2017-12-15
action_desc: Conference report filed in House
text: <p>This bill amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. It also establishes an oil and gas leasing program for the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. </p> <p>(Unless otherwise specified, provisions referred to in this summary as temporary or as a suspension of an existing provision apply for taxable years beginning after December 31, 2017, and before January 1, 2026.) </p> <p>TITLE I</p> <p><i>Tax Cuts and Jobs Act </i></p> <p>Subtitle A-- Individual Tax Reform </p> <p>Part I--Tax Rate Reform </p> <p>(Sec. 11001) This section temporarily replaces the existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with new brackets (10%, 12%, 22%, 24%, 32%, 35% , 37%) and specifies the income levels that apply for each bracket. </p> <p>The bill also: (1) modifies the taxation of the unearned income of children, and (2) requires the Department of the Treasury to promulgate due diligence requirements for paid preparers in determining eligibility for a taxpayer to file as a head of household. </p> <p>(Sec. 11002) This section requires the chained Consumer Price Index to be used to index the brackets for inflation. </p> <p>Part II--Deduction For Qualified Business Income Of Pass-Thru Entities </p> <p>(Sec. 11011) This section temporarily allows an individual taxpayer to deduct 20% of qualified business income (i.e., business income of an individual from a partnership, S corporation, or sole proprietorship which is currently taxed using individual income tax rates), including aggregate qualified Real Estate Investment Trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. </p> <p>The bill specifies formulas for determining the taxpayer's deduction for qualified business income and for determining the deduction for certain agricultural or horticultural cooperatives. </p> <p>The deduction applies to taxable income, is not used to calculate adjusted gross income (AGI), and is available to taxpayers who do not itemize deductions. Trusts and estates are eligible for the deduction. </p> <p>The bill phases in a limitation for the deduction when wages exceed $157,500 ($315,000 in the case of a joint return). The bill also phases in a disallowance of the deduction when taxable income with respect to specified service trades or businesses exceeds the limits. The limits are fully phased in when taxable income exceeds the threshold amounts by $50,000 ($100,000 for joint returns). </p> <p>A &quot;specified service trade or business&quot; is any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. The term excludes engineering and architecture services. </p> <p>(Sec. 11012) This section temporarily prohibits taxpayers other than corporations from claiming excess business losses. </p> <p>An excess business loss for the taxable year is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus $250,000 (200% of the amount in the case of a joint return). The threshold amount is indexed for inflation after 2018. </p> <p>In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner's distributive share and each S corporation shareholder's pro rata share of items of income, gain, deduction, or loss of the partnership or S corporation are taken into account in applying the limitation under the provision for the taxable year of the partner or S corporation shareholder. </p> <p>Losses prohibited under this section are carried forward and treated as part of the taxpayer's net operating loss carryforward in subsequent taxable years. </p> <p>Part III--Tax Benefits For Families And Individuals </p> <p>(Sec. 11021) This section temporarily increases the standard deduction to $24,000 for married individuals filing a joint return, to $18,000 for head-of-household filers, and to $12,000 for all other taxpayers. The amount of the standard deduction is indexed for inflation after 2018 using the chained CPI. </p> <p>(Under current law, the standard deduction for 2017 is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses.) </p> <p>(Sec. 11022) This section modifies the child tax credit to temporarily: (1) increase the credit to $2,000 ($1,000 under current law) per qualifying child under the age of 17, and (2) allow a $500 nonrefundable credit for each dependent of the taxpayer who is not a qualifying child under age 17. </p> <p>The credit is phased out at AGI levels of $400,000 for married taxpayers filing joint returns and $200,000 for individuals. </p> <p>The refundable portion of the credit is limited to $1,400 per qualifying child. In order to receive the credit, a taxpayer must include a Social Security number for each qualifying child for whom the credit is claimed on the tax return. The requirement does not apply to a non-child dependent for whom the $500 non-refundable credit is claimed. </p> <p>(Sec. 11023) This section modifies the deduction for charitable contributions to temporarily increase from 50% to 60% the income-based percentage limitation for contributions of cash to public charities.</p> <p>(Sec. 11024) This section temporarily increases contribution limitations for ABLE accounts with respect to contributions made by the designated beneficiary of the account. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.) </p> <p>After the limit is reached, the designated beneficiary may contribute an additional amount up to the lesser of: (1) the federal poverty line for a one-person household, or (2) the individual's compensation for the taxable year. </p> <p>The bill also allows the designated beneficiary of an ABLE account to claim the saver's credit for contributions made to his or her account. </p> <p>(Sec. 11025) This section allows funds from qualified tuition programs (known as 529 plans) to be rolled over to an ABLE account without penalty if the ABLE account is owned by the designated beneficiary of the 529 account or a member of the designated beneficiary's family. </p> <p>(Sec. 11026) This section temporarily allows certain members of the Armed Forces in the Sinai Peninsula of Egypt to receive combat zone tax benefits for performing services that qualify for special pay for duty subject to hostile fire or imminent danger. </p> <p>(Sec. 11027) For 2017 and 2018, this section reduces from 10% to 7.5% the AGI threshold that must be exceeded before a taxpayer is allowed to claim an itemized deduction for medical expenses. </p> <p>(Sec. 11028) This section provides tax incentives for areas in which a major disaster was declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. </p> <p>For individuals residing in the 2016 disaster areas, the bill allows: (1) exceptions to the 10% penalty for up to $100,000 in early withdrawals from retirement plans, and (2) personal casualty losses exceeding $500 per casualty to be deducted without regard to whether aggregate net losses exceed 10% of a taxpayer's AGI. </p> <p>Part IV--Education </p> <p>(Sec. 11031) This section temporarily modifies the exclusion of student loan discharges from gross income to exclude from gross income certain discharges on account of the death or total and permanent disability of the student. </p> <p>(Sec. 11032) This section allows funds from 529 accounts to be used for expenses for: (1) tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school; and (2) specified expenses in connection with a home school. </p> <p>Part V--Deductions And Exclusions </p> <p>(Sec. 11041) This section: (1) suspends the deduction for personal exemptions, (2) modifies the wage withholding rules, (3) and modifies the requirements that determine who is required to file a tax return. </p> <p>(Sec. 11042) This section temporarily limits individual deductions for certain state and local taxes to $10,000 per year ($5,000 for a married taxpayer filing a separate return). The limit does not apply to taxes paid or accrued in carrying on a trade or business or for expenses for the production of income. </p> <p>(Sec. 11043) This section modifies the deduction for home mortgage interest to: (1) limit the deduction to mortgages for a principal residence, (2) temporarily limit the deduction for debt incurred on or before December 15, 2017, to mortgages of up to $750,000 (currently $1 million), and (3) suspend the deduction for interest paid on home equity loans. </p> <p>For taxable years beginning after 2025, the deduction applies to mortgages of up to $1 million regardless of when the indebtedness was incurred. </p> <p>(Sec. 11044) This section temporarily modifies the deduction for personal casualty and theft losses. A taxpayer may only claim the deduction for a personal casualty loss if the loss is attributable to a federally declared disaster. The bill includes an exception for certain personal casualty losses that do not exceed personal casualty gains. </p> <p>(Sec. 11045) This section suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law. </p> <p>(Sec. 11046) This section suspends the overall limitation on itemized deductions, which currently applies when AGI exceeds a specified amount.</p> <p>(Sec. 11047) This section suspends the exclusion for qualified bicycle commuting reimbursements. </p> <p>(Sec. 11048) This section suspends the exclusion for qualified moving expense reimbursements, with an exception for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.</p> <p>(Sec. 11049) This section suspends the deduction for moving expenses. </p> <p>(Sec. 11050) This section temporarily modifies a provision that limits the deduction for wagering losses to the extent of the gains from such transactions. The bill specifies that &quot;losses from wagering transactions&quot; include otherwise deductible expenses incurred in carrying out a wagering transaction (e.g., expenses for traveling to or from a casino). </p> <p>(Sec. 11051) This section repeals the deduction for alimony or separate maintenance payments from the payor spouse and the corresponding inclusion of the payments in the gross income of the recipient spouse. </p> <p>Part VI--Increase In Estate And Gift Tax Exemption </p> <p>(Sec. 11061) This section doubles the estate and gift tax exemption amount for decedents dying or gifts made after December 31, 2017, and before January 1, 2026, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.) </p> <p>Part VII--Extension Of Time Limit For Contesting IRS Levy </p> <p>(Sec. 11071) This section extends from nine months to two years the time limit for contesting an Internal Revenue Service (IRS) levy, including the time periods for: (1) returning the monetary proceeds from the sale of property that has been wrongfully levied upon, and (2) bringing a civil action for a wrongful levy. </p> <p>Part VIII--Individual Mandate </p> <p>(Sec. 11081) This section repeals the penalty for individuals who fail to maintain minimum essential health coverage as required by the Patient Protection and Affordable Care Act (commonly referred to as the individual mandate). </p> <p>Subtitle B--Alternative Minimum Tax </p> <p>(Sec. 12001) This section repeals the corporate alternative minimum tax (AMT). </p> <p>(Sec. 12002) This section modifies the AMT credit for corporations to: (1) allow the AMT credit to offset regular tax liability for any taxable year, and (2) make the credit refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. </p> <p>(Under current law a corporation subject to the AMT in any year is allowed an AMT credit in any subsequent taxable year to the extent that the taxpayer's regular tax liability exceeds its tentative minimum tax in the subsequent year.) </p> <p>(Sec. 12003) This section temporarily increases both the exemption amount and the exemption amount phaseout thresholds for the individual AMT. The exemption amount is increased to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return), and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return, and $500,000 for all other taxpayers (other than estates and trusts). The amounts are indexed for inflation after 2018.</p> <p>Subtitle C--Business-related Provisions </p> <p>Part I--Corporate Provisions </p> <p>(Sec. 13001) This section reduces the corporate tax rate from a maximum of 35% under the existing graduated rate structure to a flat 21% rate for tax years beginning after 2017. The bill specifies requirements for taxpayers subject to the normalization method of accounting. </p> <p>(Sec. 13002) With respect to the deduction for corporations that receive dividends from other taxable corporations, the bill reduces the 70% dividends received deduction to 50% and the 80% dividends received deduction to 65% to account for the lower corporate tax rate. </p> <p>Part II--Small Business Reforms </p> <p>(Sec. 13101) This section expands the expensing of certain depreciable business assets that is currently permitted under section 179 of the IRC. </p> <p>The bill modifies section 179 to: </p> <ul> <li> increase the maximum amount a taxpayer may expense per year to $1 million (currently $500,000); </li> <li> increase the phaseout threshold for the cost of section 179 property placed in service during the year to $2.5 million (currently $2 million); </li> <li> index the amounts above and the existing $25,000 limit for sport utility vehicles for inflation; </li> <li> revise the definition of qualified real property eligible for section 179 expensing to include any qualified improvement property and certain improvements to nonresidential real property placed in service after the date such property was first placed in service (roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems); and </li> <li> expand the definition of section 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. </li> </ul> <p>(Sec. 13102) This section modifies the accounting rules for small businesses to: </p> <ul> <li>expand the group of taxpayers who qualify for the cash accounting method by increasing the limit for the gross receipts test from $5 million to $25 million (adjusted for inflation after 2018), </li> <li> allow any farming C corporation (or farming partnership with a C corporation partner) that meets the gross receipts test to use the cash method of accounting, </li> <li> exempt taxpayers that meet the gross receipts test from certain requirements to account for inventories, </li> <li> expand the exceptions for small businesses from the uniform capitalization rules to include any producer or reseller that meets the gross receipts test, and </li> <li> expand the exception for small construction contracts from the requirement to use the percentage-of-completion method. </li> </ul> <p>Part III--Cost Recovery And Accounting Methods </p> <p>Subpart A--Cost Recovery </p> <p>(Sec. 13201) This section temporarily allows increased expensing of the costs of certain business property. </p> <p>The bill allows 100% expensing for: (1) certain business property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024 for longer production period property and certain aircraft); and (2) specified plants that bear fruits or nuts and are planted or grafted after September 27, 2017, and before January 1, 2023. </p> <p>The 100% allowance is phased down by 20% per year calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022 (after 2023 for longer production period property and certain aircraft). </p> <p>The bill also: </p> <ul> <li> expands the definition of &quot;qualified property&quot; eligible for expensing to include certain film, television, and live theatrical productions; </li> <li> removes the requirement that the original use of qualified property must commence with the taxpayer, subject to certain acquisition requirements and anti-abuse rules; and </li> <li> excludes from the definition of &quot;qualified property&quot; the property of certain businesses that are not subject to the limitation on interest expenses. </li> </ul> <p>(Sec. 13202) This section increases the depreciation limits that apply to luxury automobiles. It also removes computer or peripheral equipment from the definition of listed property that is subject to additional restrictions and substantiation requirements regarding the expense and business usage of the property. </p> <p>(Sec. 13203) This section modifies the depreciation rules for certain farm property to: (1) shorten the recovery period from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer and is placed in service after December 31, 2017; and (2) repeal the requirement to use the 150% declining balance method for property used in a farming business. </p> <p>(Sec. 13204) This section modifies the applicable recovery periods for depreciating certain real property. </p> <p>The bill eliminates the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property and applies the straight line method to qualified improvement property. It also modifies the alternative depreciation system (ADS) recovery period for such property. </p> <p>(Under current law, &quot;qualified improvement property&quot; is any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. It does not include any improvement for which the expenditure is attributable to: the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.) </p> <p>A real property trade or business electing out of the limitation on the deduction for interest must use the ADS to depreciate nonresidential real property, residential rental property, and qualified improvement property. </p> <p>(Sec. 13205) This section requires a farming business electing out of the limitation on the deduction for interest to use the ADS to depreciate any property with a recovery period of 10 years or more. </p> <p>(Sec. 13206) This section adjusts the amortization rules and schedules for certain research and experimentation expenditures. </p> <p>(Sec. 13207) This section allows expensing of certain costs of replanting lost or damaged citrus plants lost by reason of casualty. </p> <p>Subpart B--Accounting Methods </p> <p>(Sec. 13221) This section revises the rules associated with the timing of the recognition of income. </p> <p>Part IV--Business-Related Exclusions And Deductions </p> <p>(Sec. 13301) This section limits the deduction for business interest to the sum of: (1) business interest income for the year, (2) 30% of the adjusted taxable income of the taxpayer for the taxable year, and (3) the floor plan financing interest of the taxpayer for the taxable year. </p> <p>The amount of any business interest not allowed as a deduction for any year may be carried forward indefinitely, with the exception of partnerships which are subject to additional carryforward rules specified in the bill. </p> <p>&quot;Business interest income&quot; is 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. It does not include investment income. </p> <p>&quot;Floor plan financing interest&quot; is interest paid on debt used to finance the acquisition of motor vehicles held for sale or lease and secured by the inventory so acquired. </p> <p>The bill includes exceptions for: </p> <ul> <li> small businesses that meet the gross receipts test, </li> <li> the trade or business of performing services as an employee, </li> <li> any electing farming business, </li> <li> any electing real property trade or business, and </li> <li> certain regulated public utilities. </li> </ul> <p>(Sec. 13302) This section modifies the net operating loss deduction to: (1) limit the deduction to 80% of taxable income with an exception for property and casualty insurance companies, (2) repeal the two-year and other specified carryback provisions, (3) allow an indefinite carryforward of net operating losses, and (4) allow a two-year carryback for certain losses incurred in the trade or business of farming. </p> <p>(Sec. 13303) This section modifies the rule providing for the nonrecognition of gain in the case of like-kind exchanges to limit the application of the rule to real property that is not held primarily for sale. </p> <p>(Sec. 13304) This section modifies the tax treatment of certain expenses for entertainment and fringe benefits. </p> <p>The bill denies deductions for amounts paid or incurred for: </p> <ul> <li> an activity generally considered to be entertainment, amusement or recreation; </li> <li> membership dues for any club organized for business, pleasure, recreation, or other social purposes; </li> <li> a facility or portion thereof used in connection with any of the above items; </li> <li> providing any qualified transportation fringe to employees of the taxpayer; or </li> <li> providing transportation for commuting between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. </li> </ul> <p>Under current law, taxpayers may deduct 50% of the food and beverage expenses associated with operating their trade or business, subject to certain exceptions. The bill temporarily expands the 50% limitation to include expenses of an employer associated with providing food and beverages through an eating facility that meets the requirements for a de minimis fringe. </p> <p>(Sec. 13305) This section repeals the deduction for income attributable to domestic production activities. </p> <p>(Sec. 13306) This section prohibits deductions for trade or business expenses for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. </p> <p>The bill includes exceptions for amounts constituting restitution or paid to come into compliance with law, amounts paid or incurred as a result of certain court orders, and taxes due. </p> <p>The bill also establishes reporting requirements for government entities with respect to certain fines, penalties, and other amounts. </p> <p>(Sec. 13307) This section prohibits a tax deduction for trade or business expenses paid or incurred for: (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. </p> <p>(Sec. 13308) This section eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government. </p> <p>(Sec. 13309) This section requires a three-year holding period (one year under current law) for certain net long-term capital gains with respect to partnership interests held in connection with the performance of investment services. If the holder of an applicable partnership interest is allocated gain from the sale of property held for less than three years, that gain is treated as short-term capital gain and is taxed as ordinary income. </p> <p>(Sec. 13310) This section prohibits cash, gift cards, and other non-tangible personal property from being considered tax deductible employee achievement awards. </p> <p>(Under current law, tangible personal property may be considered a deductible employee achievement award if other specified requirements are met.)</p> <p>The bill specifies that &quot;tangible personal property&quot; does not include: (1) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer); or (2) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. </p> <p>(Sec. 13311) This section eliminates the deduction for living expenses incurred by Members of Congress. (Under current law, the deduction is limited to $3,000 per year.) </p> <p>(Sec. 13312) This section modifies the exclusion from gross income for contributions to the capital of a corporation to specify that a contribution to capital does not include a contribution: (1) in aid of construction or any other contribution as a customer or potential customer, or (2) by any governmental entity or civic group (other than a contribution made by a shareholder as such). </p> <p>The bill includes an exception for certain contributions made by a governmental entity pursuant to a master development plan. </p> <p>(Sec. 13313) This section repeals a provision that permits the tax-free rollover of certain gains from the sale of publicly traded securities into common stock or a partnership interest in a specialized small business investment company. </p> <p>(Sec. 13314) This section excludes certain patents, inventions, models, designs, secret formulas, or processes created by the taxpayer from the definition of a ''capital asset.'' </p> <p>Part V--Business Credits </p> <p>(Sec. 13401) This section modifies the tax credit for clinical testing expenses incurred in testing certain drugs for rare diseases or conditions (commonly referred to as orphan drugs) to reduce the credit rate to 25% (currently 50%) of qualified clinical testing expenses. </p> <p>(Sec. 13402) This section modifies the tax credit for rehabilitation expenditures to repeal the 10% credit for rehabilitated buildings other than a certified historic structure. </p> <p>The bill retains and modifies the 20% credit for rehabilitation expenditures for certified historic structures. For the five-year period beginning in the year in which a qualified rehabilitated building is placed in service, the credit is equal to the ratable share for each year, which is 20% of the qualified rehabilitation expenditures with respect to the building, as allocated ratably to each year during the period. </p> <p>(Sec. 13403) This section allows employers to claim a general business credit equal to 12.5% of wages paid to employees during any period in which such employees are on family and medical leave if the rate of payment under the program is 50% of the wages normally paid to an employee. </p> <p>The credit is increased by 0.25% (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any employee for any taxable year is 12 weeks. </p> <p>(Sec. 13404) This section repeals the authority to issue tax-credit bonds and direct-pay bonds. </p> <p>Part VI--Provisions Related To Specific Entities And Industries </p> <p>Subpart A--Partnership Provisions </p> <p>(Sec. 13501) This section sets forth requirements for the tax treatment of gains or losses of foreign persons from the sale or exchange of interests in partnerships engaged in trade or business within the United States. </p> <p>Under the bill, gain or loss from the sale or exchange of a partnership interest is effectively connected with a U.S. trade or business to the extent that the transferor would have had effectively connected gain or loss had the partnership sold all of its assets at fair market value as of the date of the sale or exchange. </p> <p>A partner's distributive share of gain or loss on the deemed sale must be determined in the same manner as the partner's distributive share of the non-separately stated taxable income or loss of the partnership. </p> <p>The bill also sets forth withholding requirements with respect to amounts realized from the sale or exchange of a partnership interest. </p> <p>(Sec. 13502) This section modifies the definition of &quot;substantial built-in loss&quot; with respect to the transfer of an interest in partnership. The bill specifies that &quot;a substantial built-in loss&quot; also exists if the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. </p> <p>(Sec. 13503) This section modifies the basis limitation on a partner's distributive share of a partnership loss to require a partner's distributive share of partnership charitable contribution and taxes paid or accrued to foreign countries and U.S. possessions to be taken into account in determining the limitation. </p> <p>(Sec. 13504) This section repeals the rule that provides for a technical termination of partnerships if, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. </p> <p>Subpart B--Insurance Reforms </p> <p>(Sec. 13511) This section repeals the operations loss deduction for life insurance companies and allows the net operating loss deduction under section 172 of the IRC. </p> <p>(Sec. 13512) This section repeals the small life insurance company deduction. </p> <p>(Sec. 13513) This section revises the tax treatment of income or loss resulting from a change in the method of computing life insurance company reserves. The bill eliminates the 10-year period for taking into account the changes and requires the changes to be taken into account as adjustments attributable to a change in the method of accounting. </p> <p>(Sec. 13514) This section repeals the special rule for distributions to shareholders of a stock life insurance company from a pre-1984 policyholders surplus account, which provides that amounts in the account are not taxed unless the amounts are treated as distributed to shareholders or subtracted from the account. The bill requires a life insurance company with such an account to pay taxes on the balance of the account ratably over the first eight taxable years beginning after December 31, 2017. </p> <p>(Sec. 13515) This section modifies the proration rules for property and casualty insurance companies to replace the 15% reduction with a reduction equal to 5.25% divided by the highest corporate tax rate in effect. (Under the top corporate rate of 21% that takes effect in 2018, the proration percentage is 25%.) </p> <p>(Under the proration rules, in calculating the deductible amount of its reserve for losses incurred, a property or casualty insurance company must reduce the amount of the losses incurred by a specified percentage of: (1) the insurer's tax-exempt interest, (2) the deductible portion of dividends received, and (3) the increase for the taxable year in the cash value of life insurance, endowment, or annuity contracts the company owns.) </p> <p>(Sec. 13516) This section repeals the special estimated tax payment rules for insurance companies. </p> <p>(Sec. 13517) This section modifies the rules for computing life insurance tax reserves that are used in determining the taxable income of a life insurance company. </p> <p>(Sec. 13518) This section modifies the life insurance company proration rule for reducing dividends received deductions and reserve deductions with respect to untaxed income. For purposes of the life insurance proration rule, the company's share is 70% and the policyholder's share is 30%. </p> <p>(Sec. 13519) This section modifies the requirements for the capitalization of policy acquisition expenses of insurance companies to extend the amortization period from 120 months to 180 months. </p> <p>Under current law, policy acquisition expenses are determined as that portion of the insurance company's general deductions for the taxable year that does not exceed a specified percentage of the net premiums for the year on each of three categories of insurance contracts. </p> <p>The bill increases these percentages from 1.75% to 2.09% for annuity contracts, from 2.05% to 2.45% for group life insurance contracts, and from 7.7% to 9.2% for all other specified insurance contracts. </p> <p>(Sec. 13520) This section establishes reporting requirements for acquisitions of life insurance contracts in a reportable policy sale. It also imposes reporting requirements on the payor in the case of the payment of reportable death benefits. </p> <p>A &quot;reportable policy sale&quot; is the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. </p> <p>(Sec. 13521) This section sets forth requirements for the determining the basis of a life insurance or annuity contract. The bill specifies that no basis adjustment shall be made for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract. </p> <p>(Sec. 13522) This section exempts the transfer of a life insurance contract, or any interest therein, in a reportable policy sale from the transfer for valuable consideration rule. </p> <p>(Under current law, the transfer for valuable consideration rule provides that, if a life insurance contract or an interest in a contract is transferred for a valuable consideration, the tax exclusion for amounts received under a life insurance contract due to the death of the insured is limited to the sum of the actual value of the consideration and the premiums and other amounts subsequently paid by the transferee.) </p> <p>(Sec. 13523) This section modifies the reserve discounting rules applicable to property and casualty insurance companies to: (1) modify the interest rate used to discount unpaid losses, (2) modify the computational rules for loss payment pattern, and (3) repeal the election to use a taxpayer's historical loss payment pattern. </p> <p>Subpart C--Banks and Financial Instruments </p> <p>(Sec. 13531) This section limits the deduction for Federal Deposit Insurance Corporation premiums for certain financial institutions with consolidated assets that exceed $10 billion. </p> <p>(Sec. 13532) This section repeals the exclusion from gross income for interest on a bond issued to advance refund another bond. </p> <p>Subpart D--S Corporations </p> <p>(Sec. 13541) This section allows a nonresident alien individual to be a qualifying beneficiary of an electing small business trust (ESBT), which is a type of trust that is permitted to hold shares in an S corporation. </p> <p>(Sec. 13542) This section specifies that the charitable contribution deduction of an ESBT is determined by the rules applicable to individuals rather than the rules applicable to trusts, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. </p> <p>(Sec. 13543) This section modifies the tax treatment of S corporation conversions to C corporations. </p> <p>Part VII--Employment </p> <p>Subpart A--Compensation </p> <p>(Sec. 13601) This section modifies a provision that limits the deduction for compensation of covered employees of a publicly held corporation to salaries of no more than $1 million per year. The bill: (1) repeals the performance-based compensation and commission exceptions, (2) modifies the definition of &quot;covered employee,&quot; and (3) expands the definition of &quot;publicly held corporation.&quot; </p> <p>The bill includes an exception for compensation that is provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. </p> <p>(Sec. 13602) This section imposes an excise tax on excess tax-exempt organization executive compensation. The tax is equal to the product of the corporate tax rate (21% under this bill) and the sum of: (1) any remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and (2) any excess parachute payment (separation pay), as specified in the bill. </p> <p>(Sec. 13603) This section allows qualified employees to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer. </p> <p>Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) is one of the four highest compensated officers of the corporation or has been during any of the 10 preceding taxable years. </p> <p>(Sec. 13604) This section increases from 15% to 20% the excise tax imposed on the value of stock compensation held by insiders of an expatriated corporation. </p> <p>Subpart B--Retirement Plans </p> <p>(Sec. 13611) This section repeals the rule that allows Individual Retirement Arrangement (IRA) contributions to one type of IRA (traditional or Roth) to be recharacterized as a contribution to the other type of IRA. </p> <p>(Sec. 13612) This section increases the limit on accruals that is required for length of service award plans (LOSAPs) for bona fide volunteers to be exempt from treatment as a deferred compensation plan. </p> <p>(Under current law, plans paying solely length of service awards to bona fide volunteers or their beneficiaries on the account of firefighting and prevention services, emergency medical services, and ambulance services performed by the volunteers are not treated as deferred compensation plans if they meet certain requirements. One of the requirements is a limit on the aggregate amount of length of service awards that may accrue with respect to any year of service for any bona fide volunteer.) </p> <p>The bill modifies the limit on accruals to: (1) increase the limit from $3,000 to $6,000; and(2) provide for a cost-of-living adjustment to the limit after 2017. </p> <p>In the case of LOSAPs that are defined benefit plans, the limit applies to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Actuarial present value is to be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant's age at the time of the calculation. </p> <p>(Sec. 13613) This section extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution. A &quot;qualified plan loan offset amount&quot; is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the severance from employment of the participant. </p> <p>Part VIII--Exempt Organizations </p> <p>(Sec. 13701) This section imposes a 1.4% excise tax on the net investment income of certain private colleges and universities. </p> <p>(Sec. 13702) This section requires tax-exempt organizations with more than one unrelated trade or business to calculate unrelated business taxable income separately with respect to each trade or business and without regard to a specified deduction that applies for certain unrelated business taxable income. </p> <p>(Sec. 13703) This section includes in unrelated business taxable income of a tax-exempt organization any expenses paid or incurred by the organization for certain fringe benefits for which a deduction is not allowed under section 274 of the IRC, including qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility. </p> <p>(Sec. 13704) This section modifies the deduction for charitable contributions to prohibit a charitable deduction for college athletic event seating rights. </p> <p>(Sec. 13705) This section modifies the deduction for charitable contributions to repeal the exception to substantiation requirements for certain contributions reported by the donee organization. </p> <p>Part IX--Other Provisions </p> <p>Subpart A--Craft Beverage Modernization and Tax Reform </p> <p>(Sec. 13801) This section excludes the aging periods for beer, wine, and distilled spirits from the production period for purposes of the uniform interest capitalization rules, which allows the producers to deduct interest expenses attributable to a shorter production period. This section does not apply to interest costs paid or accrued after December 31, 2019. </p> <p>(Sec. 13802) This section lowers the excise tax rate on beer to $16 per barrel on the first six million barrels brewed by the brewer or imported by the importer. </p> <p>For barrels of beer that have been brewed or produced outside of the United States and imported into the United States, the reduced tax rate may be assigned by the brewer to the importer, subject to specified requirements. </p> <p>(Sec. 13803) This section allows the transfer of beer between bonded facilities without payment of tax if specified requirements are met. </p> <p>(Sec. 13804) This section modifies the credit against the excise tax on wine for small domestic for 2018 and 2019 to: </p> <ul> <li> make the credit available to all wine producers and importers by removing the 250,000 wine gallon domestic production limitation; </li> <li>establish credit rates of: (1) $1.00 per wine gallon for the first 30,000 wine gallons of wine, plus; (2) 90 cents per wine gallon on the next 100,000 wine gallons of wine, plus; (3) 53.5 cents per wine gallon on the next 620,000 wine gallons of wine; </li> <li> establish adjusted credit rates for hard cider; and </li> <li> make sparkling wine producers and importers eligible for the credit. </li> </ul> <p>The bill also allows importers of wine produced outside of the United States to assign the credit to the foreign producer, subject to specified requirements. </p> <p>(Sec. 13805) The section modifies the alcohol-by-volume levels of the first two tiers of the excise tax on wine, by changing 14% to 16%. Under the provision, a wine producer or importer may produce or import still wine that has an alcohol-by-volume level of up to 16% and remain subject to the lowest rate of $1.07 per wine gallon. </p> <p>(Sec. 13806) This section specifies definitions for &quot;mead&quot; and &quot;low alcohol by volume wine&quot; that are eligible to be taxed at the lowest applicable rate for still wine. </p> <p>(Sec. 13807) This section reduces the excise tax rate for certain distilled spirits in 2018 and 2019 to: $2.70 per proof gallon on the first 100,000 proof gallons, $13.34 for all proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 for amounts thereafter. </p> <p>Members of the same controlled group may not receive the lower rate on more than 100,000 proof gallons of distilled spirits. Importers of distilled spirits are eligible for the lower rates. </p> <p>(Sec. 13808) This section allows distillers to transfer spirits in approved containers other than bulk containers in bond without payment of tax. This provision applies to distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020. </p> <p>Subpart B--Miscellaneous Provisions </p> <p>(Sec. 13821) This section modifies the tax treatment of Alaska Native Settlement Trusts, to: (1) allow an Alaska Native Corporation to assign certain payments referenced in the Alaska Native Claims Settlement Act to a trust without including the payments in the gross income of the corporation, (2) allow the corporation to elect annually to deduct contributions made to a trust, (3) allow a trust to elect to defer the recognition of gains related to contributions of property other than cash until the sale or exchange of the property, and (4) establish information reporting requirements for deductible contributions to a trust. </p> <p>(Sec. 13822) This section exempts certain payments related to the management of private aircraft from the excise taxes imposed on taxable transportation by air. </p> <p>(Sec. 13823) This section authorizes the designation of opportunity zones in low-income communities and provides various tax incentives for investments in the zones. Taxpayers may temporarily defer the recognition of capital gains that are invested in opportunity zones. Investments in opportunity zones or opportunity funds that are held for at least five years are eligible for capital gains tax reductions or exemptions, depending on how long the investment is held. </p> <p>Subtitle D--International Tax Provisions </p> <p>Under current law, the earnings of foreign subsidiaries of U.S. multinational corporations are not taxed until the income is repatriated (paid as dividends) into the United States. The corporations are allowed a tax credit against U.S. taxes for taxes paid to foreign jurisdictions. This subtitle establishes a territorial system in which foreign source income is not subject to regular U.S. taxes. </p> <p>Part I--Outbound Transactions </p> <p>Subpart A--Establishment of Participation Exemption System for Taxation of Foreign Income </p> <p>(Sec. 14101) This section establishes a participation exemption system for foreign income. Under the system, the bill allows a 100% deduction for the foreign-source portion of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations. </p> <p>A &quot;specified 10% owned foreign corporation&quot; is any foreign corporation with respect to which any domestic corporation is a U.S. shareholder. It does not include a passive foreign investment company that is not a controlled foreign corporation (CFC). </p> <p>No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to any dividend for which a deduction is allowed under this section. </p> <p>The bill establishes a one-year holding period requirement for dividends of a domestic corporation to be eligible for a participation dividends received deduction. </p> <p>(Sec. 14102) This section sets forth requirements for the tax treatment of sales or transfers involving specified 10% owned foreign corporations, including (1) sales by U.S. persons of stock, (2) required reductions in the basis of certain foreign stock, and (3) sales by a CFC of a lower-tier CFC, (4) foreign branch loess transferred to specified 10% owned foreign corporations, and (5) the repeal of the active trade or business exception. </p> <p>(Sec. 14103) This section specifies rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. </p> <p>For the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, U.S. shareholders of deferred foreign income corporations must include as subpart F income a pro rata share of the accumulated post-1986 deferred foreign income of the corporation. </p> <p>The bill allows a deduction for a portion of the pro rata share of foreign earnings. The bill also disallows a corresponding portion of the credit for foreign taxes. </p> <p>The total amount of deductions permitted is the amount necessary to result in tax rates of 15.5% for accumulated post-1986 foreign earnings held in the form of cash or cash equivalents and 8% rate for all other earnings. </p> <p>The tax may be paid in installments over eight years. </p> <p>The bill specifies rules for applying this provision to S corporations and real estate investment trusts. </p> <p>Subpart B--Rules Related to Passive and Mobile Income </p> <p>Chapter 1--Taxation Of Foreign-Derived Intangible Income And Global Intangible Low-Taxed Income </p> <p>(Sec. 14201) This section requires a U.S. shareholder of any CFC for any taxable year to include in gross income the shareholder's global intangible low-taxed income for the year. The bill specifies a formula and requirements for calculating global intangible low-taxed income. </p> <p>(Sec. 14202) This section allows deductions for domestic corporations for specified portions of the corporation's foreign-derived intangible income and global intangible low-taxed income, using specified formulas and definitions included in the bill. </p> <p>Chapter 2--Other Modifications Of Subpart F Provisions </p> <p>(Sec. 14211) This section repeals provisions that treat foreign base company oil related income as category of subpart F income. </p> <p>(Sec. 14212) This section repeals the requirement for a U.S. shareholder in a CFC that invested previously excluded subpart F income in foreign base company shipping operations to include in income a pro rata share of the previously excluded subpart F income when the CFC decreases the investments </p> <p>(Sec. 14213) This section modifies the stock attribution rules for determining status as a CFC. Certain stock of a foreign corporation owned by a foreign person must be attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation. </p> <p>(Sec. 14214) This section expands the definition of U.S. shareholder under subpart F to include any U.S. person who owns 10% or more of the total value of shares of all classes of stock of a foreign corporation. </p> <p>(Sec. 14215) This section eliminates the requirement for a corporation to be controlled for an uninterrupted period of 30 days before subpart F inclusions apply. </p> <p>Chapter 3--Prevention Of Base Erosion </p> <p>(Sec. 14221) This section modifies terms and valuation methods that apply to transfers of intangible property. The bill modifies the definition of &quot;intangible property&quot; to include: (1) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions [contractual or otherwise] of its employment); or (2) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. </p> <p>The bill removes a requirement that the item have substantial value independent of the services of an individual to be considered intangible property. </p> <p>The bill specifies authorities and requirements for Treasury to specify the method to be used to determine the valuation of transfers of intangible property. </p> <p>(Sec. 14222) This section denies a deduction for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. </p> <p>A &quot;disqualified related party amount&quot; is any interest or royalty paid or accrued to a related party to the extent that: (1) the amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (2) the related party is allowed a deduction with respect to such amount under the tax law of such country. The term does include any payment to the extent such payment is included in the gross income of a U.S. shareholder under this bill. </p> <p>A &quot;hybrid transaction&quot; is any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties under this bill and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. </p> <p>A &quot;hybrid entity&quot; is any entity which is either: (1) treated as fiscally transparent under this bill but not for the purposes of the tax law of the foreign country of which the entity is a resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this bill </p> <p>(Sec. 14223) Shareholders who receive dividends from a foreign corporation that first becomes a surrogate corporation after enactment of this bill are ineligible for the reduced rates for qualified dividends. </p> <p>Subpart C--Modifications Related to Foreign Tax Credit System </p> <p>(Sec. 14301) This section repeals the deemed-paid credit with respect to dividends received by a domestic corporation that owns 10% or more of the voting stock of a foreign corporation. The bill allows a deemed-paid credit with respect to any income inclusion under subpart F. The credit is limited to the amount of foreign income taxes properly attributable to the subpart F inclusion. </p> <p>(Sec. 14302) This section requires foreign branch income to be allocated to a specific foreign tax credit basket. Foreign branch income is the business profits of a U.S. person which are attributable to one or more qualified business units in one or more foreign countries. </p> <p>(Sec. 14303) This section requires gains, profits, and income from the sale or exchange of inventory property produced partly in, and partly outside, the United States to 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. </p> <p>(Sec. 14304) This section allows an election to increase the percentage (but not greater than 100%) of domestic taxable income offset by any pre-2018 unused overall domestic loss and recharacterized as foreign source. </p> <p>A &quot;Pre-2018 unused overall domestic loss'' is any overall domestic loss which: (1) arises in a qualified taxable year beginning before January 1, 2018, and (2) has not been used under the general rule for the recharacterization of overall domestic loss. </p> <p>Part II--Inbound Transactions </p> <p>(Sec. 14401) This section imposes on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year and specifies a formula for calculating the tax. </p> <p>An &quot;applicable taxpayer&quot; is a taxpayer who: (1) is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation; (2) has average annual gross receipts of at least $500 million for the three-year period ending with the preceding year; and (3) has a base erosion percentage, as determined using a specified formula, of at least 3% (2% for certain banks and securities dealers). </p> <p>Part III--Other Provisions </p> <p>(Sec. 14501) This section modifies the exception from the passive foreign investment company rules for insurance businesses. The bill replaces the test based on whether a corporation is predominantly engaged in an insurance business with a test based on the corporation's insurance liabilities. </p> <p>(Sec. 14502) This section specifies that all allocations and apportionments of interest expense must be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. </p> <p>TITLE II </p> <p>(Sec. 20001) The Department of the Interior must establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. </p> <p>The bill specifies that the provision in the Alaska National Interest Lands Conservation Act that prohibits the production of oil and gas from ANWR does not apply to the Coastal Plain.</p> <p>Interior must conduct at least two lease sales within 10 years. Each lease sale must contain: (1) at least 400,000 acres, and (2) areas that have the highest potential for the discovery of hydrocarbons. </p> <p>Interior must also: (1) issue any necessary rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation associated with the oil and gas program; and (2) authorize up to 2,000 surface acres of federal land on the Coastal Plain to be covered by production and support facilities during the term of the leases under the oil and gas program. </p> <p>(Sec. 20002) This section amends the Gulf of Mexico Energy Security Act of 2006 to temporarily increase the annual limitation on offshore revenue sharing for the states of Alabama, Louisiana, Mississippi, and Texas from $500 million annually for FY2020 and FY2021, to $650 million annually for those two years.</p> <p> (Sec. 20003) The Department of Energy (DOE) must: (1) draw down and sell seven million barrels of crude oil from the Strategic Petroleum Reserve during FY2026-FY2027, (2) deposit the amounts received from the sale in the Treasury, and (3) stop the drawdown or sale of crude oil after $600 million has been deposited in the Treasury. </p> <p>DOE may not drawdown or sell oil under this section in quantity that would limit the authority to direct a drawdown and sale of petroleum products to address a domestic or international energy supply shortage. </p>

action_date: 2017-12-20
action_desc: House agreed to Senate amendment without amendment
text: <p>This bill amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. It also establishes an oil and gas leasing program for the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. </p> <p>(Unless otherwise specified, provisions referred to in this summary as temporary or as a suspension of an existing provision apply for taxable years beginning after December 31, 2017, and before January 1, 2026.) </p> <p>TITLE I</p> <p><i></i>Subtitle A-- Individual Tax Reform </p> <p>Part I--Tax Rate Reform </p> <p>(Sec. 11001) This section temporarily replaces the existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with new brackets (10%, 12%, 22%, 24%, 32%, 35% , 37%) and specifies the income levels that apply for each bracket. </p> <p>The bill also: (1) modifies the taxation of the unearned income of children, and (2) requires the Department of the Treasury to promulgate due diligence requirements for paid preparers in determining eligibility for a taxpayer to file as a head of household. </p> <p>(Sec. 11002) This section requires the chained Consumer Price Index to be used to index the brackets for inflation. </p> <p>Part II--Deduction For Qualified Business Income Of Pass-Thru Entities </p> <p>(Sec. 11011) This section temporarily allows an individual taxpayer to deduct 20% of qualified business income (i.e., business income of an individual from a partnership, S corporation, or sole proprietorship which is currently taxed using individual income tax rates), including aggregate qualified Real Estate Investment Trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. </p> <p>The bill specifies formulas for determining the taxpayer's deduction for qualified business income and for determining the deduction for certain agricultural or horticultural cooperatives. </p> <p>The deduction applies to taxable income, is not used to calculate adjusted gross income (AGI), and is available to taxpayers who do not itemize deductions. Trusts and estates are eligible for the deduction. </p> <p>The bill phases in a limitation for the deduction when wages exceed $157,500 ($315,000 in the case of a joint return). The bill also phases in a disallowance of the deduction when taxable income with respect to specified service trades or businesses exceeds the limits. The limits are fully phased in when taxable income exceeds the threshold amounts by $50,000 ($100,000 for joint returns). </p> <p>A &quot;specified service trade or business&quot; is any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. The term excludes engineering and architecture services. </p> <p>(Sec. 11012) This section temporarily prohibits taxpayers other than corporations from claiming excess business losses. </p> <p>An excess business loss for the taxable year is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus $250,000 (200% of the amount in the case of a joint return). The threshold amount is indexed for inflation after 2018. </p> <p>In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner's distributive share and each S corporation shareholder's pro rata share of items of income, gain, deduction, or loss of the partnership or S corporation are taken into account in applying the limitation under the provision for the taxable year of the partner or S corporation shareholder. </p> <p>Losses prohibited under this section are carried forward and treated as part of the taxpayer's net operating loss carryforward in subsequent taxable years. </p> <p>Part III--Tax Benefits For Families And Individuals </p> <p>(Sec. 11021) This section temporarily increases the standard deduction to $24,000 for married individuals filing a joint return, to $18,000 for head-of-household filers, and to $12,000 for all other taxpayers. The amount of the standard deduction is indexed for inflation after 2018 using the chained CPI. </p> <p>(Under current law, the standard deduction for 2017 is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses.) </p> <p>(Sec. 11022) This section modifies the child tax credit to temporarily: (1) increase the credit to $2,000 ($1,000 under current law) per qualifying child under the age of 17, and (2) allow a $500 nonrefundable credit for each dependent of the taxpayer who is not a qualifying child under age 17. </p> <p>The credit is phased out at AGI levels of $400,000 for married taxpayers filing joint returns and $200,000 for individuals. </p> <p>The refundable portion of the credit is limited to $1,400 per qualifying child. In order to receive the credit, a taxpayer must include a Social Security number for each qualifying child for whom the credit is claimed on the tax return. The requirement does not apply to a non-child dependent for whom the $500 non-refundable credit is claimed. </p> <p>(Sec. 11023) This section modifies the deduction for charitable contributions to temporarily increase from 50% to 60% the income-based percentage limitation for contributions of cash to public charities.</p> <p>(Sec. 11024) This section temporarily increases contribution limitations for ABLE accounts with respect to contributions made by the designated beneficiary of the account. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.) </p> <p>After the limit is reached, the designated beneficiary may contribute an additional amount up to the lesser of: (1) the federal poverty line for a one-person household, or (2) the individual's compensation for the taxable year. </p> <p>The bill also allows the designated beneficiary of an ABLE account to claim the saver's credit for contributions made to his or her account. </p> <p>(Sec. 11025) This section allows funds from qualified tuition programs (known as 529 plans) to be rolled over to an ABLE account without penalty if the ABLE account is owned by the designated beneficiary of the 529 account or a member of the designated beneficiary's family. </p> <p>(Sec. 11026) This section temporarily allows certain members of the Armed Forces in the Sinai Peninsula of Egypt to receive combat zone tax benefits for performing services that qualify for special pay for duty subject to hostile fire or imminent danger. </p> <p>(Sec. 11027) For 2017 and 2018, this section reduces from 10% to 7.5% the AGI threshold that must be exceeded before a taxpayer is allowed to claim an itemized deduction for medical expenses. </p> <p>(Sec. 11028) This section provides tax incentives for areas in which a major disaster was declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. </p> <p>For individuals residing in the 2016 disaster areas, the bill allows: (1) exceptions to the 10% penalty for up to $100,000 in early withdrawals from retirement plans, and (2) personal casualty losses exceeding $500 per casualty to be deducted without regard to whether aggregate net losses exceed 10% of a taxpayer's AGI. </p> <p>Part IV--Education </p> <p>(Sec. 11031) This section temporarily modifies the exclusion of student loan discharges from gross income to exclude from gross income certain discharges on account of the death or total and permanent disability of the student. </p> <p>(Sec. 11032) This section allows funds from 529 accounts to be used for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. </p> <p>Part V--Deductions And Exclusions </p> <p>(Sec. 11041) This section: (1) suspends the deduction for personal exemptions, (2) modifies the wage withholding rules, (3) and modifies the requirements that determine who is required to file a tax return. </p> <p>(Sec. 11042) This section temporarily limits individual deductions for certain state and local taxes to $10,000 per year ($5,000 for a married taxpayer filing a separate return). The limit does not apply to taxes paid or accrued in carrying on a trade or business or for expenses for the production of income. </p> <p>(Sec. 11043) This section modifies the deduction for home mortgage interest to: (1) limit the deduction to mortgages for a principal residence, (2) temporarily limit the deduction for debt incurred on or before December 15, 2017, to mortgages of up to $750,000 (currently $1 million), and (3) suspend the deduction for interest paid on home equity loans. </p> <p>For taxable years beginning after 2025, the deduction applies to mortgages of up to $1 million regardless of when the indebtedness was incurred. </p> <p>(Sec. 11044) This section temporarily modifies the deduction for personal casualty and theft losses. A taxpayer may only claim the deduction for a personal casualty loss if the loss is attributable to a federally declared disaster. The bill includes an exception for certain personal casualty losses that do not exceed personal casualty gains. </p> <p>(Sec. 11045) This section suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law. </p> <p>(Sec. 11046) This section suspends the overall limitation on itemized deductions, which currently applies when AGI exceeds a specified amount.</p> <p>(Sec. 11047) This section suspends the exclusion for qualified bicycle commuting reimbursements. </p> <p>(Sec. 11048) This section suspends the exclusion for qualified moving expense reimbursements, with an exception for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.</p> <p>(Sec. 11049) This section suspends the deduction for moving expenses. </p> <p>(Sec. 11050) This section temporarily modifies a provision that limits the deduction for wagering losses to the extent of the gains from such transactions. The bill specifies that &quot;losses from wagering transactions&quot; include otherwise deductible expenses incurred in carrying out a wagering transaction (e.g., expenses for traveling to or from a casino). </p> <p>(Sec. 11051) This section repeals the deduction for alimony or separate maintenance payments from the payor spouse and the corresponding inclusion of the payments in the gross income of the recipient spouse. </p> <p>Part VI--Increase In Estate And Gift Tax Exemption </p> <p>(Sec. 11061) This section doubles the estate and gift tax exemption amount for decedents dying or gifts made after December 31, 2017, and before January 1, 2026, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.) </p> <p>Part VII--Extension Of Time Limit For Contesting IRS Levy </p> <p>(Sec. 11071) This section extends from nine months to two years the time limit for contesting an Internal Revenue Service (IRS) levy, including the time periods for: (1) returning the monetary proceeds from the sale of property that has been wrongfully levied upon, and (2) bringing a civil action for a wrongful levy. </p> <p>Part VIII--Individual Mandate </p> <p>(Sec. 11081) This section repeals the penalty for individuals who fail to maintain minimum essential health coverage as required by the Patient Protection and Affordable Care Act (commonly referred to as the individual mandate). </p> <p>Subtitle B--Alternative Minimum Tax </p> <p>(Sec. 12001) This section repeals the corporate alternative minimum tax (AMT). </p> <p>(Sec. 12002) This section modifies the AMT credit for corporations to: (1) allow the AMT credit to offset regular tax liability for any taxable year, and (2) make the credit refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. </p> <p>(Under current law a corporation subject to the AMT in any year is allowed an AMT credit in any subsequent taxable year to the extent that the taxpayer's regular tax liability exceeds its tentative minimum tax in the subsequent year.) </p> <p>(Sec. 12003) This section temporarily increases both the exemption amount and the exemption amount phaseout thresholds for the individual AMT. The exemption amount is increased to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return), and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return, and $500,000 for all other taxpayers (other than estates and trusts). The amounts are indexed for inflation after 2018.</p> <p>Subtitle C--Business-related Provisions </p> <p>Part I--Corporate Provisions </p> <p>(Sec. 13001) This section reduces the corporate tax rate from a maximum of 35% under the existing graduated rate structure to a flat 21% rate for tax years beginning after 2017. The bill specifies requirements for taxpayers subject to the normalization method of accounting. </p> <p>(Sec. 13002) With respect to the deduction for corporations that receive dividends from other taxable corporations, the bill reduces the 70% dividends received deduction to 50% and the 80% dividends received deduction to 65% to account for the lower corporate tax rate. </p> <p>Part II--Small Business Reforms </p> <p>(Sec. 13101) This section expands the expensing of certain depreciable business assets that is currently permitted under section 179 of the IRC. </p> <p>The bill modifies section 179 to: </p> <ul> <li> increase the maximum amount a taxpayer may expense per year to $1 million (currently $500,000); </li> <li> increase the phaseout threshold for the cost of section 179 property placed in service during the year to $2.5 million (currently $2 million); </li> <li> index the amounts above and the existing $25,000 limit for sport utility vehicles for inflation; </li> <li> revise the definition of qualified real property eligible for section 179 expensing to include any qualified improvement property and certain improvements to nonresidential real property placed in service after the date such property was first placed in service (roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems); and </li> <li> expand the definition of section 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. </li> </ul> <p>(Sec. 13102) This section modifies the accounting rules for small businesses to: </p> <ul> <li>expand the group of taxpayers who qualify for the cash accounting method by increasing the limit for the gross receipts test from $5 million to $25 million (adjusted for inflation after 2018), </li> <li> allow any farming C corporation (or farming partnership with a C corporation partner) that meets the gross receipts test to use the cash method of accounting, </li> <li> exempt taxpayers that meet the gross receipts test from certain requirements to account for inventories, </li> <li> expand the exceptions for small businesses from the uniform capitalization rules to include any producer or reseller that meets the gross receipts test, and </li> <li> expand the exception for small construction contracts from the requirement to use the percentage-of-completion method. </li> </ul> <p>Part III--Cost Recovery And Accounting Methods </p> <p>Subpart A--Cost Recovery </p> <p>(Sec. 13201) This section temporarily allows increased expensing of the costs of certain business property. </p> <p>The bill allows 100% expensing for: (1) certain business property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024 for longer production period property and certain aircraft); and (2) specified plants that bear fruits or nuts and are planted or grafted after September 27, 2017, and before January 1, 2023. </p> <p>The 100% allowance is phased down by 20% per year calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022 (after 2023 for longer production period property and certain aircraft). </p> <p>The bill also: </p> <ul> <li> expands the definition of &quot;qualified property&quot; eligible for expensing to include certain film, television, and live theatrical productions; </li> <li> removes the requirement that the original use of qualified property must commence with the taxpayer, subject to certain acquisition requirements and anti-abuse rules; and </li> <li> excludes from the definition of &quot;qualified property&quot; the property of certain businesses that are not subject to the limitation on interest expenses. </li> </ul> <p>(Sec. 13202) This section increases the depreciation limits that apply to luxury automobiles. It also removes computer or peripheral equipment from the definition of listed property that is subject to additional restrictions and substantiation requirements regarding the expense and business usage of the property. </p> <p>(Sec. 13203) This section modifies the depreciation rules for certain farm property to: (1) shorten the recovery period from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer and is placed in service after December 31, 2017; and (2) repeal the requirement to use the 150% declining balance method for property used in a farming business. </p> <p>(Sec. 13204) This section modifies the applicable recovery periods for depreciating certain real property. </p> <p>The bill eliminates the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property and applies the straight line method to qualified improvement property. It also modifies the alternative depreciation system (ADS) recovery period for such property. </p> <p>(Under current law, &quot;qualified improvement property&quot; is any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. It does not include any improvement for which the expenditure is attributable to: the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.) </p> <p>A real property trade or business electing out of the limitation on the deduction for interest must use the ADS to depreciate nonresidential real property, residential rental property, and qualified improvement property. </p> <p>(Sec. 13205) This section requires a farming business electing out of the limitation on the deduction for interest to use the ADS to depreciate any property with a recovery period of 10 years or more. </p> <p>(Sec. 13206) This section adjusts the amortization rules and schedules for certain research and experimentation expenditures. </p> <p>(Sec. 13207) This section allows expensing of certain costs of replanting lost or damaged citrus plants lost by reason of casualty. </p> <p>Subpart B--Accounting Methods </p> <p>(Sec. 13221) This section revises the rules associated with the timing of the recognition of income. </p> <p>Part IV--Business-Related Exclusions And Deductions </p> <p>(Sec. 13301) This section limits the deduction for business interest to the sum of: (1) business interest income for the year, (2) 30% of the adjusted taxable income of the taxpayer for the taxable year, and (3) the floor plan financing interest of the taxpayer for the taxable year. </p> <p>The amount of any business interest not allowed as a deduction for any year may be carried forward indefinitely, with the exception of partnerships which are subject to additional carryforward rules specified in the bill. </p> <p>&quot;Business interest income&quot; is 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. It does not include investment income. </p> <p>&quot;Floor plan financing interest&quot; is interest paid on debt used to finance the acquisition of motor vehicles held for sale or lease and secured by the inventory so acquired. </p> <p>The bill includes exceptions for: </p> <ul> <li> small businesses that meet the gross receipts test, </li> <li> the trade or business of performing services as an employee, </li> <li> any electing farming business, </li> <li> any electing real property trade or business, and </li> <li> certain regulated public utilities. </li> </ul> <p>(Sec. 13302) This section modifies the net operating loss deduction to: (1) limit the deduction to 80% of taxable income with an exception for property and casualty insurance companies, (2) repeal the two-year and other specified carryback provisions, (3) allow an indefinite carryforward of net operating losses, and (4) allow a two-year carryback for certain losses incurred in the trade or business of farming. </p> <p>(Sec. 13303) This section modifies the rule providing for the nonrecognition of gain in the case of like-kind exchanges to limit the application of the rule to real property that is not held primarily for sale. </p> <p>(Sec. 13304) This section modifies the tax treatment of certain expenses for entertainment and fringe benefits. </p> <p>The bill denies deductions for amounts paid or incurred for: </p> <ul> <li> an activity generally considered to be entertainment, amusement or recreation; </li> <li> membership dues for any club organized for business, pleasure, recreation, or other social purposes; </li> <li> a facility or portion thereof used in connection with any of the above items; </li> <li> providing any qualified transportation fringe to employees of the taxpayer; or </li> <li> providing transportation for commuting between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. </li> </ul> <p>Under current law, taxpayers may deduct 50% of the food and beverage expenses associated with operating their trade or business, subject to certain exceptions. The bill temporarily expands the 50% limitation to include expenses of an employer associated with providing food and beverages through an eating facility that meets the requirements for a de minimis fringe. </p> <p>(Sec. 13305) This section repeals the deduction for income attributable to domestic production activities. </p> <p>(Sec. 13306) This section prohibits deductions for trade or business expenses for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. </p> <p>The bill includes exceptions for amounts constituting restitution or paid to come into compliance with law, amounts paid or incurred as a result of certain court orders, and taxes due. </p> <p>The bill also establishes reporting requirements for government entities with respect to certain fines, penalties, and other amounts. </p> <p>(Sec. 13307) This section prohibits a tax deduction for trade or business expenses paid or incurred for: (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. </p> <p>(Sec. 13308) This section eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government. </p> <p>(Sec. 13309) This section requires a three-year holding period (one year under current law) for certain net long-term capital gains with respect to partnership interests held in connection with the performance of investment services. If the holder of an applicable partnership interest is allocated gain from the sale of property held for less than three years, that gain is treated as short-term capital gain and is taxed as ordinary income. </p> <p>(Sec. 13310) This section prohibits cash, gift cards, and other non-tangible personal property from being considered tax deductible employee achievement awards. </p> <p>(Under current law, tangible personal property may be considered a deductible employee achievement award if other specified requirements are met.)</p> <p>The bill specifies that &quot;tangible personal property&quot; does not include: (1) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer); or (2) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. </p> <p>(Sec. 13311) This section eliminates the deduction for living expenses incurred by Members of Congress. (Under current law, the deduction is limited to $3,000 per year.) </p> <p>(Sec. 13312) This section modifies the exclusion from gross income for contributions to the capital of a corporation to specify that a contribution to capital does not include a contribution: (1) in aid of construction or any other contribution as a customer or potential customer, or (2) by any governmental entity or civic group (other than a contribution made by a shareholder as such). </p> <p>The bill includes an exception for certain contributions made by a governmental entity pursuant to a master development plan. </p> <p>(Sec. 13313) This section repeals a provision that permits the tax-free rollover of certain gains from the sale of publicly traded securities into common stock or a partnership interest in a specialized small business investment company. </p> <p>(Sec. 13314) This section excludes certain patents, inventions, models, designs, secret formulas, or processes created by the taxpayer from the definition of a ''capital asset.'' </p> <p>Part V--Business Credits </p> <p>(Sec. 13401) This section modifies the tax credit for clinical testing expenses incurred in testing certain drugs for rare diseases or conditions (commonly referred to as orphan drugs) to reduce the credit rate to 25% (currently 50%) of qualified clinical testing expenses. </p> <p>(Sec. 13402) This section modifies the tax credit for rehabilitation expenditures to repeal the 10% credit for rehabilitated buildings other than a certified historic structure. </p> <p>The bill retains and modifies the 20% credit for rehabilitation expenditures for certified historic structures. For the five-year period beginning in the year in which a qualified rehabilitated building is placed in service, the credit is equal to the ratable share for each year, which is 20% of the qualified rehabilitation expenditures with respect to the building, as allocated ratably to each year during the period. </p> <p>(Sec. 13403) This section allows employers to claim a general business credit equal to 12.5% of wages paid to employees during any period in which such employees are on family and medical leave if the rate of payment under the program is 50% of the wages normally paid to an employee. </p> <p>The credit is increased by 0.25% (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any employee for any taxable year is 12 weeks. </p> <p>(Sec. 13404) This section repeals the authority to issue tax-credit bonds and direct-pay bonds. </p> <p>Part VI--Provisions Related To Specific Entities And Industries </p> <p>Subpart A--Partnership Provisions </p> <p>(Sec. 13501) This section sets forth requirements for the tax treatment of gains or losses of foreign persons from the sale or exchange of interests in partnerships engaged in trade or business within the United States. </p> <p>Under the bill, gain or loss from the sale or exchange of a partnership interest is effectively connected with a U.S. trade or business to the extent that the transferor would have had effectively connected gain or loss had the partnership sold all of its assets at fair market value as of the date of the sale or exchange. </p> <p>A partner's distributive share of gain or loss on the deemed sale must be determined in the same manner as the partner's distributive share of the non-separately stated taxable income or loss of the partnership. </p> <p>The bill also sets forth withholding requirements with respect to amounts realized from the sale or exchange of a partnership interest. </p> <p>(Sec. 13502) This section modifies the definition of &quot;substantial built-in loss&quot; with respect to the transfer of an interest in partnership. The bill specifies that &quot;a substantial built-in loss&quot; also exists if the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. </p> <p>(Sec. 13503) This section modifies the basis limitation on a partner's distributive share of a partnership loss to require a partner's distributive share of partnership charitable contribution and taxes paid or accrued to foreign countries and U.S. possessions to be taken into account in determining the limitation. </p> <p>(Sec. 13504) This section repeals the rule that provides for a technical termination of partnerships if, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. </p> <p>Subpart B--Insurance Reforms </p> <p>(Sec. 13511) This section repeals the operations loss deduction for life insurance companies and allows the net operating loss deduction under section 172 of the IRC. </p> <p>(Sec. 13512) This section repeals the small life insurance company deduction. </p> <p>(Sec. 13513) This section revises the tax treatment of income or loss resulting from a change in the method of computing life insurance company reserves. The bill eliminates the 10-year period for taking into account the changes and requires the changes to be taken into account as adjustments attributable to a change in the method of accounting. </p> <p>(Sec. 13514) This section repeals the special rule for distributions to shareholders of a stock life insurance company from a pre-1984 policyholders surplus account, which provides that amounts in the account are not taxed unless the amounts are treated as distributed to shareholders or subtracted from the account. The bill requires a life insurance company with such an account to pay taxes on the balance of the account ratably over the first eight taxable years beginning after December 31, 2017. </p> <p>(Sec. 13515) This section modifies the proration rules for property and casualty insurance companies to replace the 15% reduction with a reduction equal to 5.25% divided by the highest corporate tax rate in effect. (Under the top corporate rate of 21% that takes effect in 2018, the proration percentage is 25%.) </p> <p>(Under the proration rules, in calculating the deductible amount of its reserve for losses incurred, a property or casualty insurance company must reduce the amount of the losses incurred by a specified percentage of: (1) the insurer's tax-exempt interest, (2) the deductible portion of dividends received, and (3) the increase for the taxable year in the cash value of life insurance, endowment, or annuity contracts the company owns.) </p> <p>(Sec. 13516) This section repeals the special estimated tax payment rules for insurance companies. </p> <p>(Sec. 13517) This section modifies the rules for computing life insurance tax reserves that are used in determining the taxable income of a life insurance company. </p> <p>(Sec. 13518) This section modifies the life insurance company proration rule for reducing dividends received deductions and reserve deductions with respect to untaxed income. For purposes of the life insurance proration rule, the company's share is 70% and the policyholder's share is 30%. </p> <p>(Sec. 13519) This section modifies the requirements for the capitalization of policy acquisition expenses of insurance companies to extend the amortization period from 120 months to 180 months. </p> <p>Under current law, policy acquisition expenses are determined as that portion of the insurance company's general deductions for the taxable year that does not exceed a specified percentage of the net premiums for the year on each of three categories of insurance contracts. </p> <p>The bill increases these percentages from 1.75% to 2.09% for annuity contracts, from 2.05% to 2.45% for group life insurance contracts, and from 7.7% to 9.2% for all other specified insurance contracts. </p> <p>(Sec. 13520) This section establishes reporting requirements for acquisitions of life insurance contracts in a reportable policy sale. It also imposes reporting requirements on the payor in the case of the payment of reportable death benefits. </p> <p>A &quot;reportable policy sale&quot; is the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. </p> <p>(Sec. 13521) This section sets forth requirements for the determining the basis of a life insurance or annuity contract. The bill specifies that no basis adjustment shall be made for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract. </p> <p>(Sec. 13522) This section exempts the transfer of a life insurance contract, or any interest therein, in a reportable policy sale from the transfer for valuable consideration rule. </p> <p>(Under current law, the transfer for valuable consideration rule provides that, if a life insurance contract or an interest in a contract is transferred for a valuable consideration, the tax exclusion for amounts received under a life insurance contract due to the death of the insured is limited to the sum of the actual value of the consideration and the premiums and other amounts subsequently paid by the transferee.) </p> <p>(Sec. 13523) This section modifies the reserve discounting rules applicable to property and casualty insurance companies to: (1) modify the interest rate used to discount unpaid losses, (2) modify the computational rules for loss payment pattern, and (3) repeal the election to use a taxpayer's historical loss payment pattern. </p> <p>Subpart C--Banks and Financial Instruments </p> <p>(Sec. 13531) This section limits the deduction for Federal Deposit Insurance Corporation premiums for certain financial institutions with consolidated assets that exceed $10 billion. </p> <p>(Sec. 13532) This section repeals the exclusion from gross income for interest on a bond issued to advance refund another bond. </p> <p>Subpart D--S Corporations </p> <p>(Sec. 13541) This section allows a nonresident alien individual to be a qualifying beneficiary of an electing small business trust (ESBT), which is a type of trust that is permitted to hold shares in an S corporation. </p> <p>(Sec. 13542) This section specifies that the charitable contribution deduction of an ESBT is determined by the rules applicable to individuals rather than the rules applicable to trusts, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. </p> <p>(Sec. 13543) This section modifies the tax treatment of S corporation conversions to C corporations. </p> <p>Part VII--Employment </p> <p>Subpart A--Compensation </p> <p>(Sec. 13601) This section modifies a provision that limits the deduction for compensation of covered employees of a publicly held corporation to salaries of no more than $1 million per year. The bill: (1) repeals the performance-based compensation and commission exceptions, (2) modifies the definition of &quot;covered employee,&quot; and (3) expands the definition of &quot;publicly held corporation.&quot; </p> <p>The bill includes an exception for compensation that is provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. </p> <p>(Sec. 13602) This section imposes an excise tax on excess tax-exempt organization executive compensation. The tax is equal to the product of the corporate tax rate (21% under this bill) and the sum of: (1) any remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and (2) any excess parachute payment (separation pay), as specified in the bill. </p> <p>(Sec. 13603) This section allows qualified employees to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer. </p> <p>Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) is one of the four highest compensated officers of the corporation or has been during any of the 10 preceding taxable years. </p> <p>(Sec. 13604) This section increases from 15% to 20% the excise tax imposed on the value of stock compensation held by insiders of an expatriated corporation. </p> <p>Subpart B--Retirement Plans </p> <p>(Sec. 13611) This section repeals the rule that allows Individual Retirement Arrangement (IRA) contributions to one type of IRA (traditional or Roth) to be recharacterized as a contribution to the other type of IRA. </p> <p>(Sec. 13612) This section increases the limit on accruals that is required for length of service award plans (LOSAPs) for bona fide volunteers to be exempt from treatment as a deferred compensation plan. </p> <p>(Under current law, plans paying solely length of service awards to bona fide volunteers or their beneficiaries on the account of firefighting and prevention services, emergency medical services, and ambulance services performed by the volunteers are not treated as deferred compensation plans if they meet certain requirements. One of the requirements is a limit on the aggregate amount of length of service awards that may accrue with respect to any year of service for any bona fide volunteer.) </p> <p>The bill modifies the limit on accruals to: (1) increase the limit from $3,000 to $6,000; and(2) provide for a cost-of-living adjustment to the limit after 2017. </p> <p>In the case of LOSAPs that are defined benefit plans, the limit applies to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Actuarial present value is to be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant's age at the time of the calculation. </p> <p>(Sec. 13613) This section extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution. A &quot;qualified plan loan offset amount&quot; is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the severance from employment of the participant. </p> <p>Part VIII--Exempt Organizations </p> <p>(Sec. 13701) This section imposes a 1.4% excise tax on the net investment income of certain private colleges and universities. </p> <p>(Sec. 13702) This section requires tax-exempt organizations with more than one unrelated trade or business to calculate unrelated business taxable income separately with respect to each trade or business and without regard to a specified deduction that applies for certain unrelated business taxable income. </p> <p>(Sec. 13703) This section includes in unrelated business taxable income of a tax-exempt organization any expenses paid or incurred by the organization for certain fringe benefits for which a deduction is not allowed under section 274 of the IRC, including qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility. </p> <p>(Sec. 13704) This section modifies the deduction for charitable contributions to prohibit a charitable deduction for college athletic event seating rights. </p> <p>(Sec. 13705) This section modifies the deduction for charitable contributions to repeal the exception to substantiation requirements for certain contributions reported by the donee organization. </p> <p>Part IX--Other Provisions </p> <p>Subpart A--Craft Beverage Modernization and Tax Reform </p> <p>(Sec. 13801) This section excludes the aging periods for beer, wine, and distilled spirits from the production period for purposes of the uniform interest capitalization rules, which allows the producers to deduct interest expenses attributable to a shorter production period. This section does not apply to interest costs paid or accrued after December 31, 2019. </p> <p>(Sec. 13802) This section lowers the excise tax rate on beer to $16 per barrel on the first six million barrels brewed by the brewer or imported by the importer. </p> <p>For barrels of beer that have been brewed or produced outside of the United States and imported into the United States, the reduced tax rate may be assigned by the brewer to the importer, subject to specified requirements. </p> <p>(Sec. 13803) This section allows the transfer of beer between bonded facilities without payment of tax if specified requirements are met. </p> <p>(Sec. 13804) This section modifies the credit against the excise tax on wine for small domestic for 2018 and 2019 to: </p> <ul> <li> make the credit available to all wine producers and importers by removing the 250,000 wine gallon domestic production limitation; </li> <li>establish credit rates of: (1) $1.00 per wine gallon for the first 30,000 wine gallons of wine, plus; (2) 90 cents per wine gallon on the next 100,000 wine gallons of wine, plus; (3) 53.5 cents per wine gallon on the next 620,000 wine gallons of wine; </li> <li> establish adjusted credit rates for hard cider; and </li> <li> make sparkling wine producers and importers eligible for the credit. </li> </ul> <p>The bill also allows importers of wine produced outside of the United States to assign the credit to the foreign producer, subject to specified requirements. </p> <p>(Sec. 13805) The section modifies the alcohol-by-volume levels of the first two tiers of the excise tax on wine, by changing 14% to 16%. Under the provision, a wine producer or importer may produce or import still wine that has an alcohol-by-volume level of up to 16% and remain subject to the lowest rate of $1.07 per wine gallon. </p> <p>(Sec. 13806) This section specifies definitions for &quot;mead&quot; and &quot;low alcohol by volume wine&quot; that are eligible to be taxed at the lowest applicable rate for still wine. </p> <p>(Sec. 13807) This section reduces the excise tax rate for certain distilled spirits in 2018 and 2019 to: $2.70 per proof gallon on the first 100,000 proof gallons, $13.34 for all proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 for amounts thereafter. </p> <p>Members of the same controlled group may not receive the lower rate on more than 100,000 proof gallons of distilled spirits. Importers of distilled spirits are eligible for the lower rates. </p> <p>(Sec. 13808) This section allows distillers to transfer spirits in approved containers other than bulk containers in bond without payment of tax. This provision applies to distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020. </p> <p>Subpart B--Miscellaneous Provisions </p> <p>(Sec. 13821) This section modifies the tax treatment of Alaska Native Settlement Trusts, to: (1) allow an Alaska Native Corporation to assign certain payments referenced in the Alaska Native Claims Settlement Act to a trust without including the payments in the gross income of the corporation, (2) allow the corporation to elect annually to deduct contributions made to a trust, (3) allow a trust to elect to defer the recognition of gains related to contributions of property other than cash until the sale or exchange of the property, and (4) establish information reporting requirements for deductible contributions to a trust. </p> <p>(Sec. 13822) This section exempts certain payments related to the management of private aircraft from the excise taxes imposed on taxable transportation by air. </p> <p>(Sec. 13823) This section authorizes the designation of opportunity zones in low-income communities and provides various tax incentives for investments in the zones. Taxpayers may temporarily defer the recognition of capital gains that are invested in opportunity zones. Investments in opportunity zones or opportunity funds that are held for at least five years are eligible for capital gains tax reductions or exemptions, depending on how long the investment is held. </p> <p>Subtitle D--International Tax Provisions </p> <p>Under current law, the earnings of foreign subsidiaries of U.S. multinational corporations are not taxed until the income is repatriated (paid as dividends) into the United States. The corporations are allowed a tax credit against U.S. taxes for taxes paid to foreign jurisdictions. This subtitle establishes a territorial system in which foreign source income is not subject to regular U.S. taxes. </p> <p>Part I--Outbound Transactions </p> <p>Subpart A--Establishment of Participation Exemption System for Taxation of Foreign Income </p> <p>(Sec. 14101) This section establishes a participation exemption system for foreign income. Under the system, the bill allows a 100% deduction for the foreign-source portion of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations. </p> <p>A &quot;specified 10% owned foreign corporation&quot; is any foreign corporation with respect to which any domestic corporation is a U.S. shareholder. It does not include a passive foreign investment company that is not a controlled foreign corporation (CFC). </p> <p>No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to any dividend for which a deduction is allowed under this section. </p> <p>The bill establishes a one-year holding period requirement for dividends of a domestic corporation to be eligible for a participation dividends received deduction. </p> <p>(Sec. 14102) This section sets forth requirements for the tax treatment of sales or transfers involving specified 10% owned foreign corporations, including (1) sales by U.S. persons of stock, (2) required reductions in the basis of certain foreign stock, and (3) sales by a CFC of a lower-tier CFC, (4) foreign branch loess transferred to specified 10% owned foreign corporations, and (5) the repeal of the active trade or business exception. </p> <p>(Sec. 14103) This section specifies rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. </p> <p>For the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, U.S. shareholders of deferred foreign income corporations must include as subpart F income a pro rata share of the accumulated post-1986 deferred foreign income of the corporation. </p> <p>The bill allows a deduction for a portion of the pro rata share of foreign earnings. The bill also disallows a corresponding portion of the credit for foreign taxes. </p> <p>The total amount of deductions permitted is the amount necessary to result in tax rates of 15.5% for accumulated post-1986 foreign earnings held in the form of cash or cash equivalents and 8% rate for all other earnings. </p> <p>The tax may be paid in installments over eight years. </p> <p>The bill specifies rules for applying this provision to S corporations and real estate investment trusts. </p> <p>Subpart B--Rules Related to Passive and Mobile Income </p> <p>Chapter 1--Taxation Of Foreign-Derived Intangible Income And Global Intangible Low-Taxed Income </p> <p>(Sec. 14201) This section requires a U.S. shareholder of any CFC for any taxable year to include in gross income the shareholder's global intangible low-taxed income for the year. The bill specifies a formula and requirements for calculating global intangible low-taxed income. </p> <p>(Sec. 14202) This section allows deductions for domestic corporations for specified portions of the corporation's foreign-derived intangible income and global intangible low-taxed income, using specified formulas and definitions included in the bill. </p> <p>Chapter 2--Other Modifications Of Subpart F Provisions </p> <p>(Sec. 14211) This section repeals provisions that treat foreign base company oil related income as category of subpart F income. </p> <p>(Sec. 14212) This section repeals the requirement for a U.S. shareholder in a CFC that invested previously excluded subpart F income in foreign base company shipping operations to include in income a pro rata share of the previously excluded subpart F income when the CFC decreases the investments </p> <p>(Sec. 14213) This section modifies the stock attribution rules for determining status as a CFC. Certain stock of a foreign corporation owned by a foreign person must be attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation. </p> <p>(Sec. 14214) This section expands the definition of U.S. shareholder under subpart F to include any U.S. person who owns 10% or more of the total value of shares of all classes of stock of a foreign corporation. </p> <p>(Sec. 14215) This section eliminates the requirement for a corporation to be controlled for an uninterrupted period of 30 days before subpart F inclusions apply. </p> <p>Chapter 3--Prevention Of Base Erosion </p> <p>(Sec. 14221) This section modifies terms and valuation methods that apply to transfers of intangible property. The bill modifies the definition of &quot;intangible property&quot; to include: (1) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions [contractual or otherwise] of its employment); or (2) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. </p> <p>The bill removes a requirement that the item have substantial value independent of the services of an individual to be considered intangible property. </p> <p>The bill specifies authorities and requirements for Treasury to specify the method to be used to determine the valuation of transfers of intangible property. </p> <p>(Sec. 14222) This section denies a deduction for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. </p> <p>A &quot;disqualified related party amount&quot; is any interest or royalty paid or accrued to a related party to the extent that: (1) the amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (2) the related party is allowed a deduction with respect to such amount under the tax law of such country. The term does include any payment to the extent such payment is included in the gross income of a U.S. shareholder under this bill. </p> <p>A &quot;hybrid transaction&quot; is any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties under this bill and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. </p> <p>A &quot;hybrid entity&quot; is any entity which is either: (1) treated as fiscally transparent under this bill but not for the purposes of the tax law of the foreign country of which the entity is a resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this bill </p> <p>(Sec. 14223) Shareholders who receive dividends from a foreign corporation that first becomes a surrogate corporation after enactment of this bill are ineligible for the reduced rates for qualified dividends. </p> <p>Subpart C--Modifications Related to Foreign Tax Credit System </p> <p>(Sec. 14301) This section repeals the deemed-paid credit with respect to dividends received by a domestic corporation that owns 10% or more of the voting stock of a foreign corporation. The bill allows a deemed-paid credit with respect to any income inclusion under subpart F. The credit is limited to the amount of foreign income taxes properly attributable to the subpart F inclusion. </p> <p>(Sec. 14302) This section requires foreign branch income to be allocated to a specific foreign tax credit basket. Foreign branch income is the business profits of a U.S. person which are attributable to one or more qualified business units in one or more foreign countries. </p> <p>(Sec. 14303) This section requires gains, profits, and income from the sale or exchange of inventory property produced partly in, and partly outside, the United States to 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. </p> <p>(Sec. 14304) This section allows an election to increase the percentage (but not greater than 100%) of domestic taxable income offset by any pre-2018 unused overall domestic loss and recharacterized as foreign source. </p> <p>A &quot;Pre-2018 unused overall domestic loss'' is any overall domestic loss which: (1) arises in a qualified taxable year beginning before January 1, 2018, and (2) has not been used under the general rule for the recharacterization of overall domestic loss. </p> <p>Part II--Inbound Transactions </p> <p>(Sec. 14401) This section imposes on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year and specifies a formula for calculating the tax. </p> <p>An &quot;applicable taxpayer&quot; is a taxpayer who: (1) is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation; (2) has average annual gross receipts of at least $500 million for the three-year period ending with the preceding year; and (3) has a base erosion percentage, as determined using a specified formula, of at least 3% (2% for certain banks and securities dealers). </p> <p>Part III--Other Provisions </p> <p>(Sec. 14501) This section modifies the exception from the passive foreign investment company rules for insurance businesses. The bill replaces the test based on whether a corporation is predominantly engaged in an insurance business with a test based on the corporation's insurance liabilities. </p> <p>(Sec. 14502) This section specifies that all allocations and apportionments of interest expense must be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. </p> <p>TITLE II </p> <p>(Sec. 20001) The Department of the Interior must establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. </p> <p>The bill specifies that the provision in the Alaska National Interest Lands Conservation Act that prohibits the production of oil and gas from ANWR does not apply to the Coastal Plain.</p> <p>Interior must conduct at least two lease sales within 10 years. Each lease sale must contain: (1) at least 400,000 acres, and (2) areas that have the highest potential for the discovery of hydrocarbons. </p> <p>Interior must also: (1) issue any necessary rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation associated with the oil and gas program; and (2) authorize up to 2,000 surface acres of federal land on the Coastal Plain to be covered by production and support facilities during the term of the leases under the oil and gas program. </p> <p>(Sec. 20002) This section amends the Gulf of Mexico Energy Security Act of 2006 to temporarily increase the annual limitation on offshore revenue sharing for the states of Alabama, Louisiana, Mississippi, and Texas from $500 million annually for FY2020 and FY2021, to $650 million annually for those two years.</p> <p> (Sec. 20003) The Department of Energy (DOE) must: (1) draw down and sell seven million barrels of crude oil from the Strategic Petroleum Reserve during FY2026-FY2027, (2) deposit the amounts received from the sale in the Treasury, and (3) stop the drawdown or sale of crude oil after $600 million has been deposited in the Treasury. </p> <p>DOE may not drawdown or sell oil under this section in quantity that would limit the authority to direct a drawdown and sale of petroleum products to address a domestic or international energy supply shortage. </p>

action_date: 2017-12-22
action_desc: Public Law
text: <p>(This measure has not been amended since the House agreed to the Senate amendment without amendment on December 20, 2017. The summary of that version is repeated here.)</p> <p>This bill amends the Internal Revenue Code (IRC) to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. It also establishes an oil and gas leasing program for the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. </p> <p>(Unless otherwise specified, provisions referred to in this summary as temporary or as a suspension of an existing provision apply for taxable years beginning after December 31, 2017, and before January 1, 2026.) </p> <p>TITLE I</p> <p>Subtitle A-- Individual Tax Reform </p> <p>Part I--Tax Rate Reform </p> <p>(Sec. 11001) This section temporarily replaces the existing tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) with new brackets (10%, 12%, 22%, 24%, 32%, 35% , 37%) and specifies the income levels that apply for each bracket. </p> <p>The bill also: (1) modifies the taxation of the unearned income of children, and (2) requires the Department of the Treasury to promulgate due diligence requirements for paid preparers in determining eligibility for a taxpayer to file as a head of household. </p> <p>(Sec. 11002) This section requires the chained Consumer Price Index to be used to index the brackets for inflation. </p> <p>Part II--Deduction For Qualified Business Income Of Pass-Thru Entities </p> <p>(Sec. 11011) This section temporarily allows an individual taxpayer to deduct 20% of qualified business income (i.e., business income of an individual from a partnership, S corporation, or sole proprietorship which is currently taxed using individual income tax rates), including aggregate qualified Real Estate Investment Trust (REIT) dividends, qualified cooperative dividends, and qualified publicly traded partnership income. </p> <p>The bill specifies formulas for determining the taxpayer's deduction for qualified business income and for determining the deduction for certain agricultural or horticultural cooperatives. </p> <p>The deduction applies to taxable income, is not used to calculate adjusted gross income (AGI), and is available to taxpayers who do not itemize deductions. Trusts and estates are eligible for the deduction. </p> <p>The bill phases in a limitation for the deduction when wages exceed $157,500 ($315,000 in the case of a joint return). The bill also phases in a disallowance of the deduction when taxable income with respect to specified service trades or businesses exceeds the limits. The limits are fully phased in when taxable income exceeds the threshold amounts by $50,000 ($100,000 for joint returns). </p> <p>A &quot;specified service trade or business&quot; is any trade or business involving the performance of services in the fields of health, law, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management trading, or dealing in securities, partnership interests, or commodities. The term excludes engineering and architecture services. </p> <p>(Sec. 11012) This section temporarily prohibits taxpayers other than corporations from claiming excess business losses. </p> <p>An excess business loss for the taxable year is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus $250,000 (200% of the amount in the case of a joint return). The threshold amount is indexed for inflation after 2018. </p> <p>In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner's distributive share and each S corporation shareholder's pro rata share of items of income, gain, deduction, or loss of the partnership or S corporation are taken into account in applying the limitation under the provision for the taxable year of the partner or S corporation shareholder. </p> <p>Losses prohibited under this section are carried forward and treated as part of the taxpayer's net operating loss carryforward in subsequent taxable years. </p> <p>Part III--Tax Benefits For Families And Individuals </p> <p>(Sec. 11021) This section temporarily increases the standard deduction to $24,000 for married individuals filing a joint return, to $18,000 for head-of-household filers, and to $12,000 for all other taxpayers. The amount of the standard deduction is indexed for inflation after 2018 using the chained CPI. </p> <p>(Under current law, the standard deduction for 2017 is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of households, and $12,700 for married individuals filing a joint return and surviving spouses.) </p> <p>(Sec. 11022) This section modifies the child tax credit to temporarily: (1) increase the credit to $2,000 ($1,000 under current law) per qualifying child under the age of 17, and (2) allow a $500 nonrefundable credit for each dependent of the taxpayer who is not a qualifying child under age 17. </p> <p>The credit is phased out at AGI levels of $400,000 for married taxpayers filing joint returns and $200,000 for individuals. </p> <p>The refundable portion of the credit is limited to $1,400 per qualifying child. In order to receive the credit, a taxpayer must include a Social Security number for each qualifying child for whom the credit is claimed on the tax return. The requirement does not apply to a non-child dependent for whom the $500 non-refundable credit is claimed. </p> <p>(Sec. 11023) This section modifies the deduction for charitable contributions to temporarily increase from 50% to 60% the income-based percentage limitation for contributions of cash to public charities.</p> <p>(Sec. 11024) This section temporarily increases contribution limitations for ABLE accounts with respect to contributions made by the designated beneficiary of the account. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.) </p> <p>After the limit is reached, the designated beneficiary may contribute an additional amount up to the lesser of: (1) the federal poverty line for a one-person household, or (2) the individual's compensation for the taxable year. </p> <p>The bill also allows the designated beneficiary of an ABLE account to claim the saver's credit for contributions made to his or her account. </p> <p>(Sec. 11025) This section allows funds from qualified tuition programs (known as 529 plans) to be rolled over to an ABLE account without penalty if the ABLE account is owned by the designated beneficiary of the 529 account or a member of the designated beneficiary's family. </p> <p>(Sec. 11026) This section temporarily allows certain members of the Armed Forces in the Sinai Peninsula of Egypt to receive combat zone tax benefits for performing services that qualify for special pay for duty subject to hostile fire or imminent danger. </p> <p>(Sec. 11027) For 2017 and 2018, this section reduces from 10% to 7.5% the AGI threshold that must be exceeded before a taxpayer is allowed to claim an itemized deduction for medical expenses. </p> <p>(Sec. 11028) This section provides tax incentives for areas in which a major disaster was declared by the President under the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. </p> <p>For individuals residing in the 2016 disaster areas, the bill allows: (1) exceptions to the 10% penalty for up to $100,000 in early withdrawals from retirement plans, and (2) personal casualty losses exceeding $500 per casualty to be deducted without regard to whether aggregate net losses exceed 10% of a taxpayer's AGI. </p> <p>Part IV--Education </p> <p>(Sec. 11031) This section temporarily modifies the exclusion of student loan discharges from gross income to exclude from gross income certain discharges on account of the death or total and permanent disability of the student. </p> <p>(Sec. 11032) This section allows funds from 529 accounts to be used for expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school. </p> <p>Part V--Deductions And Exclusions </p> <p>(Sec. 11041) This section: (1) suspends the deduction for personal exemptions, (2) modifies the wage withholding rules, (3) and modifies the requirements that determine who is required to file a tax return. </p> <p>(Sec. 11042) This section temporarily limits individual deductions for certain state and local taxes to $10,000 per year ($5,000 for a married taxpayer filing a separate return). The limit does not apply to taxes paid or accrued in carrying on a trade or business or for expenses for the production of income. </p> <p>(Sec. 11043) This section modifies the deduction for home mortgage interest to: (1) limit the deduction to mortgages for a principal residence, (2) temporarily limit the deduction for debt incurred on or before December 15, 2017, to mortgages of up to $750,000 (currently $1 million), and (3) suspend the deduction for interest paid on home equity loans. </p> <p>For taxable years beginning after 2025, the deduction applies to mortgages of up to $1 million regardless of when the indebtedness was incurred. </p> <p>(Sec. 11044) This section temporarily modifies the deduction for personal casualty and theft losses. A taxpayer may only claim the deduction for a personal casualty loss if the loss is attributable to a federally declared disaster. The bill includes an exception for certain personal casualty losses that do not exceed personal casualty gains. </p> <p>(Sec. 11045) This section suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law. </p> <p>(Sec. 11046) This section suspends the overall limitation on itemized deductions, which currently applies when AGI exceeds a specified amount.</p> <p>(Sec. 11047) This section suspends the exclusion for qualified bicycle commuting reimbursements. </p> <p>(Sec. 11048) This section suspends the exclusion for qualified moving expense reimbursements, with an exception for members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.</p> <p>(Sec. 11049) This section suspends the deduction for moving expenses. </p> <p>(Sec. 11050) This section temporarily modifies a provision that limits the deduction for wagering losses to the extent of the gains from such transactions. The bill specifies that &quot;losses from wagering transactions&quot; include otherwise deductible expenses incurred in carrying out a wagering transaction (e.g., expenses for traveling to or from a casino). </p> <p>(Sec. 11051) This section repeals the deduction for alimony or separate maintenance payments from the payor spouse and the corresponding inclusion of the payments in the gross income of the recipient spouse. </p> <p>Part VI--Increase In Estate And Gift Tax Exemption </p> <p>(Sec. 11061) This section doubles the estate and gift tax exemption amount for decedents dying or gifts made after December 31, 2017, and before January 1, 2026, by increasing the basic exclusion amount from $5 million to $10 million. (Under current law, the amount is indexed for inflation occurring after 2011.) </p> <p>Part VII--Extension Of Time Limit For Contesting IRS Levy </p> <p>(Sec. 11071) This section extends from nine months to two years the time limit for contesting an Internal Revenue Service (IRS) levy, including the time periods for: (1) returning the monetary proceeds from the sale of property that has been wrongfully levied upon, and (2) bringing a civil action for a wrongful levy. </p> <p>Part VIII--Individual Mandate </p> <p>(Sec. 11081) This section repeals the penalty for individuals who fail to maintain minimum essential health coverage as required by the Patient Protection and Affordable Care Act (commonly referred to as the individual mandate). </p> <p>Subtitle B--Alternative Minimum Tax </p> <p>(Sec. 12001) This section repeals the corporate alternative minimum tax (AMT). </p> <p>(Sec. 12002) This section modifies the AMT credit for corporations to: (1) allow the AMT credit to offset regular tax liability for any taxable year, and (2) make the credit refundable for any taxable year beginning after 2017 and before 2022 in an amount equal to 50% (100% beginning in 2021) of the excess of the minimum tax credit for the taxable year over the amount of the credit allowable for the year against regular tax liability. </p> <p>(Under current law a corporation subject to the AMT in any year is allowed an AMT credit in any subsequent taxable year to the extent that the taxpayer's regular tax liability exceeds its tentative minimum tax in the subsequent year.) </p> <p>(Sec. 12003) This section temporarily increases both the exemption amount and the exemption amount phaseout thresholds for the individual AMT. The exemption amount is increased to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return), and $70,300 for all other taxpayers (other than estates and trusts). The phaseout thresholds are increased to $1 million for married taxpayers filing a joint return, and $500,000 for all other taxpayers (other than estates and trusts). The amounts are indexed for inflation after 2018.</p> <p>Subtitle C--Business-related Provisions </p> <p>Part I--Corporate Provisions </p> <p>(Sec. 13001) This section reduces the corporate tax rate from a maximum of 35% under the existing graduated rate structure to a flat 21% rate for tax years beginning after 2017. The bill specifies requirements for taxpayers subject to the normalization method of accounting. </p> <p>(Sec. 13002) With respect to the deduction for corporations that receive dividends from other taxable corporations, the bill reduces the 70% dividends received deduction to 50% and the 80% dividends received deduction to 65% to account for the lower corporate tax rate. </p> <p>Part II--Small Business Reforms </p> <p>(Sec. 13101) This section expands the expensing of certain depreciable business assets that is currently permitted under section 179 of the IRC. </p> <p>The bill modifies section 179 to: </p> <ul> <li> increase the maximum amount a taxpayer may expense per year to $1 million (currently $500,000); </li> <li> increase the phaseout threshold for the cost of section 179 property placed in service during the year to $2.5 million (currently $2 million); </li> <li> index the amounts above and the existing $25,000 limit for sport utility vehicles for inflation; </li> <li> revise the definition of qualified real property eligible for section 179 expensing to include any qualified improvement property and certain improvements to nonresidential real property placed in service after the date such property was first placed in service (roofs; heating, ventilation, and air-conditioning property; fire protection and alarm systems; and security systems); and </li> <li> expand the definition of section 179 property to include certain depreciable tangible personal property used predominantly to furnish lodging or in connection with furnishing lodging. </li> </ul> <p>(Sec. 13102) This section modifies the accounting rules for small businesses to: </p> <ul> <li>expand the group of taxpayers who qualify for the cash accounting method by increasing the limit for the gross receipts test from $5 million to $25 million (adjusted for inflation after 2018), </li> <li> allow any farming C corporation (or farming partnership with a C corporation partner) that meets the gross receipts test to use the cash method of accounting, </li> <li> exempt taxpayers that meet the gross receipts test from certain requirements to account for inventories, </li> <li> expand the exceptions for small businesses from the uniform capitalization rules to include any producer or reseller that meets the gross receipts test, and </li> <li> expand the exception for small construction contracts from the requirement to use the percentage-of-completion method. </li> </ul> <p>Part III--Cost Recovery And Accounting Methods </p> <p>Subpart A--Cost Recovery </p> <p>(Sec. 13201) This section temporarily allows increased expensing of the costs of certain business property. </p> <p>The bill allows 100% expensing for: (1) certain business property acquired and placed in service after September 27, 2017, and before January 1, 2023 (January 1, 2024 for longer production period property and certain aircraft); and (2) specified plants that bear fruits or nuts and are planted or grafted after September 27, 2017, and before January 1, 2023. </p> <p>The 100% allowance is phased down by 20% per year calendar year for property placed in service, and specified plants planted or grafted, in taxable years beginning after 2022 (after 2023 for longer production period property and certain aircraft). </p> <p>The bill also: </p> <ul> <li> expands the definition of &quot;qualified property&quot; eligible for expensing to include certain film, television, and live theatrical productions; </li> <li> removes the requirement that the original use of qualified property must commence with the taxpayer, subject to certain acquisition requirements and anti-abuse rules; and </li> <li> excludes from the definition of &quot;qualified property&quot; the property of certain businesses that are not subject to the limitation on interest expenses. </li> </ul> <p>(Sec. 13202) This section increases the depreciation limits that apply to luxury automobiles. It also removes computer or peripheral equipment from the definition of listed property that is subject to additional restrictions and substantiation requirements regarding the expense and business usage of the property. </p> <p>(Sec. 13203) This section modifies the depreciation rules for certain farm property to: (1) shorten the recovery period from seven to five years for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) used in a farming business, the original use of which commences with the taxpayer and is placed in service after December 31, 2017; and (2) repeal the requirement to use the 150% declining balance method for property used in a farming business. </p> <p>(Sec. 13204) This section modifies the applicable recovery periods for depreciating certain real property. </p> <p>The bill eliminates the separate definitions of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property and applies the straight line method to qualified improvement property. It also modifies the alternative depreciation system (ADS) recovery period for such property. </p> <p>(Under current law, &quot;qualified improvement property&quot; is any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. It does not include any improvement for which the expenditure is attributable to: the enlargement of the building, any elevator or escalator, or the internal structural framework of the building.) </p> <p>A real property trade or business electing out of the limitation on the deduction for interest must use the ADS to depreciate nonresidential real property, residential rental property, and qualified improvement property. </p> <p>(Sec. 13205) This section requires a farming business electing out of the limitation on the deduction for interest to use the ADS to depreciate any property with a recovery period of 10 years or more. </p> <p>(Sec. 13206) This section adjusts the amortization rules and schedules for certain research and experimentation expenditures. </p> <p>(Sec. 13207) This section allows expensing of certain costs of replanting lost or damaged citrus plants lost by reason of casualty. </p> <p>Subpart B--Accounting Methods </p> <p>(Sec. 13221) This section revises the rules associated with the timing of the recognition of income. </p> <p>Part IV--Business-Related Exclusions And Deductions </p> <p>(Sec. 13301) This section limits the deduction for business interest to the sum of: (1) business interest income for the year, (2) 30% of the adjusted taxable income of the taxpayer for the taxable year, and (3) the floor plan financing interest of the taxpayer for the taxable year. </p> <p>The amount of any business interest not allowed as a deduction for any year may be carried forward indefinitely, with the exception of partnerships which are subject to additional carryforward rules specified in the bill. </p> <p>&quot;Business interest income&quot; is 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. It does not include investment income. </p> <p>&quot;Floor plan financing interest&quot; is interest paid on debt used to finance the acquisition of motor vehicles held for sale or lease and secured by the inventory so acquired. </p> <p>The bill includes exceptions for: </p> <ul> <li> small businesses that meet the gross receipts test, </li> <li> the trade or business of performing services as an employee, </li> <li> any electing farming business, </li> <li> any electing real property trade or business, and </li> <li> certain regulated public utilities. </li> </ul> <p>(Sec. 13302) This section modifies the net operating loss deduction to: (1) limit the deduction to 80% of taxable income with an exception for property and casualty insurance companies, (2) repeal the two-year and other specified carryback provisions, (3) allow an indefinite carryforward of net operating losses, and (4) allow a two-year carryback for certain losses incurred in the trade or business of farming. </p> <p>(Sec. 13303) This section modifies the rule providing for the nonrecognition of gain in the case of like-kind exchanges to limit the application of the rule to real property that is not held primarily for sale. </p> <p>(Sec. 13304) This section modifies the tax treatment of certain expenses for entertainment and fringe benefits. </p> <p>The bill denies deductions for amounts paid or incurred for: </p> <ul> <li> an activity generally considered to be entertainment, amusement or recreation; </li> <li> membership dues for any club organized for business, pleasure, recreation, or other social purposes; </li> <li> a facility or portion thereof used in connection with any of the above items; </li> <li> providing any qualified transportation fringe to employees of the taxpayer; or </li> <li> providing transportation for commuting between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. </li> </ul> <p>Under current law, taxpayers may deduct 50% of the food and beverage expenses associated with operating their trade or business, subject to certain exceptions. The bill temporarily expands the 50% limitation to include expenses of an employer associated with providing food and beverages through an eating facility that meets the requirements for a de minimis fringe. </p> <p>(Sec. 13305) This section repeals the deduction for income attributable to domestic production activities. </p> <p>(Sec. 13306) This section prohibits deductions for trade or business expenses for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. </p> <p>The bill includes exceptions for amounts constituting restitution or paid to come into compliance with law, amounts paid or incurred as a result of certain court orders, and taxes due. </p> <p>The bill also establishes reporting requirements for government entities with respect to certain fines, penalties, and other amounts. </p> <p>(Sec. 13307) This section prohibits a tax deduction for trade or business expenses paid or incurred for: (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. </p> <p>(Sec. 13308) This section eliminates the deduction for lobbying expenditures to influence the legislation of any local council or similar governing body, including an Indian tribal government. </p> <p>(Sec. 13309) This section requires a three-year holding period (one year under current law) for certain net long-term capital gains with respect to partnership interests held in connection with the performance of investment services. If the holder of an applicable partnership interest is allocated gain from the sale of property held for less than three years, that gain is treated as short-term capital gain and is taxed as ordinary income. </p> <p>(Sec. 13310) This section prohibits cash, gift cards, and other non-tangible personal property from being considered tax deductible employee achievement awards. </p> <p>(Under current law, tangible personal property may be considered a deductible employee achievement award if other specified requirements are met.)</p> <p>The bill specifies that &quot;tangible personal property&quot; does not include: (1) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer); or (2) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. </p> <p>(Sec. 13311) This section eliminates the deduction for living expenses incurred by Members of Congress. (Under current law, the deduction is limited to $3,000 per year.) </p> <p>(Sec. 13312) This section modifies the exclusion from gross income for contributions to the capital of a corporation to specify that a contribution to capital does not include a contribution: (1) in aid of construction or any other contribution as a customer or potential customer, or (2) by any governmental entity or civic group (other than a contribution made by a shareholder as such). </p> <p>The bill includes an exception for certain contributions made by a governmental entity pursuant to a master development plan. </p> <p>(Sec. 13313) This section repeals a provision that permits the tax-free rollover of certain gains from the sale of publicly traded securities into common stock or a partnership interest in a specialized small business investment company. </p> <p>(Sec. 13314) This section excludes certain patents, inventions, models, designs, secret formulas, or processes created by the taxpayer from the definition of a ''capital asset.'' </p> <p>Part V--Business Credits </p> <p>(Sec. 13401) This section modifies the tax credit for clinical testing expenses incurred in testing certain drugs for rare diseases or conditions (commonly referred to as orphan drugs) to reduce the credit rate to 25% (currently 50%) of qualified clinical testing expenses. </p> <p>(Sec. 13402) This section modifies the tax credit for rehabilitation expenditures to repeal the 10% credit for rehabilitated buildings other than a certified historic structure. </p> <p>The bill retains and modifies the 20% credit for rehabilitation expenditures for certified historic structures. For the five-year period beginning in the year in which a qualified rehabilitated building is placed in service, the credit is equal to the ratable share for each year, which is 20% of the qualified rehabilitation expenditures with respect to the building, as allocated ratably to each year during the period. </p> <p>(Sec. 13403) This section allows employers to claim a general business credit equal to 12.5% of wages paid to employees during any period in which such employees are on family and medical leave if the rate of payment under the program is 50% of the wages normally paid to an employee. </p> <p>The credit is increased by 0.25% (but not above 25%) for each percentage point by which the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any employee for any taxable year is 12 weeks. </p> <p>(Sec. 13404) This section repeals the authority to issue tax-credit bonds and direct-pay bonds. </p> <p>Part VI--Provisions Related To Specific Entities And Industries </p> <p>Subpart A--Partnership Provisions </p> <p>(Sec. 13501) This section sets forth requirements for the tax treatment of gains or losses of foreign persons from the sale or exchange of interests in partnerships engaged in trade or business within the United States. </p> <p>Under the bill, gain or loss from the sale or exchange of a partnership interest is effectively connected with a U.S. trade or business to the extent that the transferor would have had effectively connected gain or loss had the partnership sold all of its assets at fair market value as of the date of the sale or exchange. </p> <p>A partner's distributive share of gain or loss on the deemed sale must be determined in the same manner as the partner's distributive share of the non-separately stated taxable income or loss of the partnership. </p> <p>The bill also sets forth withholding requirements with respect to amounts realized from the sale or exchange of a partnership interest. </p> <p>(Sec. 13502) This section modifies the definition of &quot;substantial built-in loss&quot; with respect to the transfer of an interest in partnership. The bill specifies that &quot;a substantial built-in loss&quot; also exists if the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. </p> <p>(Sec. 13503) This section modifies the basis limitation on a partner's distributive share of a partnership loss to require a partner's distributive share of partnership charitable contribution and taxes paid or accrued to foreign countries and U.S. possessions to be taken into account in determining the limitation. </p> <p>(Sec. 13504) This section repeals the rule that provides for a technical termination of partnerships if, within any 12-month period, there is a sale or exchange of 50% or more of the total interest in partnership capital and profits. </p> <p>Subpart B--Insurance Reforms </p> <p>(Sec. 13511) This section repeals the operations loss deduction for life insurance companies and allows the net operating loss deduction under section 172 of the IRC. </p> <p>(Sec. 13512) This section repeals the small life insurance company deduction. </p> <p>(Sec. 13513) This section revises the tax treatment of income or loss resulting from a change in the method of computing life insurance company reserves. The bill eliminates the 10-year period for taking into account the changes and requires the changes to be taken into account as adjustments attributable to a change in the method of accounting. </p> <p>(Sec. 13514) This section repeals the special rule for distributions to shareholders of a stock life insurance company from a pre-1984 policyholders surplus account, which provides that amounts in the account are not taxed unless the amounts are treated as distributed to shareholders or subtracted from the account. The bill requires a life insurance company with such an account to pay taxes on the balance of the account ratably over the first eight taxable years beginning after December 31, 2017. </p> <p>(Sec. 13515) This section modifies the proration rules for property and casualty insurance companies to replace the 15% reduction with a reduction equal to 5.25% divided by the highest corporate tax rate in effect. (Under the top corporate rate of 21% that takes effect in 2018, the proration percentage is 25%.) </p> <p>(Under the proration rules, in calculating the deductible amount of its reserve for losses incurred, a property or casualty insurance company must reduce the amount of the losses incurred by a specified percentage of: (1) the insurer's tax-exempt interest, (2) the deductible portion of dividends received, and (3) the increase for the taxable year in the cash value of life insurance, endowment, or annuity contracts the company owns.) </p> <p>(Sec. 13516) This section repeals the special estimated tax payment rules for insurance companies. </p> <p>(Sec. 13517) This section modifies the rules for computing life insurance tax reserves that are used in determining the taxable income of a life insurance company. </p> <p>(Sec. 13518) This section modifies the life insurance company proration rule for reducing dividends received deductions and reserve deductions with respect to untaxed income. For purposes of the life insurance proration rule, the company's share is 70% and the policyholder's share is 30%. </p> <p>(Sec. 13519) This section modifies the requirements for the capitalization of policy acquisition expenses of insurance companies to extend the amortization period from 120 months to 180 months. </p> <p>Under current law, policy acquisition expenses are determined as that portion of the insurance company's general deductions for the taxable year that does not exceed a specified percentage of the net premiums for the year on each of three categories of insurance contracts. </p> <p>The bill increases these percentages from 1.75% to 2.09% for annuity contracts, from 2.05% to 2.45% for group life insurance contracts, and from 7.7% to 9.2% for all other specified insurance contracts. </p> <p>(Sec. 13520) This section establishes reporting requirements for acquisitions of life insurance contracts in a reportable policy sale. It also imposes reporting requirements on the payor in the case of the payment of reportable death benefits. </p> <p>A &quot;reportable policy sale&quot; is the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. </p> <p>(Sec. 13521) This section sets forth requirements for the determining the basis of a life insurance or annuity contract. The bill specifies that no basis adjustment shall be made for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract. </p> <p>(Sec. 13522) This section exempts the transfer of a life insurance contract, or any interest therein, in a reportable policy sale from the transfer for valuable consideration rule. </p> <p>(Under current law, the transfer for valuable consideration rule provides that, if a life insurance contract or an interest in a contract is transferred for a valuable consideration, the tax exclusion for amounts received under a life insurance contract due to the death of the insured is limited to the sum of the actual value of the consideration and the premiums and other amounts subsequently paid by the transferee.) </p> <p>(Sec. 13523) This section modifies the reserve discounting rules applicable to property and casualty insurance companies to: (1) modify the interest rate used to discount unpaid losses, (2) modify the computational rules for loss payment pattern, and (3) repeal the election to use a taxpayer's historical loss payment pattern. </p> <p>Subpart C--Banks and Financial Instruments </p> <p>(Sec. 13531) This section limits the deduction for Federal Deposit Insurance Corporation premiums for certain financial institutions with consolidated assets that exceed $10 billion. </p> <p>(Sec. 13532) This section repeals the exclusion from gross income for interest on a bond issued to advance refund another bond. </p> <p>Subpart D--S Corporations </p> <p>(Sec. 13541) This section allows a nonresident alien individual to be a qualifying beneficiary of an electing small business trust (ESBT), which is a type of trust that is permitted to hold shares in an S corporation. </p> <p>(Sec. 13542) This section specifies that the charitable contribution deduction of an ESBT is determined by the rules applicable to individuals rather than the rules applicable to trusts, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. </p> <p>(Sec. 13543) This section modifies the tax treatment of S corporation conversions to C corporations. </p> <p>Part VII--Employment </p> <p>Subpart A--Compensation </p> <p>(Sec. 13601) This section modifies a provision that limits the deduction for compensation of covered employees of a publicly held corporation to salaries of no more than $1 million per year. The bill: (1) repeals the performance-based compensation and commission exceptions, (2) modifies the definition of &quot;covered employee,&quot; and (3) expands the definition of &quot;publicly held corporation.&quot; </p> <p>The bill includes an exception for compensation that is provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. </p> <p>(Sec. 13602) This section imposes an excise tax on excess tax-exempt organization executive compensation. The tax is equal to the product of the corporate tax rate (21% under this bill) and the sum of: (1) any remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee by an applicable tax-exempt organization for a taxable year, and (2) any excess parachute payment (separation pay), as specified in the bill. </p> <p>(Sec. 13603) This section allows qualified employees to elect to defer, for income tax purposes, income attributable to certain stock transferred to the employee by an employer. </p> <p>Employees are excluded if they: (1) are a 1% owner, the chief executive officer, or the chief financial officer of the corporation or have been at any time during the 10 preceding calendar years; (2) are a family member of the specified individuals; or (3) is one of the four highest compensated officers of the corporation or has been during any of the 10 preceding taxable years. </p> <p>(Sec. 13604) This section increases from 15% to 20% the excise tax imposed on the value of stock compensation held by insiders of an expatriated corporation. </p> <p>Subpart B--Retirement Plans </p> <p>(Sec. 13611) This section repeals the rule that allows Individual Retirement Arrangement (IRA) contributions to one type of IRA (traditional or Roth) to be recharacterized as a contribution to the other type of IRA. </p> <p>(Sec. 13612) This section increases the limit on accruals that is required for length of service award plans (LOSAPs) for bona fide volunteers to be exempt from treatment as a deferred compensation plan. </p> <p>(Under current law, plans paying solely length of service awards to bona fide volunteers or their beneficiaries on the account of firefighting and prevention services, emergency medical services, and ambulance services performed by the volunteers are not treated as deferred compensation plans if they meet certain requirements. One of the requirements is a limit on the aggregate amount of length of service awards that may accrue with respect to any year of service for any bona fide volunteer.) </p> <p>The bill modifies the limit on accruals to: (1) increase the limit from $3,000 to $6,000; and(2) provide for a cost-of-living adjustment to the limit after 2017. </p> <p>In the case of LOSAPs that are defined benefit plans, the limit applies to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Actuarial present value is to be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant's age at the time of the calculation. </p> <p>(Sec. 13613) This section extends the period during which a qualified plan loan offset amount may be contributed to an eligible retirement plan as a rollover contribution. A &quot;qualified plan loan offset amount&quot; is a plan loan offset amount that is treated as distributed from a qualified retirement plan, a section 403(b) plan or a governmental section 457(b) plan solely by reason of the termination of the plan or the failure to meet the repayment terms of the loan because of the severance from employment of the participant. </p> <p>Part VIII--Exempt Organizations </p> <p>(Sec. 13701) This section imposes a 1.4% excise tax on the net investment income of certain private colleges and universities. </p> <p>(Sec. 13702) This section requires tax-exempt organizations with more than one unrelated trade or business to calculate unrelated business taxable income separately with respect to each trade or business and without regard to a specified deduction that applies for certain unrelated business taxable income. </p> <p>(Sec. 13703) This section includes in unrelated business taxable income of a tax-exempt organization any expenses paid or incurred by the organization for certain fringe benefits for which a deduction is not allowed under section 274 of the IRC, including qualified transportation fringe benefits, a parking facility used in connection with qualified parking, or any on-premises athletic facility. </p> <p>(Sec. 13704) This section modifies the deduction for charitable contributions to prohibit a charitable deduction for college athletic event seating rights. </p> <p>(Sec. 13705) This section modifies the deduction for charitable contributions to repeal the exception to substantiation requirements for certain contributions reported by the donee organization. </p> <p>Part IX--Other Provisions </p> <p>Subpart A--Craft Beverage Modernization and Tax Reform </p> <p>(Sec. 13801) This section excludes the aging periods for beer, wine, and distilled spirits from the production period for purposes of the uniform interest capitalization rules, which allows the producers to deduct interest expenses attributable to a shorter production period. This section does not apply to interest costs paid or accrued after December 31, 2019. </p> <p>(Sec. 13802) This section lowers the excise tax rate on beer to $16 per barrel on the first six million barrels brewed by the brewer or imported by the importer. </p> <p>For barrels of beer that have been brewed or produced outside of the United States and imported into the United States, the reduced tax rate may be assigned by the brewer to the importer, subject to specified requirements. </p> <p>(Sec. 13803) This section allows the transfer of beer between bonded facilities without payment of tax if specified requirements are met. </p> <p>(Sec. 13804) This section modifies the credit against the excise tax on wine for small domestic for 2018 and 2019 to: </p> <ul> <li> make the credit available to all wine producers and importers by removing the 250,000 wine gallon domestic production limitation; </li> <li>establish credit rates of: (1) $1.00 per wine gallon for the first 30,000 wine gallons of wine, plus; (2) 90 cents per wine gallon on the next 100,000 wine gallons of wine, plus; (3) 53.5 cents per wine gallon on the next 620,000 wine gallons of wine; </li> <li> establish adjusted credit rates for hard cider; and </li> <li> make sparkling wine producers and importers eligible for the credit. </li> </ul> <p>The bill also allows importers of wine produced outside of the United States to assign the credit to the foreign producer, subject to specified requirements. </p> <p>(Sec. 13805) The section modifies the alcohol-by-volume levels of the first two tiers of the excise tax on wine, by changing 14% to 16%. Under the provision, a wine producer or importer may produce or import still wine that has an alcohol-by-volume level of up to 16% and remain subject to the lowest rate of $1.07 per wine gallon. </p> <p>(Sec. 13806) This section specifies definitions for &quot;mead&quot; and &quot;low alcohol by volume wine&quot; that are eligible to be taxed at the lowest applicable rate for still wine. </p> <p>(Sec. 13807) This section reduces the excise tax rate for certain distilled spirits in 2018 and 2019 to: $2.70 per proof gallon on the first 100,000 proof gallons, $13.34 for all proof gallons in excess of that amount but below 22,130,000 proof gallons, and $13.50 for amounts thereafter. </p> <p>Members of the same controlled group may not receive the lower rate on more than 100,000 proof gallons of distilled spirits. Importers of distilled spirits are eligible for the lower rates. </p> <p>(Sec. 13808) This section allows distillers to transfer spirits in approved containers other than bulk containers in bond without payment of tax. This provision applies to distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020. </p> <p>Subpart B--Miscellaneous Provisions </p> <p>(Sec. 13821) This section modifies the tax treatment of Alaska Native Settlement Trusts, to: (1) allow an Alaska Native Corporation to assign certain payments referenced in the Alaska Native Claims Settlement Act to a trust without including the payments in the gross income of the corporation, (2) allow the corporation to elect annually to deduct contributions made to a trust, (3) allow a trust to elect to defer the recognition of gains related to contributions of property other than cash until the sale or exchange of the property, and (4) establish information reporting requirements for deductible contributions to a trust. </p> <p>(Sec. 13822) This section exempts certain payments related to the management of private aircraft from the excise taxes imposed on taxable transportation by air. </p> <p>(Sec. 13823) This section authorizes the designation of opportunity zones in low-income communities and provides various tax incentives for investments in the zones. Taxpayers may temporarily defer the recognition of capital gains that are invested in opportunity zones. Investments in opportunity zones or opportunity funds that are held for at least five years are eligible for capital gains tax reductions or exemptions, depending on how long the investment is held. </p> <p>Subtitle D--International Tax Provisions </p> <p>Under current law, the earnings of foreign subsidiaries of U.S. multinational corporations are not taxed until the income is repatriated (paid as dividends) into the United States. The corporations are allowed a tax credit against U.S. taxes for taxes paid to foreign jurisdictions. This subtitle establishes a territorial system in which foreign source income is not subject to regular U.S. taxes. </p> <p>Part I--Outbound Transactions </p> <p>Subpart A--Establishment of Participation Exemption System for Taxation of Foreign Income </p> <p>(Sec. 14101) This section establishes a participation exemption system for foreign income. Under the system, the bill allows a 100% deduction for the foreign-source portion of dividends received from specified 10% owned foreign corporations by domestic corporations that are U.S. shareholders of those foreign corporations. </p> <p>A &quot;specified 10% owned foreign corporation&quot; is any foreign corporation with respect to which any domestic corporation is a U.S. shareholder. It does not include a passive foreign investment company that is not a controlled foreign corporation (CFC). </p> <p>No foreign tax credit or deduction is allowed for any taxes paid or accrued with respect to any dividend for which a deduction is allowed under this section. </p> <p>The bill establishes a one-year holding period requirement for dividends of a domestic corporation to be eligible for a participation dividends received deduction. </p> <p>(Sec. 14102) This section sets forth requirements for the tax treatment of sales or transfers involving specified 10% owned foreign corporations, including (1) sales by U.S. persons of stock, (2) required reductions in the basis of certain foreign stock, and (3) sales by a CFC of a lower-tier CFC, (4) foreign branch loess transferred to specified 10% owned foreign corporations, and (5) the repeal of the active trade or business exception. </p> <p>(Sec. 14103) This section specifies rules for the tax treatment of deferred foreign income upon transition to the participation exemption system of taxation. </p> <p>For the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, U.S. shareholders of deferred foreign income corporations must include as subpart F income a pro rata share of the accumulated post-1986 deferred foreign income of the corporation. </p> <p>The bill allows a deduction for a portion of the pro rata share of foreign earnings. The bill also disallows a corresponding portion of the credit for foreign taxes. </p> <p>The total amount of deductions permitted is the amount necessary to result in tax rates of 15.5% for accumulated post-1986 foreign earnings held in the form of cash or cash equivalents and 8% rate for all other earnings. </p> <p>The tax may be paid in installments over eight years. </p> <p>The bill specifies rules for applying this provision to S corporations and real estate investment trusts. </p> <p>Subpart B--Rules Related to Passive and Mobile Income </p> <p>Chapter 1--Taxation Of Foreign-Derived Intangible Income And Global Intangible Low-Taxed Income </p> <p>(Sec. 14201) This section requires a U.S. shareholder of any CFC for any taxable year to include in gross income the shareholder's global intangible low-taxed income for the year. The bill specifies a formula and requirements for calculating global intangible low-taxed income. </p> <p>(Sec. 14202) This section allows deductions for domestic corporations for specified portions of the corporation's foreign-derived intangible income and global intangible low-taxed income, using specified formulas and definitions included in the bill. </p> <p>Chapter 2--Other Modifications Of Subpart F Provisions </p> <p>(Sec. 14211) This section repeals provisions that treat foreign base company oil related income as category of subpart F income. </p> <p>(Sec. 14212) This section repeals the requirement for a U.S. shareholder in a CFC that invested previously excluded subpart F income in foreign base company shipping operations to include in income a pro rata share of the previously excluded subpart F income when the CFC decreases the investments </p> <p>(Sec. 14213) This section modifies the stock attribution rules for determining status as a CFC. Certain stock of a foreign corporation owned by a foreign person must be attributed to a related U.S. person for purposes of determining whether the related U.S. person is a U.S. shareholder of the foreign corporation. </p> <p>(Sec. 14214) This section expands the definition of U.S. shareholder under subpart F to include any U.S. person who owns 10% or more of the total value of shares of all classes of stock of a foreign corporation. </p> <p>(Sec. 14215) This section eliminates the requirement for a corporation to be controlled for an uninterrupted period of 30 days before subpart F inclusions apply. </p> <p>Chapter 3--Prevention Of Base Erosion </p> <p>(Sec. 14221) This section modifies terms and valuation methods that apply to transfers of intangible property. The bill modifies the definition of &quot;intangible property&quot; to include: (1) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions [contractual or otherwise] of its employment); or (2) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. </p> <p>The bill removes a requirement that the item have substantial value independent of the services of an individual to be considered intangible property. </p> <p>The bill specifies authorities and requirements for Treasury to specify the method to be used to determine the valuation of transfers of intangible property. </p> <p>(Sec. 14222) This section denies a deduction for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. </p> <p>A &quot;disqualified related party amount&quot; is any interest or royalty paid or accrued to a related party to the extent that: (1) the amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (2) the related party is allowed a deduction with respect to such amount under the tax law of such country. The term does include any payment to the extent such payment is included in the gross income of a U.S. shareholder under this bill. </p> <p>A &quot;hybrid transaction&quot; is any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties under this bill and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. </p> <p>A &quot;hybrid entity&quot; is any entity which is either: (1) treated as fiscally transparent under this bill but not for the purposes of the tax law of the foreign country of which the entity is a resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this bill </p> <p>(Sec. 14223) Shareholders who receive dividends from a foreign corporation that first becomes a surrogate corporation after enactment of this bill are ineligible for the reduced rates for qualified dividends. </p> <p>Subpart C--Modifications Related to Foreign Tax Credit System </p> <p>(Sec. 14301) This section repeals the deemed-paid credit with respect to dividends received by a domestic corporation that owns 10% or more of the voting stock of a foreign corporation. The bill allows a deemed-paid credit with respect to any income inclusion under subpart F. The credit is limited to the amount of foreign income taxes properly attributable to the subpart F inclusion. </p> <p>(Sec. 14302) This section requires foreign branch income to be allocated to a specific foreign tax credit basket. Foreign branch income is the business profits of a U.S. person which are attributable to one or more qualified business units in one or more foreign countries. </p> <p>(Sec. 14303) This section requires gains, profits, and income from the sale or exchange of inventory property produced partly in, and partly outside, the United States to 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. </p> <p>(Sec. 14304) This section allows an election to increase the percentage (but not greater than 100%) of domestic taxable income offset by any pre-2018 unused overall domestic loss and recharacterized as foreign source. </p> <p>A &quot;Pre-2018 unused overall domestic loss'' is any overall domestic loss which: (1) arises in a qualified taxable year beginning before January 1, 2018, and (2) has not been used under the general rule for the recharacterization of overall domestic loss. </p> <p>Part II--Inbound Transactions </p> <p>(Sec. 14401) This section imposes on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year and specifies a formula for calculating the tax. </p> <p>An &quot;applicable taxpayer&quot; is a taxpayer who: (1) is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation; (2) has average annual gross receipts of at least $500 million for the three-year period ending with the preceding year; and (3) has a base erosion percentage, as determined using a specified formula, of at least 3% (2% for certain banks and securities dealers). </p> <p>Part III--Other Provisions </p> <p>(Sec. 14501) This section modifies the exception from the passive foreign investment company rules for insurance businesses. The bill replaces the test based on whether a corporation is predominantly engaged in an insurance business with a test based on the corporation's insurance liabilities. </p> <p>(Sec. 14502) This section specifies that all allocations and apportionments of interest expense must be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. </p> <p>TITLE II </p> <p>(Sec. 20001) The Department of the Interior must establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain of the Arctic National Wildlife Refuge (ANWR) in Alaska. </p> <p>The bill specifies that the provision in the Alaska National Interest Lands Conservation Act that prohibits the production of oil and gas from ANWR does not apply to the Coastal Plain.</p> <p>Interior must conduct at least two lease sales within 10 years. Each lease sale must contain: (1) at least 400,000 acres, and (2) areas that have the highest potential for the discovery of hydrocarbons. </p> <p>Interior must also: (1) issue any necessary rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation associated with the oil and gas program; and (2) authorize up to 2,000 surface acres of federal land on the Coastal Plain to be covered by production and support facilities during the term of the leases under the oil and gas program. </p> <p>(Sec. 20002) This section amends the Gulf of Mexico Energy Security Act of 2006 to temporarily increase the annual limitation on offshore revenue sharing for the states of Alabama, Louisiana, Mississippi, and Texas from $500 million annually for FY2020 and FY2021, to $650 million annually for those two years.</p> <p> (Sec. 20003) The Department of Energy (DOE) must: (1) draw down and sell seven million barrels of crude oil from the Strategic Petroleum Reserve during FY2026-FY2027, (2) deposit the amounts received from the sale in the Treasury, and (3) stop the drawdown or sale of crude oil after $600 million has been deposited in the Treasury. </p> <p>DOE may not drawdown or sell oil under this section in quantity that would limit the authority to direct a drawdown and sale of petroleum products to address a domestic or international energy supply shortage. </p>

tv_txt: I 115th CONGRESS 1st Session H. R. 1 IN THE HOUSE OF REPRESENTATIVES AN ACT To provide for reconciliation pursuant to titles II and V 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. Sec. 1104. Procedures to reduce improper claims of earned income credit. Sec. 1105. Certain income disallowed for purposes of the earned income tax credit. 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. Sec. 1205. Rollovers between qualified tuition programs and qualified ABLE programs. 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. Sunset 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. Sec. 3204. Modification of treatment of S corporation conversions to C corporations. 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. Sec. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services. Sec. 3315. Amortization of research and experimental expenditures. Sec. 3316. Uniform treatment of expenses in contingency fee cases. 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. Surtax on life insurance company taxable income. Sec. 3704. Adjustment for change in computing reserves. Sec. 3705. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account. Sec. 3706. Modification of proration rules for property and casualty insurance companies. Sec. 3707. Modification of discounting rules for property and casualty insurance companies. Sec. 3708. Repeal of special estimated tax payments. Subtitle I—Compensation Sec. 3801. Modification of limitation on excessive employee remuneration. Sec. 3802. Excise tax on excess tax-exempt organization executive compensation. Sec. 3803. Treatment of qualified equity grants. 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. 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. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of 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), and (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) 39.6-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 subsections (b) and (e)(3) (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. (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, (B) in the case of a married individual filing a separate return, an amount equal to 1/2 of the amount in effect for the taxable year under subparagraph (A), and (C) 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 the head of a household (as defined in section 2(b)), 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 subparagraphs (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 6103(l)(21)(A)(iii) is amended to read as follows: (iii) the number of the taxpayer’s dependents, . (44) Section 6213(g)(2) is amended by striking subparagraph (H). (45) 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. . (46) Section 7702B(f)(2)(C)(iii) is amended by striking section 152(d)(2) and inserting section 7706(d)(2) . (47) Section 7703(a) is amended by striking part V of subchapter B of chapter 1 and . (48) Section 7703(b)(1) is amended by striking section 152(f)(1) and all that follows and inserting section 7706(f)(1), . (49) Section 7706(a), as redesignated by this section, is amended by striking this subtitle and inserting subtitle A . (50) (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. . (51) 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 any property described in section 1221(a)(2) which is 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 with respect to such partnership or S corporation under subparagraph (A) (applied by substituting the partnership’s or S corporation’s adjusted basis for the taxpayer’s adjusted basis ). (g) Reduced rate for small businesses with net active business income (1) In general The tax imposed by section 1 shall be reduced by 3 percent of the excess (if any) of— (A) the least of— (i) qualified active business income, (ii) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), or (iii) the 9-percent bracket threshold amount, over (B) the excess (if any) of taxable income over the applicable threshold amount. (2) Phase-in of rate reduction In the case of any taxable year beginning before January 1, 2022, paragraph (1) shall be applied by substituting for 3 percent — (A) in the case of any taxable year beginning after December 31, 2017, and before January 1, 2020, 1 percent , and (B) in the case of any taxable year beginning after December 31, 2019, and before January 1, 2022, 2 percent . (3) Qualified active business income For purposes of this subsection, the term qualified active business income means the excess (if any) of— (A) any net business income derived from any active business activity, over (B) any net business loss derived from any active business activity. (4) 9-percent bracket threshold amount For purposes of this subsection, the term 9-percent bracket threshold amount means— (A) in the case of a joint return or surviving spouse, $75,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A). (5) Applicable threshold amount For purposes of this subsection, the term applicable threshold amount means— (A) in the case of a joint return or surviving spouse, $150,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A). (6) Estates and trusts Paragraph (1) shall not apply to any estate or trust. (7) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (4)(A) and (5)(A) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) 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. 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. (h) 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. (i) 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), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: (13) 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) 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. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (e) 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 32(b)(2)(B)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting calendar year 2008 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 2008 for calendar year 2016 in clause (ii) thereof . (2) Section 32(j)(1)(B) is amended— (A) in the matter preceding clause (i), by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) in clause (i), by striking for calendar year 1992 in subparagraph (B) thereof and inserting for calendar year 2016 in clause (ii) thereof , and (C) in clause (ii), by striking for calendar year 1992 in subparagraph (B) of such section 1 and inserting for calendar year 2016 in clause (ii) thereof . (3) 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)) . (4) 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. . (5) 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 . (6) 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 . (7) 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 . (8) 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 . (9) 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) . (10) 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 . (11) 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. . (12) 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 . (13) 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 . (14) 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 . (15) 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 . (16) 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 . (17) 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 . (18) 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. . (19) 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 . (20) 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 . (21) 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 . (22) 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 . (23) 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 . (24) 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 . (25) 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 . (26) 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 . (27) 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 . (28) 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 . (29) 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 . (30) 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 . (31) 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 . (32) 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 . (33) 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 . (34) 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 . (35) 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 . (36) 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 . (37) 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 . (38) 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 . (39) 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. . (40) Section 219(b)(5)(C)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined 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 . (41) Section 219(g)(8)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 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 2005 for calendar year 2016 in clause (ii) thereof . (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 inserting (as in effect on the day before the date of the enactment of the Tax Cuts and Jobs Act ) after section 1(g) . (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 to read as follows: (a) Allowance of credit 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) with respect to each qualifying child of the taxpayer, $1,600, and (2) for taxable years beginning before January 1, 2023, with respect to the taxpayer (each spouse in the case of a joint return) and each dependent of the taxpayer 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 family 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) 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. . (c) 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), . (d) 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 (b) The amendment made by subsection (c) shall apply to taxable years ending after December 31, 2017. (3) Subsection (c) 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) Identification requirements for child and family tax credit (1) In general Section 24(e) is amended to read as follows: (e) Identification requirements (1) Requirements for qualifying child No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and social security number of such qualifying child on the return of tax for the taxable year. The preceding sentence shall not prevent a qualifying child from being treated as a dependent described in subsection (a)(2). (2) Other identification requirements No credit shall be allowed under this section with respect to any individual unless the taxpayer identification number of such individual is included on the return of tax for the taxable year and such identifying number was issued before the due date for filing the return for the taxable year. (3) Social security number For purposes of this subsection, the term social security number means a social security number issued 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, or a correct TIN, required under section 24(e) (relating to child tax credit), to be included on a return, . (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. 1104. Procedures to reduce improper claims of earned income credit (a) Clarification regarding determination of self-employment income which is treated as earned income Section 32(c)(2)(B) is amended by striking and at the end of clause (v), by striking the period at the end of clause (vi) and inserting , and , and by adding at the end the following new clause: (vii) in determining the taxpayer’s net earnings from self-employment under subparagraph (A)(ii) there shall not fail to be taken into account any deduction which is allowable to the taxpayer under this subtitle. . (b) Required quarterly reporting of wages of employees Section 6011 is amended by adding at the end the following new subsection: (i) Employer reporting of wages Every person required to deduct and withhold from an employee a tax under section 3101 or 3402 shall include on each return or statement submitted with respect to such tax, the name and address of such employee and the amount of wages for such employee on which such tax was withheld. . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. (2) Reporting The Secretary of the Treasury, or his designee, may delay the application of the amendment made by subsection (b) for such period as such Secretary (or designee) determines to be reasonable to allow persons adequate time to modify electronic (or other) systems to permit such person to comply with the requirements of such amendment. 1105. Certain income disallowed for purposes of the earned income tax credit (a) Substantiation requirement Section 32 is amended by adding at the end the following new subsection: (n) Inconsistent income reporting If the earned income of a taxpayer claimed on a return for purposes of this section is not substantiated by statements or returns under sections 6051, 6052, 6041(a), or 6050W with respect to such taxpayer, the Secretary may require such taxpayer to provide books and records to substantiate such income, including for the purpose of preventing fraud. . (b) Exclusion of unsubstantiated amount from earned income Section 32(c)(2) is amended by adding at the end the following new subparagraph: (C) Exclusion In the case of a taxpayer with respect to which there is an inconsistency described in subsection (n) who fails to substantiate such inconsistency to the satisfaction of the Secretary, the term earned income shall not include amounts to the extent of such inconsistency. . (c) Effective date The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. 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 74(d) is amended by striking 221, . (3) Section 86(b)(2)(A) is amended by striking 221, . (4) Section 219(g)(3)(A)(ii) is amended by striking 221, . (5) Section 163(h)(2) is amended by striking subparagraph (F). (6) 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). (7) Section 6050S(e) is amended by striking all that follows thereof) and inserting a period. (c) Conforming amendments related to section 222 (1) Section 62(a) is amended by striking paragraph (18). (2) Section 74(d)(2)(B) is amended by striking 222, . (3) Section 86(b)(2)(A) is amended by striking 222, . (4) Section 219(g)(3)(A)(ii) is amended by striking 222, . (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) Conforming amendments related to section 135 (1) Section 74(d)(2)(B) is amended by striking 135, . (2) Section 86(b)(2)(A) is amended by striking 135, . (3) Section 219(g)(3)(A)(ii) is amended by striking 135, . (g) 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. 1205. Rollovers between qualified tuition programs and qualified ABLE programs (a) Rollovers from qualified tuition programs to qualified ABLE programs Section 529(c)(3)(C)(i) is amended by striking or at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or , and by adding at the end the following new subclause: (III) to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B). . (b) Effective date The amendments made by this section shall apply to distributions 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 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 by striking subparagraphs (E) and (F) in paragraph (4). (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. . (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) 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) 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) Section 165 is amended by striking subsection (k). (3) (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. . (4) 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. (5) Section 172(d)(4)(C) is amended by striking paragraph (2) or (3) of section 165(c) and inserting section 165(c)(2) . (6) Section 274(f) is amended by striking casualty losses, in the heading thereof. (7) Section 280A(b) is amended by striking casualty losses, in the heading thereof. (8) 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. (9) 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 1304 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 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 sections 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 sections for such subpart). (b) Conforming amendments (1) Corresponding repeal of provisions providing for inclusion of alimony in gross income (A) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (B) 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). (C) 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). (2) Related to repeal of section 215 (A) Section 62(a) is amended by striking paragraph (10). (B) Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof) . (3) Related to repeal of section 71 (A) 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. . (B) 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) . (C) 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) . (D) Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C) . (E) 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 sections for such subpart). (b) Retention of moving expenses for members of Armed Forces Section 134(b) is amended by adding at the end the following new paragraph: (7) Moving expenses The term qualified military benefit includes any benefit described in section 217(g) (as in effect before the enactment of the Tax Cuts And Jobs Act). . (c) 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). (d) 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 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). (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). (2) 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. Sunset of exclusion for dependent care assistance programs (a) In general Section 129 is amended by adding at the end the following new subsection: (f) Termination Subsection (a) shall not apply to taxable years beginning after December 31, 2022. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 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, 2024. (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, 2024— (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, 2024. . (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 2024 (1) In general In the case of a gift made after December 31, 2024, 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 2024 (1) In general In the case of a gift made after December 31, 2024, 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 2024, 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(c)(2)(A) of such calendar year by substituting calendar year 2011 for calendar year 2016 in clause (ii) 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: (g) Gifts received after 2024 In the case of a gift received after December 31, 2024, 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, 2024. 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 263(c) is amended by striking section 59(e) or 291 and inserting section 291 . (21) Section 263A(c) is amended by striking paragraph (6) and by redesignating paragraph (7) (as amended) as paragraph (6). (22) Section 382(l) is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7). (23) Section 443 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d). (24) Section 616 is amended by striking subsection (e). (25) Section 617 is amended by striking subsection (i). (26) 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) . (27) Subsections (b) and (c) of section 666 are each amended by striking (other than the tax imposed by section 55) . (28) Section 848 is amended by striking subsection (i). (29) Section 860E(a) is amended by striking paragraph (4). (30) Section 871(b)(1) is amended by striking or 55 . (31) Section 882(a)(1) is amended by striking 55, . (32) 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. . (33) 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). . (34) 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). . (35) 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 . (36) Section 1016(a) is amended by striking paragraph (20). (37) 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). (38) Section 1374(b)(3)(B) is amended by striking the last sentence thereof. (39) 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. (40) Section 6015(d)(2)(B) is amended by striking or 55 . (41) Section 6211(b)(4)(A) is amended by striking , 168(k)(4) . (42) 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 . (43) 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, . (44) Section 6655(e)(2)(B)(i) is amended by striking The taxable income and alternative minimum taxable income shall and inserting Taxable income shall . (45) 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). (46) 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) Reduction in dividend received deductions to reflect lower corporate income tax rates (1) Dividends received by corporations (A) In general Section 243(a)(1) is amended by striking 70 percent and inserting 50 percent . (B) Dividends from 20-percent owned corporations Section 243(c)(1) is amended— (i) by striking 80 percent and inserting 65 percent , and (ii) by striking 70 percent and inserting 50 percent . (C) Conforming amendment The heading for section 243(c) is amended by striking Retention of 80-percent dividend received deduction and inserting Increased percentage . (2) Dividends received from FSC Section 245(c)(1)(B) is amended— (A) by striking 70 percent and inserting 50 percent , and (B) by striking 80 percent and inserting 65 percent . (3) Limitation on aggregate amount of deductions Section 246(b)(3) is amended— (A) by striking 80 percent in subparagraph (A) and inserting 65 percent , and (B) by striking 70 percent in subparagraph (B) and inserting 50 percent . (4) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) is amended— (A) by striking 70 percent and inserting 50 percent , and (B) by striking 80 percent and inserting 65 percent . (5) Income from sources within the United States Section 861(a)(2) is amended— (A) by striking 100/70th and inserting 100/50th in subparagraph (B), and (B) in the flush sentence at the end— (i) by striking 100/80th and inserting 100/65th , and (ii) by striking 100/70th and inserting 100/50th . (d) 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. (e) 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 property of certain businesses not subject to limitation on interest expense The term qualified property shall not include any property used in— (i) a trade or business described in subparagraph (B) or (C) of section 163(j)(7), or (ii) a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (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 168(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. 3204. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from S corporation to C corporation Section 481 is amended by adding at the end the following new subsection: (d) Adjustments attributable to conversion from S corporation to C corporation (1) In general In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation means any C corporation— (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act , and (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (b) Cash distributions following post-termination transition period from S corporation status Section 1371 is amended by adding at the end the following new subsection: (f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. . 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, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest 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 3203 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, reduced by floor plan financing interest, 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, 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). (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. (B) Floor plan financing indebtedness The term floor plan financing indebtedness means indebtedness— (i) used to finance the acquisition of motor vehicles held for sale to retail customers, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle means a motor vehicle that is any of the following: (i) An automobile. (ii) A truck. (iii) A recreational vehicle. (iv) A motorcycle. (v) A boat. (vi) Farm machinery or equipment. (vii) Construction machinery or equipment. . (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), 219(g)(3)(A)(ii), 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) Conforming amendment 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 . (c) 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. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 is amended— (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years for 1 year , shall be treated as short-term capital gain. (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing. (4) Exceptions The term applicable partnership interest shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Coordination with section 83 Subsection (e) of section 83 is amended by striking or at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting , or , and by adding at the end the following new paragraph: (6) a transfer of an applicable partnership interest to which section 1061 applies. . (c) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items: Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3315. Amortization of research and experimental expenditures (a) In general Section 174 is amended to read as follows: 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business. (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: Sec. 174. Amortization of research and experimental expenditures. . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2022. 3316. Uniform treatment of expenses in contingency fee cases (a) In general Section 162 , as amended by the preceding provisions of this Act, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: (r) Expenses in contingency fee cases No deduction shall be allowed under subsection (a) to a taxpayer for any expense— (1) paid or incurred in the course of the trade or business of practicing law, and (2) resulting from a case for which the taxpayer is compensated primarily on a contingent basis, until such time as such contingency is resolved. . (b) Effective date The amendment made by this section shall apply to expenses and costs paid or incurred in taxable years beginning after the date of the enactment of this Act. 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. Surtax on life insurance company taxable income (a) In general Section 801(a)(1) is amended— (1) by striking consist of a tax and insert consist of the sum of— (A) a tax , and (2) by striking the period at the end and inserting , and , and (3) by adding at the end the following new subparagraph: (B) a tax equal to 8 percent of the life insurance company taxable income. . 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. 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. 3706. 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. 3707. 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. 3708. 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. I Compensation 3801. 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 or principal financial 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. 3802. 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. 3803. Treatment of qualified equity grants (a) In general (1) Election to defer income Section 83 is amended by adding at the end the following new subsection: (i) Qualified equity grants (1) In general For purposes of this subtitle, if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection— (A) except as provided in subparagraph (B), no amount shall be included in income under subsection (a) for the first taxable year in which the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable, and (B) an amount equal to the amount which would be included in income of the employee under subsection (a) (determined without regard to this subsection) shall be included in income for the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary may provide) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was provided by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be determined in a similar manner as provided under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee means, with respect to any corporation, any individual— (i) who was a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who has been for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of clause (iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary may require for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all corporations which are members of the same controlled group of corporations (as defined in section 1563(a)) shall be treated as one corporation. (6) Notice requirement Any corporation that transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (2) Deduction by employer Subsection (h) of section 83 is amended by striking or (d)(2) and inserting (d)(2), or (i) . (b) Withholding (1) Time of withholding Section 3401 is amended by adding at the end the following new subsection: (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 is amended by adding at the end the following new subsection: (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. . (B) Employee stock purchase plans Section 423(a) is amended by adding at the end the following flush sentence: The preceding sentence shall not apply to any share of stock with respect to which an election is made under section 83(i). . (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A is amended by adding at the end the following new paragraph: (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) is amended by striking and at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting a comma, and by inserting after paragraph (14) the following new paragraphs: (15) the amount excludable from gross income under subparagraph (A) of section 83(i)(1), (16) the amount includible in gross income under subparagraph (B) of section 83(i)(1) with respect to an event described in such subparagraph which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer To provide notice of tax consequences Section 6652 is amended by adding at the end the following new subsection: (o) Failure to provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary’s delegate) issue regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements. 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 7 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 14 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) 7 and 14 percent rate equivalent percentages For purposes of this subsection— (A) 7 percent rate equivalent percentage The term 7 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 7 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) 14 percent rate equivalent percentage The term 14 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 14 percent rate of tax for 7 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) 80 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) 60 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 With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as— (A) the excess of— (i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over (ii) the deduction allowable under subsection (c) with respect to such amounts, bears to (B) such amounts. (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 sections 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 (c)(2)(C), (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, (B) is of a type with respect to which a deduction is allowable under section 168, and (C) 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— (A) gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation (or a partnership in which such corporation is a partner), and (B) gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A). (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, pro rata shares 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, 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, 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 (7), 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) in the taxable year of such foreign corporation during which such amount is paid or incurred as if— (i) such foreign corporation were engaged in a trade or business within the United States, (ii) such foreign corporation had a permanent establishment in the United States during the taxable year, and (iii) 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) the foreign corporation shall be allowed a deduction (for the taxable year referred to in subparagraph (A)) equal to the deemed expenses with respect to 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 security described in section 475(c)(2) (determined without regard to the last sentence thereof) or any commodity described in section 475(e)(2), (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 not treated as effectively connected to extent of gross-basis tax Subparagraph (B)(iii) shall only apply to so much of any specified amount as bears the proportion to 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 specified amount and 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 with respect to the international financial reporting group on the basis of the consolidated financial statements referred to in paragraph (4)(A)(i) and the books and records of the members of the international financial reporting group which are used in preparing such statements, taking into account only revenues and expenses of the members of such group (other than the members of such group which are (or are treated as) a domestic corporation for purposes of this subsection) derived from, or incurred with respect to— (i) persons who are not members of such group, and (ii) members of such group which are (or are treated as) a domestic corporation for purposes of this subsection. (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) Foreign tax credit allowed The credit allowed under section 906(a) with respect to amounts taken into account in income under paragraph (1)(A) shall be limited to 80 percent of the amount of taxes paid or accrued and determined without regard to section 906(b)(1). (9) Election Any election under paragraph (1)— (A) shall be made at such time and in such form and manner as the Secretary may provide, and (B) shall 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 incurs 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 incurred 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) Treatment of certain references Section 119(e) of division A of the Tax Relief and Health Care Act of 2006 is amended by adding at the end the following: References in this subsection to section 199 of the Internal Revenue Code of 1986 shall be treated as references to such section as in effect before its repeal by the Tax Cuts and Jobs Act . . (c) 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. 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 $250,000 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). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), the assets and net investment income of any related organization shall be treated as the assets and net investment income of the eligible educational institution. (2) Related organization For purposes of this subsection, the term related organization means, with respect to an eligible educational institution, any organization which— (A) controls, or is controlled by, such institution, (B) is controlled by one or more persons that control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (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. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of 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 organizations described in subsection (c)(3) (1) In general For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization shall not fail to be treated as organized and operated exclusively for a purpose described in subsection (c)(3), 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 statement which— (A) is made 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. (2) Termination Paragraph (1) shall not apply to taxable years beginning after December 31, 2023. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. 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.

Passed the House of Representatives November 16, 2017. Karen L. Haas, Clerk.

tv_txt: 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.

tv_txt: II Calendar No. 266 115th CONGRESS 1st Session H. R. 1 IN THE SENATE OF THE UNITED STATES November 27, 2017 Received; read the first time November 28, 2017 Read the second time and placed on the calendar AN ACT To provide for reconciliation pursuant to titles II and V 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. Sec. 1104. Procedures to reduce improper claims of earned income credit. Sec. 1105. Certain income disallowed for purposes of the earned income tax credit. 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. Sec. 1205. Rollovers between qualified tuition programs and qualified ABLE programs. 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. Sunset 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. Sec. 3204. Modification of treatment of S corporation conversions to C corporations. 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. Sec. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services. Sec. 3315. Amortization of research and experimental expenditures. Sec. 3316. Uniform treatment of expenses in contingency fee cases. 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. Surtax on life insurance company taxable income. Sec. 3704. Adjustment for change in computing reserves. Sec. 3705. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account. Sec. 3706. Modification of proration rules for property and casualty insurance companies. Sec. 3707. Modification of discounting rules for property and casualty insurance companies. Sec. 3708. Repeal of special estimated tax payments. Subtitle I—Compensation Sec. 3801. Modification of limitation on excessive employee remuneration. Sec. 3802. Excise tax on excess tax-exempt organization executive compensation. Sec. 3803. Treatment of qualified equity grants. 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. 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. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of 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), and (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) 39.6-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 subsections (b) and (e)(3) (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. (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, (B) in the case of a married individual filing a separate return, an amount equal to 1/2 of the amount in effect for the taxable year under subparagraph (A), and (C) 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 the head of a household (as defined in section 2(b)), 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 subparagraphs (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 6103(l)(21)(A)(iii) is amended to read as follows: (iii) the number of the taxpayer’s dependents, . (44) Section 6213(g)(2) is amended by striking subparagraph (H). (45) 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. . (46) Section 7702B(f)(2)(C)(iii) is amended by striking section 152(d)(2) and inserting section 7706(d)(2) . (47) Section 7703(a) is amended by striking part V of subchapter B of chapter 1 and . (48) Section 7703(b)(1) is amended by striking section 152(f)(1) and all that follows and inserting section 7706(f)(1), . (49) Section 7706(a), as redesignated by this section, is amended by striking this subtitle and inserting subtitle A . (50) (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. . (51) 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 any property described in section 1221(a)(2) which is 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 with respect to such partnership or S corporation under subparagraph (A) (applied by substituting the partnership’s or S corporation’s adjusted basis for the taxpayer’s adjusted basis ). (g) Reduced rate for small businesses with net active business income (1) In general The tax imposed by section 1 shall be reduced by 3 percent of the excess (if any) of— (A) the least of— (i) qualified active business income, (ii) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), or (iii) the 9-percent bracket threshold amount, over (B) the excess (if any) of taxable income over the applicable threshold amount. (2) Phase-in of rate reduction In the case of any taxable year beginning before January 1, 2022, paragraph (1) shall be applied by substituting for 3 percent — (A) in the case of any taxable year beginning after December 31, 2017, and before January 1, 2020, 1 percent , and (B) in the case of any taxable year beginning after December 31, 2019, and before January 1, 2022, 2 percent . (3) Qualified active business income For purposes of this subsection, the term qualified active business income means the excess (if any) of— (A) any net business income derived from any active business activity, over (B) any net business loss derived from any active business activity. (4) 9-percent bracket threshold amount For purposes of this subsection, the term 9-percent bracket threshold amount means— (A) in the case of a joint return or surviving spouse, $75,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A). (5) Applicable threshold amount For purposes of this subsection, the term applicable threshold amount means— (A) in the case of a joint return or surviving spouse, $150,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A). (6) Estates and trusts Paragraph (1) shall not apply to any estate or trust. (7) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (4)(A) and (5)(A) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) 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. 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. (h) 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. (i) 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), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: (13) 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) 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. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (e) 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 32(b)(2)(B)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting calendar year 2008 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 2008 for calendar year 2016 in clause (ii) thereof . (2) Section 32(j)(1)(B) is amended— (A) in the matter preceding clause (i), by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) in clause (i), by striking for calendar year 1992 in subparagraph (B) thereof and inserting for calendar year 2016 in clause (ii) thereof , and (C) in clause (ii), by striking for calendar year 1992 in subparagraph (B) of such section 1 and inserting for calendar year 2016 in clause (ii) thereof . (3) 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)) . (4) 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. . (5) 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 . (6) 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 . (7) 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 . (8) 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 . (9) 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) . (10) 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 . (11) 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. . (12) 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 . (13) 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 . (14) 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 . (15) 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 . (16) 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 . (17) 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 . (18) 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. . (19) 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 . (20) 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 . (21) 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 . (22) 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 . (23) 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 . (24) 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 . (25) 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 . (26) 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 . (27) 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 . (28) 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 . (29) 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 . (30) 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 . (31) 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 . (32) 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 . (33) 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 . (34) 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 . (35) 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 . (36) 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 . (37) 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 . (38) 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 . (39) 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. . (40) Section 219(b)(5)(C)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined 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 . (41) Section 219(g)(8)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 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 2005 for calendar year 2016 in clause (ii) thereof . (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 inserting (as in effect on the day before the date of the enactment of the Tax Cuts and Jobs Act ) after section 1(g) . (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 to read as follows: (a) Allowance of credit 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) with respect to each qualifying child of the taxpayer, $1,600, and (2) for taxable years beginning before January 1, 2023, with respect to the taxpayer (each spouse in the case of a joint return) and each dependent of the taxpayer 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 family 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) 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. . (c) 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), . (d) 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 (b) The amendment made by subsection (c) shall apply to taxable years ending after December 31, 2017. (3) Subsection (c) 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) Identification requirements for child and family tax credit (1) In general Section 24(e) is amended to read as follows: (e) Identification requirements (1) Requirements for qualifying child No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and social security number of such qualifying child on the return of tax for the taxable year. The preceding sentence shall not prevent a qualifying child from being treated as a dependent described in subsection (a)(2). (2) Other identification requirements No credit shall be allowed under this section with respect to any individual unless the taxpayer identification number of such individual is included on the return of tax for the taxable year and such identifying number was issued before the due date for filing the return for the taxable year. (3) Social security number For purposes of this subsection, the term social security number means a social security number issued 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, or a correct TIN, required under section 24(e) (relating to child tax credit), to be included on a return, . (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. 1104. Procedures to reduce improper claims of earned income credit (a) Clarification regarding determination of self-employment income which is treated as earned income Section 32(c)(2)(B) is amended by striking and at the end of clause (v), by striking the period at the end of clause (vi) and inserting , and , and by adding at the end the following new clause: (vii) in determining the taxpayer’s net earnings from self-employment under subparagraph (A)(ii) there shall not fail to be taken into account any deduction which is allowable to the taxpayer under this subtitle. . (b) Required quarterly reporting of wages of employees Section 6011 is amended by adding at the end the following new subsection: (i) Employer reporting of wages Every person required to deduct and withhold from an employee a tax under section 3101 or 3402 shall include on each return or statement submitted with respect to such tax, the name and address of such employee and the amount of wages for such employee on which such tax was withheld. . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. (2) Reporting The Secretary of the Treasury, or his designee, may delay the application of the amendment made by subsection (b) for such period as such Secretary (or designee) determines to be reasonable to allow persons adequate time to modify electronic (or other) systems to permit such person to comply with the requirements of such amendment. 1105. Certain income disallowed for purposes of the earned income tax credit (a) Substantiation requirement Section 32 is amended by adding at the end the following new subsection: (n) Inconsistent income reporting If the earned income of a taxpayer claimed on a return for purposes of this section is not substantiated by statements or returns under sections 6051, 6052, 6041(a), or 6050W with respect to such taxpayer, the Secretary may require such taxpayer to provide books and records to substantiate such income, including for the purpose of preventing fraud. . (b) Exclusion of unsubstantiated amount from earned income Section 32(c)(2) is amended by adding at the end the following new subparagraph: (C) Exclusion In the case of a taxpayer with respect to which there is an inconsistency described in subsection (n) who fails to substantiate such inconsistency to the satisfaction of the Secretary, the term earned income shall not include amounts to the extent of such inconsistency. . (c) Effective date The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. 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 74(d) is amended by striking 221, . (3) Section 86(b)(2)(A) is amended by striking 221, . (4) Section 219(g)(3)(A)(ii) is amended by striking 221, . (5) Section 163(h)(2) is amended by striking subparagraph (F). (6) 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). (7) Section 6050S(e) is amended by striking all that follows thereof) and inserting a period. (c) Conforming amendments related to section 222 (1) Section 62(a) is amended by striking paragraph (18). (2) Section 74(d)(2)(B) is amended by striking 222, . (3) Section 86(b)(2)(A) is amended by striking 222, . (4) Section 219(g)(3)(A)(ii) is amended by striking 222, . (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) Conforming amendments related to section 135 (1) Section 74(d)(2)(B) is amended by striking 135, . (2) Section 86(b)(2)(A) is amended by striking 135, . (3) Section 219(g)(3)(A)(ii) is amended by striking 135, . (g) 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. 1205. Rollovers between qualified tuition programs and qualified ABLE programs (a) Rollovers from qualified tuition programs to qualified ABLE programs Section 529(c)(3)(C)(i) is amended by striking or at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or , and by adding at the end the following new subclause: (III) to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B). . (b) Effective date The amendments made by this section shall apply to distributions 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 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 by striking subparagraphs (E) and (F) in paragraph (4). (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. . (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) 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) 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) Section 165 is amended by striking subsection (k). (3) (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. . (4) 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. (5) Section 172(d)(4)(C) is amended by striking paragraph (2) or (3) of section 165(c) and inserting section 165(c)(2) . (6) Section 274(f) is amended by striking casualty losses, in the heading thereof. (7) Section 280A(b) is amended by striking casualty losses, in the heading thereof. (8) 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. (9) 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 1304 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 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 sections 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 sections for such subpart). (b) Conforming amendments (1) Corresponding repeal of provisions providing for inclusion of alimony in gross income (A) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (B) 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). (C) 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). (2) Related to repeal of section 215 (A) Section 62(a) is amended by striking paragraph (10). (B) Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof) . (3) Related to repeal of section 71 (A) 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. . (B) 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) . (C) 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) . (D) Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C) . (E) 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 sections for such subpart). (b) Retention of moving expenses for members of Armed Forces Section 134(b) is amended by adding at the end the following new paragraph: (7) Moving expenses The term qualified military benefit includes any benefit described in section 217(g) (as in effect before the enactment of the Tax Cuts And Jobs Act). . (c) 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). (d) 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 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). (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). (2) 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. Sunset of exclusion for dependent care assistance programs (a) In general Section 129 is amended by adding at the end the following new subsection: (f) Termination Subsection (a) shall not apply to taxable years beginning after December 31, 2022. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 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, 2024. (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, 2024— (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, 2024. . (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 2024 (1) In general In the case of a gift made after December 31, 2024, 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 2024 (1) In general In the case of a gift made after December 31, 2024, 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 2024, 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(c)(2)(A) of such calendar year by substituting calendar year 2011 for calendar year 2016 in clause (ii) 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: (g) Gifts received after 2024 In the case of a gift received after December 31, 2024, 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, 2024. 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 263(c) is amended by striking section 59(e) or 291 and inserting section 291 . (21) Section 263A(c) is amended by striking paragraph (6) and by redesignating paragraph (7) (as amended) as paragraph (6). (22) Section 382(l) is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7). (23) Section 443 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d). (24) Section 616 is amended by striking subsection (e). (25) Section 617 is amended by striking subsection (i). (26) 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) . (27) Subsections (b) and (c) of section 666 are each amended by striking (other than the tax imposed by section 55) . (28) Section 848 is amended by striking subsection (i). (29) Section 860E(a) is amended by striking paragraph (4). (30) Section 871(b)(1) is amended by striking or 55 . (31) Section 882(a)(1) is amended by striking 55, . (32) 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. . (33) 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). . (34) 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). . (35) 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 . (36) Section 1016(a) is amended by striking paragraph (20). (37) 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). (38) Section 1374(b)(3)(B) is amended by striking the last sentence thereof. (39) 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. (40) Section 6015(d)(2)(B) is amended by striking or 55 . (41) Section 6211(b)(4)(A) is amended by striking , 168(k)(4) . (42) 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 . (43) 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, . (44) Section 6655(e)(2)(B)(i) is amended by striking The taxable income and alternative minimum taxable income shall and inserting Taxable income shall . (45) 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). (46) 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) Reduction in dividend received deductions to reflect lower corporate income tax rates (1) Dividends received by corporations (A) In general Section 243(a)(1) is amended by striking 70 percent and inserting 50 percent . (B) Dividends from 20-percent owned corporations Section 243(c)(1) is amended— (i) by striking 80 percent and inserting 65 percent , and (ii) by striking 70 percent and inserting 50 percent . (C) Conforming amendment The heading for section 243(c) is amended by striking Retention of 80-percent dividend received deduction and inserting Increased percentage . (2) Dividends received from FSC Section 245(c)(1)(B) is amended— (A) by striking 70 percent and inserting 50 percent , and (B) by striking 80 percent and inserting 65 percent . (3) Limitation on aggregate amount of deductions Section 246(b)(3) is amended— (A) by striking 80 percent in subparagraph (A) and inserting 65 percent , and (B) by striking 70 percent in subparagraph (B) and inserting 50 percent . (4) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) is amended— (A) by striking 70 percent and inserting 50 percent , and (B) by striking 80 percent and inserting 65 percent . (5) Income from sources within the United States Section 861(a)(2) is amended— (A) by striking 100/70th and inserting 100/50th in subparagraph (B), and (B) in the flush sentence at the end— (i) by striking 100/80th and inserting 100/65th , and (ii) by striking 100/70th and inserting 100/50th . (d) 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. (e) 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 property of certain businesses not subject to limitation on interest expense The term qualified property shall not include any property used in— (i) a trade or business described in subparagraph (B) or (C) of section 163(j)(7), or (ii) a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (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 168(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. 3204. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from S corporation to C corporation Section 481 is amended by adding at the end the following new subsection: (d) Adjustments attributable to conversion from S corporation to C corporation (1) In general In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation means any C corporation— (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act , and (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (b) Cash distributions following post-termination transition period from S corporation status Section 1371 is amended by adding at the end the following new subsection: (f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. . 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, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest 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 3203 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, reduced by floor plan financing interest, 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, 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). (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. (B) Floor plan financing indebtedness The term floor plan financing indebtedness means indebtedness— (i) used to finance the acquisition of motor vehicles held for sale to retail customers, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle means a motor vehicle that is any of the following: (i) An automobile. (ii) A truck. (iii) A recreational vehicle. (iv) A motorcycle. (v) A boat. (vi) Farm machinery or equipment. (vii) Construction machinery or equipment. . (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), 219(g)(3)(A)(ii), 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) Conforming amendment 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 . (c) 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. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 is amended— (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years for 1 year , shall be treated as short-term capital gain. (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing. (4) Exceptions The term applicable partnership interest shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Coordination with section 83 Subsection (e) of section 83 is amended by striking or at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting , or , and by adding at the end the following new paragraph: (6) a transfer of an applicable partnership interest to which section 1061 applies. . (c) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items: Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3315. Amortization of research and experimental expenditures (a) In general Section 174 is amended to read as follows: 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business. (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: Sec. 174. Amortization of research and experimental expenditures. . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2022. 3316. Uniform treatment of expenses in contingency fee cases (a) In general Section 162 , as amended by the preceding provisions of this Act, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: (r) Expenses in contingency fee cases No deduction shall be allowed under subsection (a) to a taxpayer for any expense— (1) paid or incurred in the course of the trade or business of practicing law, and (2) resulting from a case for which the taxpayer is compensated primarily on a contingent basis, until such time as such contingency is resolved. . (b) Effective date The amendment made by this section shall apply to expenses and costs paid or incurred in taxable years beginning after the date of the enactment of this Act. 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. Surtax on life insurance company taxable income (a) In general Section 801(a)(1) is amended— (1) by striking consist of a tax and insert consist of the sum of— (A) a tax , and (2) by striking the period at the end and inserting , and , and (3) by adding at the end the following new subparagraph: (B) a tax equal to 8 percent of the life insurance company taxable income. . 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. 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. 3706. 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. 3707. 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. 3708. 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. I Compensation 3801. 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 or principal financial 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. 3802. 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. 3803. Treatment of qualified equity grants (a) In general (1) Election to defer income Section 83 is amended by adding at the end the following new subsection: (i) Qualified equity grants (1) In general For purposes of this subtitle, if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection— (A) except as provided in subparagraph (B), no amount shall be included in income under subsection (a) for the first taxable year in which the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable, and (B) an amount equal to the amount which would be included in income of the employee under subsection (a) (determined without regard to this subsection) shall be included in income for the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary may provide) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was provided by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be determined in a similar manner as provided under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee means, with respect to any corporation, any individual— (i) who was a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who has been for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of clause (iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary may require for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all corporations which are members of the same controlled group of corporations (as defined in section 1563(a)) shall be treated as one corporation. (6) Notice requirement Any corporation that transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (2) Deduction by employer Subsection (h) of section 83 is amended by striking or (d)(2) and inserting (d)(2), or (i) . (b) Withholding (1) Time of withholding Section 3401 is amended by adding at the end the following new subsection: (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 is amended by adding at the end the following new subsection: (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. . (B) Employee stock purchase plans Section 423(a) is amended by adding at the end the following flush sentence: The preceding sentence shall not apply to any share of stock with respect to which an election is made under section 83(i). . (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A is amended by adding at the end the following new paragraph: (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) is amended by striking and at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting a comma, and by inserting after paragraph (14) the following new paragraphs: (15) the amount excludable from gross income under subparagraph (A) of section 83(i)(1), (16) the amount includible in gross income under subparagraph (B) of section 83(i)(1) with respect to an event described in such subparagraph which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer To provide notice of tax consequences Section 6652 is amended by adding at the end the following new subsection: (o) Failure to provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary’s delegate) issue regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements. 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 7 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 14 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) 7 and 14 percent rate equivalent percentages For purposes of this subsection— (A) 7 percent rate equivalent percentage The term 7 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 7 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) 14 percent rate equivalent percentage The term 14 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 14 percent rate of tax for 7 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) 80 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) 60 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 With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as— (A) the excess of— (i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over (ii) the deduction allowable under subsection (c) with respect to such amounts, bears to (B) such amounts. (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 sections 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 (c)(2)(C), (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, (B) is of a type with respect to which a deduction is allowable under section 168, and (C) 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— (A) gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation (or a partnership in which such corporation is a partner), and (B) gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A). (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, pro rata shares 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, 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, 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 (7), 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) in the taxable year of such foreign corporation during which such amount is paid or incurred as if— (i) such foreign corporation were engaged in a trade or business within the United States, (ii) such foreign corporation had a permanent establishment in the United States during the taxable year, and (iii) 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) the foreign corporation shall be allowed a deduction (for the taxable year referred to in subparagraph (A)) equal to the deemed expenses with respect to 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 security described in section 475(c)(2) (determined without regard to the last sentence thereof) or any commodity described in section 475(e)(2), (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 not treated as effectively connected to extent of gross-basis tax Subparagraph (B)(iii) shall only apply to so much of any specified amount as bears the proportion to 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 specified amount and 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 with respect to the international financial reporting group on the basis of the consolidated financial statements referred to in paragraph (4)(A)(i) and the books and records of the members of the international financial reporting group which are used in preparing such statements, taking into account only revenues and expenses of the members of such group (other than the members of such group which are (or are treated as) a domestic corporation for purposes of this subsection) derived from, or incurred with respect to— (i) persons who are not members of such group, and (ii) members of such group which are (or are treated as) a domestic corporation for purposes of this subsection. (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) Foreign tax credit allowed The credit allowed under section 906(a) with respect to amounts taken into account in income under paragraph (1)(A) shall be limited to 80 percent of the amount of taxes paid or accrued and determined without regard to section 906(b)(1). (9) Election Any election under paragraph (1)— (A) shall be made at such time and in such form and manner as the Secretary may provide, and (B) shall 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 incurs 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 incurred 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) Treatment of certain references Section 119(e) of division A of the Tax Relief and Health Care Act of 2006 is amended by adding at the end the following: References in this subsection to section 199 of the Internal Revenue Code of 1986 shall be treated as references to such section as in effect before its repeal by the Tax Cuts and Jobs Act . . (c) 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. 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 $250,000 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). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), the assets and net investment income of any related organization shall be treated as the assets and net investment income of the eligible educational institution. (2) Related organization For purposes of this subsection, the term related organization means, with respect to an eligible educational institution, any organization which— (A) controls, or is controlled by, such institution, (B) is controlled by one or more persons that control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (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. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of 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 organizations described in subsection (c)(3) (1) In general For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization shall not fail to be treated as organized and operated exclusively for a purpose described in subsection (c)(3), 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 statement which— (A) is made 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. (2) Termination Paragraph (1) shall not apply to taxable years beginning after December 31, 2023. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. 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.

Passed the House of Representatives November 16, 2017. Karen L. Haas, Clerk

November 28, 2017 Read the second time and placed on the calendar

tv_txt: IB Union Calendar No. 302 115th CONGRESS 1st Session H. R. 1 [Report No. 115–409] 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 November 13, 2017 Reported with amendments, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed Strike out all after the enacting clause and insert the part printed in italic For text of introduced bill, see copy of bill as introduced on November 2, 2017 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. Sec. 1104. Procedures to reduce improper claims of earned income credit. Sec. 1105. Certain income disallowed for purposes of the earned income tax credit. 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. Sec. 1205. Rollovers between qualified tuition programs and qualified ABLE programs. 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. Sunset 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. Sec. 3204. Modification of treatment of S corporation conversions to C corporations. 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. Sec. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services. Sec. 3315. Amortization of research and experimental expenditures. Sec. 3316. Uniform treatment of expenses in contingency fee cases. 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. Surtax on life insurance company taxable income. Sec. 3704. Adjustment for change in computing reserves. Sec. 3705. Repeal of special rule for distributions to shareholders from pre-1984 policyholders surplus account. Sec. 3706. Modification of proration rules for property and casualty insurance companies. Sec. 3707. Modification of discounting rules for property and casualty insurance companies. Sec. 3708. Repeal of special estimated tax payments. Subtitle I—Compensation Sec. 3801. Modification of limitation on excessive employee remuneration. Sec. 3802. Excise tax on excess tax-exempt organization executive compensation. Sec. 3803. Treatment of qualified equity grants. 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. 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. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of 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), and (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) 39.6-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 subsections (b) and (e)(3) (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. (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, (B) in the case of a married individual filing a separate return, an amount equal to 1/2 of the amount in effect for the taxable year under subparagraph (A), and (C) 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 the head of a household (as defined in section 2(b)), 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 subparagraphs (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 6103(l)(21)(A)(iii) is amended to read as follows: (iii) the number of the taxpayer’s dependents, . (44) Section 6213(g)(2) is amended by striking subparagraph (H). (45) 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. . (46) Section 7702B(f)(2)(C)(iii) is amended by striking section 152(d)(2) and inserting section 7706(d)(2) . (47) Section 7703(a) is amended by striking part V of subchapter B of chapter 1 and . (48) Section 7703(b)(1) is amended by striking section 152(f)(1) and all that follows and inserting section 7706(f)(1), . (49) Section 7706(a), as redesignated by this section, is amended by striking this subtitle and inserting subtitle A . (50) (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. . (51) 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 any property described in section 1221(a)(2) which is 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 with respect to such partnership or S corporation under subparagraph (A) (applied by substituting the partnership’s or S corporation’s adjusted basis for the taxpayer’s adjusted basis ). (g) Reduced rate for small businesses with net active business income (1) In general The tax imposed by section 1 shall be reduced by 3 percent of the excess (if any) of— (A) the least of— (i) qualified active business income, (ii) taxable income reduced by net capital gain (as defined in section 1(h)(11)(A)), or (iii) the 9-percent bracket threshold amount, over (B) the excess (if any) of taxable income over the applicable threshold amount. (2) Phase-in of rate reduction In the case of any taxable year beginning before January 1, 2022, paragraph (1) shall be applied by substituting for 3 percent — (A) in the case of any taxable year beginning after December 31, 2017, and before January 1, 2020, 1 percent , and (B) in the case of any taxable year beginning after December 31, 2019, and before January 1, 2022, 2 percent . (3) Qualified active business income For purposes of this subsection, the term qualified active business income means the excess (if any) of— (A) any net business income derived from any active business activity, over (B) any net business loss derived from any active business activity. (4) 9-percent bracket threshold amount For purposes of this subsection, the term 9-percent bracket threshold amount means— (A) in the case of a joint return or surviving spouse, $75,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A). (5) Applicable threshold amount For purposes of this subsection, the term applicable threshold amount means— (A) in the case of a joint return or surviving spouse, $150,000, (B) in the case of an individual who is the head of a household (as defined in section 2(b)), 3/4 of the amount in effect for the taxable year under subparagraph (A), and (C) in the case of any other individual, 1/2 of the amount in effect for the taxable year under subparagraph (A). (6) Estates and trusts Paragraph (1) shall not apply to any estate or trust. (7) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amounts in paragraphs (4)(A) and (5)(A) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) 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. 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. (h) 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. (i) 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), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: (13) 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) 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. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (e) 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 32(b)(2)(B)(ii)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins determined by substituting calendar year 2008 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 2008 for calendar year 2016 in clause (ii) thereof . (2) Section 32(j)(1)(B) is amended— (A) in the matter preceding clause (i), by striking section 1(f)(3) and inserting section 1(c)(2)(A) , (B) in clause (i), by striking for calendar year 1992 in subparagraph (B) thereof and inserting for calendar year 2016 in clause (ii) thereof , and (C) in clause (ii), by striking for calendar year 1992 in subparagraph (B) of such section 1 and inserting for calendar year 2016 in clause (ii) thereof . (3) 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)) . (4) 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. . (5) 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 . (6) 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 . (7) 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 . (8) 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 . (9) 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) . (10) 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 . (11) 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. . (12) 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 . (13) 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 . (14) 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 . (15) 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 . (16) 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 . (17) 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 . (18) 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. . (19) 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 . (20) 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 . (21) 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 . (22) 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 . (23) 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 . (24) 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 . (25) 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 . (26) 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 . (27) 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 . (28) 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 . (29) 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 . (30) 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 . (31) 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 . (32) 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 . (33) 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 . (34) 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 . (35) 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 . (36) 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 . (37) 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 . (38) 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 . (39) 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. . (40) Section 219(b)(5)(C)(i)(II) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined 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 . (41) Section 219(g)(8)(B) is amended by striking section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2005 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 2005 for calendar year 2016 in clause (ii) thereof . (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 inserting (as in effect on the day before the date of the enactment of the Tax Cuts and Jobs Act ) after section 1(g) . (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 to read as follows: (a) Allowance of credit 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) with respect to each qualifying child of the taxpayer, $1,600, and (2) for taxable years beginning before January 1, 2023, with respect to the taxpayer (each spouse in the case of a joint return) and each dependent of the taxpayer 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 family 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) 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. . (c) 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), . (d) 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 (b) The amendment made by subsection (c) shall apply to taxable years ending after December 31, 2017. (3) Subsection (c) 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) Identification requirements for child and family tax credit (1) In general Section 24(e) is amended to read as follows: (e) Identification requirements (1) Requirements for qualifying child No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the name and social security number of such qualifying child on the return of tax for the taxable year. The preceding sentence shall not prevent a qualifying child from being treated as a dependent described in subsection (a)(2). (2) Other identification requirements No credit shall be allowed under this section with respect to any individual unless the taxpayer identification number of such individual is included on the return of tax for the taxable year and such identifying number was issued before the due date for filing the return for the taxable year. (3) Social security number For purposes of this subsection, the term social security number means a social security number issued 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, or a correct TIN, required under section 24(e) (relating to child tax credit), to be included on a return, . (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. 1104. Procedures to reduce improper claims of earned income credit (a) Clarification regarding determination of self-employment income which is treated as earned income Section 32(c)(2)(B) is amended by striking and at the end of clause (v), by striking the period at the end of clause (vi) and inserting , and , and by adding at the end the following new clause: (vii) in determining the taxpayer’s net earnings from self-employment under subparagraph (A)(ii) there shall not fail to be taken into account any deduction which is allowable to the taxpayer under this subtitle. . (b) Required quarterly reporting of wages of employees Section 6011 is amended by adding at the end the following new subsection: (i) Employer reporting of wages Every person required to deduct and withhold from an employee a tax under section 3101 or 3402 shall include on each return or statement submitted with respect to such tax, the name and address of such employee and the amount of wages for such employee on which such tax was withheld. . (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. (2) Reporting The Secretary of the Treasury, or his designee, may delay the application of the amendment made by subsection (b) for such period as such Secretary (or designee) determines to be reasonable to allow persons adequate time to modify electronic (or other) systems to permit such person to comply with the requirements of such amendment. 1105. Certain income disallowed for purposes of the earned income tax credit (a) Substantiation requirement Section 32 is amended by adding at the end the following new subsection: (n) Inconsistent income reporting If the earned income of a taxpayer claimed on a return for purposes of this section is not substantiated by statements or returns under sections 6051, 6052, 6041(a), or 6050W with respect to such taxpayer, the Secretary may require such taxpayer to provide books and records to substantiate such income, including for the purpose of preventing fraud. . (b) Exclusion of unsubstantiated amount from earned income Section 32(c)(2) is amended by adding at the end the following new subparagraph: (C) Exclusion In the case of a taxpayer with respect to which there is an inconsistency described in subsection (n) who fails to substantiate such inconsistency to the satisfaction of the Secretary, the term earned income shall not include amounts to the extent of such inconsistency. . (c) Effective date The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act. 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 74(d) is amended by striking 221, . (3) Section 86(b)(2)(A) is amended by striking 221, . (4) Section 219(g)(3)(A)(ii) is amended by striking 221, . (5) Section 163(h)(2) is amended by striking subparagraph (F). (6) 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). (7) Section 6050S(e) is amended by striking all that follows thereof) and inserting a period. (c) Conforming amendments related to section 222 (1) Section 62(a) is amended by striking paragraph (18). (2) Section 74(d)(2)(B) is amended by striking 222, . (3) Section 86(b)(2)(A) is amended by striking 222, . (4) Section 219(g)(3)(A)(ii) is amended by striking 222, . (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) Conforming amendments related to section 135 (1) Section 74(d)(2)(B) is amended by striking 135, . (2) Section 86(b)(2)(A) is amended by striking 135, . (3) Section 219(g)(3)(A)(ii) is amended by striking 135, . (g) 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. 1205. Rollovers between qualified tuition programs and qualified ABLE programs (a) Rollovers from qualified tuition programs to qualified ABLE programs Section 529(c)(3)(C)(i) is amended by striking or at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or , and by adding at the end the following new subclause: (III) to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B). . (b) Effective date The amendments made by this section shall apply to distributions 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 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 by striking subparagraphs (E) and (F) in paragraph (4). (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. . (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) 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) 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) Section 165 is amended by striking subsection (k). (3) (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. . (4) 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. (5) Section 172(d)(4)(C) is amended by striking paragraph (2) or (3) of section 165(c) and inserting section 165(c)(2) . (6) Section 274(f) is amended by striking casualty losses, in the heading thereof. (7) Section 280A(b) is amended by striking casualty losses, in the heading thereof. (8) 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. (9) 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 1304 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 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 sections 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 sections for such subpart). (b) Conforming amendments (1) Corresponding repeal of provisions providing for inclusion of alimony in gross income (A) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (B) 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). (C) 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). (2) Related to repeal of section 215 (A) Section 62(a) is amended by striking paragraph (10). (B) Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof) . (3) Related to repeal of section 71 (A) 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. . (B) 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) . (C) 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) . (D) Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C) . (E) 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 sections for such subpart). (b) Retention of moving expenses for members of Armed Forces Section 134(b) is amended by adding at the end the following new paragraph: (7) Moving expenses The term qualified military benefit includes any benefit described in section 217(g) (as in effect before the enactment of the Tax Cuts And Jobs Act). . (c) 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). (d) 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 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). (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). (2) 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. Sunset of exclusion for dependent care assistance programs (a) In general Section 129 is amended by adding at the end the following new subsection: (f) Termination Subsection (a) shall not apply to taxable years beginning after December 31, 2022. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 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, 2024. (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, 2024— (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, 2024. . (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 2024 (1) In general In the case of a gift made after December 31, 2024, 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 2024 (1) In general In the case of a gift made after December 31, 2024, 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 2024, 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(c)(2)(A) of such calendar year by substituting calendar year 2011 for calendar year 2016 in clause (ii) 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: (g) Gifts received after 2024 In the case of a gift received after December 31, 2024, 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, 2024. 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 263(c) is amended by striking section 59(e) or 291 and inserting section 291 . (21) Section 263A(c) is amended by striking paragraph (6) and by redesignating paragraph (7) (as amended) as paragraph (6). (22) Section 382(l) is amended by striking paragraph (7) and by redesignating paragraph (8) as paragraph (7). (23) Section 443 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d). (24) Section 616 is amended by striking subsection (e). (25) Section 617 is amended by striking subsection (i). (26) 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) . (27) Subsections (b) and (c) of section 666 are each amended by striking (other than the tax imposed by section 55) . (28) Section 848 is amended by striking subsection (i). (29) Section 860E(a) is amended by striking paragraph (4). (30) Section 871(b)(1) is amended by striking or 55 . (31) Section 882(a)(1) is amended by striking 55, . (32) 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. . (33) 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). . (34) 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). . (35) 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 . (36) Section 1016(a) is amended by striking paragraph (20). (37) 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). (38) Section 1374(b)(3)(B) is amended by striking the last sentence thereof. (39) 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. (40) Section 6015(d)(2)(B) is amended by striking or 55 . (41) Section 6211(b)(4)(A) is amended by striking , 168(k)(4) . (42) 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 . (43) 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, . (44) Section 6655(e)(2)(B)(i) is amended by striking The taxable income and alternative minimum taxable income shall and inserting Taxable income shall . (45) 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). (46) 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) Reduction in dividend received deductions to reflect lower corporate income tax rates (1) Dividends received by corporations (A) In general Section 243(a)(1) is amended by striking 70 percent and inserting 50 percent . (B) Dividends from 20-percent owned corporations Section 243(c)(1) is amended— (i) by striking 80 percent and inserting 65 percent , and (ii) by striking 70 percent and inserting 50 percent . (C) Conforming amendment The heading for section 243(c) is amended by striking Retention of 80-percent dividend received deduction and inserting Increased percentage . (2) Dividends received from FSC Section 245(c)(1)(B) is amended— (A) by striking 70 percent and inserting 50 percent , and (B) by striking 80 percent and inserting 65 percent . (3) Limitation on aggregate amount of deductions Section 246(b)(3) is amended— (A) by striking 80 percent in subparagraph (A) and inserting 65 percent , and (B) by striking 70 percent in subparagraph (B) and inserting 50 percent . (4) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) is amended— (A) by striking 70 percent and inserting 50 percent , and (B) by striking 80 percent and inserting 65 percent . (5) Income from sources within the United States Section 861(a)(2) is amended— (A) by striking 100/70th and inserting 100/50th in subparagraph (B), and (B) in the flush sentence at the end— (i) by striking 100/80th and inserting 100/65th , and (ii) by striking 100/70th and inserting 100/50th . (d) 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. (e) 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 property of certain businesses not subject to limitation on interest expense The term qualified property shall not include any property used in— (i) a trade or business described in subparagraph (B) or (C) of section 163(j)(7), or (ii) a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (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 168(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. 3204. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from S corporation to C corporation Section 481 is amended by adding at the end the following new subsection: (d) Adjustments attributable to conversion from S corporation to C corporation (1) In general In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation means any C corporation— (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act , and (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (b) Cash distributions following post-termination transition period from S corporation status Section 1371 is amended by adding at the end the following new subsection: (f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. . 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, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest 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 3203 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, reduced by floor plan financing interest, 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, 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). (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. (B) Floor plan financing indebtedness The term floor plan financing indebtedness means indebtedness— (i) used to finance the acquisition of motor vehicles held for sale to retail customers, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle means a motor vehicle that is any of the following: (i) An automobile. (ii) A truck. (iii) A recreational vehicle. (iv) A motorcycle. (v) A boat. (vi) Farm machinery or equipment. (vii) Construction machinery or equipment. . (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), 219(g)(3)(A)(ii), 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) Conforming amendment 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 . (c) 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. 3314. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 is amended— (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years for 1 year , shall be treated as short-term capital gain. (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing. (4) Exceptions The term applicable partnership interest shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Coordination with section 83 Subsection (e) of section 83 is amended by striking or at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting , or , and by adding at the end the following new paragraph: (6) a transfer of an applicable partnership interest to which section 1061 applies. . (c) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items: Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 3315. Amortization of research and experimental expenditures (a) In general Section 174 is amended to read as follows: 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business. (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: Sec. 174. Amortization of research and experimental expenditures. . (c) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2022. 3316. Uniform treatment of expenses in contingency fee cases (a) In general Section 162 , as amended by the preceding provisions of this Act, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: (r) Expenses in contingency fee cases No deduction shall be allowed under subsection (a) to a taxpayer for any expense— (1) paid or incurred in the course of the trade or business of practicing law, and (2) resulting from a case for which the taxpayer is compensated primarily on a contingent basis, until such time as such contingency is resolved. . (b) Effective date The amendment made by this section shall apply to expenses and costs paid or incurred in taxable years beginning after the date of the enactment of this Act. 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. Surtax on life insurance company taxable income (a) In general Section 801(a)(1) is amended— (1) by striking consist of a tax and insert consist of the sum of— (A) a tax , and (2) by striking the period at the end and inserting , and , and (3) by adding at the end the following new subparagraph: (B) a tax equal to 8 percent of the life insurance company taxable income. . 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. 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. 3706. 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. 3707. 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. 3708. 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. I Compensation 3801. 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 or principal financial 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. 3802. 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. 3803. Treatment of qualified equity grants (a) In general (1) Election to defer income Section 83 is amended by adding at the end the following new subsection: (i) Qualified equity grants (1) In general For purposes of this subtitle, if qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection— (A) except as provided in subparagraph (B), no amount shall be included in income under subsection (a) for the first taxable year in which the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable, and (B) an amount equal to the amount which would be included in income of the employee under subsection (a) (determined without regard to this subsection) shall be included in income for the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary may provide) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was provided by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be determined in a similar manner as provided under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee means, with respect to any corporation, any individual— (i) who was a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who has been for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first time the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of clause (iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary may require for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all corporations which are members of the same controlled group of corporations (as defined in section 1563(a)) shall be treated as one corporation. (6) Notice requirement Any corporation that transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (2) Deduction by employer Subsection (h) of section 83 is amended by striking or (d)(2) and inserting (d)(2), or (i) . (b) Withholding (1) Time of withholding Section 3401 is amended by adding at the end the following new subsection: (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 is amended by adding at the end the following new subsection: (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. . (B) Employee stock purchase plans Section 423(a) is amended by adding at the end the following flush sentence: The preceding sentence shall not apply to any share of stock with respect to which an election is made under section 83(i). . (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A is amended by adding at the end the following new paragraph: (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) is amended by striking and at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting a comma, and by inserting after paragraph (14) the following new paragraphs: (15) the amount excludable from gross income under subparagraph (A) of section 83(i)(1), (16) the amount includible in gross income under subparagraph (B) of section 83(i)(1) with respect to an event described in such subparagraph which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer To provide notice of tax consequences Section 6652 is amended by adding at the end the following new subsection: (o) Failure to provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary’s delegate) issue regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements. 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 7 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 14 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) 7 and 14 percent rate equivalent percentages For purposes of this subsection— (A) 7 percent rate equivalent percentage The term 7 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 7 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) 14 percent rate equivalent percentage The term 14 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 14 percent rate of tax for 7 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) 80 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) 60 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 With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as— (A) the excess of— (i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over (ii) the deduction allowable under subsection (c) with respect to such amounts, bears to (B) such amounts. (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 sections 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 (c)(2)(C), (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, (B) is of a type with respect to which a deduction is allowable under section 168, and (C) 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— (A) gross income of such corporation from the disposition of commodities which are produced or extracted by such corporation (or a partnership in which such corporation is a partner), and (B) gross income of such corporation from the disposition of property which gives rise to income described in subparagraph (A). (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, pro rata shares 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, 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, 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 (7), 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) in the taxable year of such foreign corporation during which such amount is paid or incurred as if— (i) such foreign corporation were engaged in a trade or business within the United States, (ii) such foreign corporation had a permanent establishment in the United States during the taxable year, and (iii) 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) the foreign corporation shall be allowed a deduction (for the taxable year referred to in subparagraph (A)) equal to the deemed expenses with respect to 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 security described in section 475(c)(2) (determined without regard to the last sentence thereof) or any commodity described in section 475(e)(2), (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 not treated as effectively connected to extent of gross-basis tax Subparagraph (B)(iii) shall only apply to so much of any specified amount as bears the proportion to 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 specified amount and 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 with respect to the international financial reporting group on the basis of the consolidated financial statements referred to in paragraph (4)(A)(i) and the books and records of the members of the international financial reporting group which are used in preparing such statements, taking into account only revenues and expenses of the members of such group (other than the members of such group which are (or are treated as) a domestic corporation for purposes of this subsection) derived from, or incurred with respect to— (i) persons who are not members of such group, and (ii) members of such group which are (or are treated as) a domestic corporation for purposes of this subsection. (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) Foreign tax credit allowed The credit allowed under section 906(a) with respect to amounts taken into account in income under paragraph (1)(A) shall be limited to 80 percent of the amount of taxes paid or accrued and determined without regard to section 906(b)(1). (9) Election Any election under paragraph (1)— (A) shall be made at such time and in such form and manner as the Secretary may provide, and (B) shall 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 incurs 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 incurred 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) Treatment of certain references Section 119(e) of division A of the Tax Relief and Health Care Act of 2006 is amended by adding at the end the following: References in this subsection to section 199 of the Internal Revenue Code of 1986 shall be treated as references to such section as in effect before its repeal by the Tax Cuts and Jobs Act . . (c) 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. 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 $250,000 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). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), the assets and net investment income of any related organization shall be treated as the assets and net investment income of the eligible educational institution. (2) Related organization For purposes of this subsection, the term related organization means, with respect to an eligible educational institution, any organization which— (A) controls, or is controlled by, such institution, (B) is controlled by one or more persons that control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (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. 501(c)(3) organizations permitted to make statements relating to political campaign in ordinary course of 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 organizations described in subsection (c)(3) (1) In general For purposes of subsection (c)(3) and sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization shall not fail to be treated as organized and operated exclusively for a purpose described in subsection (c)(3), 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 statement which— (A) is made 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. (2) Termination Paragraph (1) shall not apply to taxable years beginning after December 31, 2023. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. 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.

Amend the title so as to read: A bill to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018. .

November 13, 2017 Reported with amendments, committed to the Committee of the Whole House on the State of the Union, and ordered to be printed

tv_txt: 115th CONGRESS 1st Session H.R. 1 In the Senate of the United States, December 2 (legislative day, December 1), 2017. Amendment:

That the bill from the House of Representatives (H.R. 1) entitled An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018. , do pass with the following Strike all after the first word and insert the following: TITLE I 11000. Short title, etc (a) Short title This title may be cited as the Tax Cuts and Jobs Act . (b) Amendment of 1986 code Except as otherwise expressly provided, whenever in this title 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. A Individual tax reform I Tax rate reform 11001. Modification of rates (a) In general Section 1 is amended by adding at the end the following new subsection: (j) Modifications for taxable years 2018 through 2025 (1) In general In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) subsection (i) shall not apply, and (B) this section (other than subsection (i)) shall be applied as provided in paragraphs (2) through (7). (2) Rate tables (A) Married individuals filing joint returns and surviving spouses The following table shall be applied in lieu of the table contained in subsection (a): If taxable income is: The tax is: Not over $19,050 10% of taxable income. Over $19,050 but not over $77,400 $1,905, plus 12% of the excess over $19,050. Over $77,400 but not over $140,000 $8,907, plus 22% of the excess over $77,400. Over $140,000 but not over $320,000 $22,679, plus 24% of the excess over $140,000. Over $320,000 but not over $400,000 $65,879, plus 32% of the excess over $320,000. Over $400,000 but not over $1,000,000 $91,479, plus 35% of the excess over $400,000. Over $1,000,000 $301,479, plus 38.5% of the excess over $1,000,000. (B) Heads of households The following table shall be applied in lieu of the table contained in subsection (b): If taxable income is: The tax is: Not over $13,600 10% of taxable income. Over $13,600 but not over $51,800 $1,360, plus 12% of the excess over $13,600. Over $51,800 but not over $70,000 $5,944, plus 22% of the excess over $51,800. Over $70,000 but not over $160,000 $9,948, plus 24% of the excess over $70,000. Over $160,000 but not over $200,000 $31,548, plus 32% of the excess over $160,000. Over $200,000 but not over $500,000 $44,348, plus 35% of the excess over $200,000. Over $500,000 $149,348, plus 38.5% of the excess over $500,000. (C) Unmarried individuals other than surviving spouses and heads of households The following table shall be applied in lieu of the table contained in subsection (c): If taxable income is: The tax is: Not over $9,525 10% of taxable income. Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525. Over $38,700 but not over $70,000 $4,453.50, plus 22% of the excess over $38,700. Over $70,000 but not over $160,000 $11,339.50, plus 24% of the excess over $70,000. Over $160,000 but not over $200,000 $32,939.50, plus 32% of the excess over $160,000. Over $200,000 but not over $500,000 $45,739.50, plus 35% of the excess over $200,000. Over $500,000 $150,739.50, plus 38.5% of the excess over $500,000. (D) Married individuals filing separate returns The following table shall be applied in lieu of the table contained in subsection (d): If taxable income is: The tax is: Not over $9,525 10% of taxable income. Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525. Over $38,700 but not over $70,000 $4,453.50, plus 22% of the excess over $38,700. Over $70,000 but not over $160,000 $11,339.50, plus 24% of the excess over $70,000. Over $160,000 but not over $200,000 $32,939.50, plus 32% of the excess over $160,000. Over $200,000 but not over $500,000 $45,739.50, plus 35% of the excess over $200,000. Over $500,000 $150,739.50, plus 38.5% of the excess over $500,000. (E) Estates and trusts The following table shall be applied in lieu of the table contained in subsection (e): If taxable income is: The tax is: Not over $2,550 10% of taxable income. Over $2,550 but not over $9,150 $255, plus 24% of the excess over $2,550. Over $9,150 but not over $12,500 $1,839, plus 35% of the excess over $9,150. Over $12,500 $3,011.50, plus 38.5% of the excess over $12,500. (F) References to rate tables Any reference in this title to a rate of tax under subsection (c) shall be treated as a reference to the corresponding rate bracket under subparagraph (C) of this paragraph, except that the reference in section 3402(q)(1) to the third lowest rate of tax applicable under subsection (c) shall be treated as a reference to the fourth lowest rate of tax under subparagraph (C). (3) Adjustments (A) No adjustment in 2018 The tables contained in paragraph (2) shall apply without adjustment for taxable years beginning after December 31, 2017, and before January 1, 2019. (B) Subsequent years For taxable years beginning after December 31, 2018, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in paragraph (2) in the same manner as under paragraphs (1) and (2) of subsection (f), except that in prescribing such tables— (i) subsection (f)(3) shall be applied by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof, (ii) subsection (f)(7)(B) shall apply to any unmarried individual other than a surviving spouse or head of household, and (iii) subsection (f)(8) shall not apply. (4) Special rules for certain children with unearned income (A) In general In the case of a child to whom subsection (g) applies for the taxable year, the rules of subparagraphs (B) and (C) shall apply in lieu of the rule under subsection (g)(1). (B) Modifications to applicable rate brackets In determining the amount of tax imposed by this section for the taxable year on a child described in subparagraph (A), the income tax table otherwise applicable under this subsection to the child shall be applied with the following modifications: (i) 24-percent bracket The maximum taxable income which is taxed at a rate below 24 percent shall not be more than the earned taxable income of such child. (ii) 35-percent bracket The maximum taxable income which is taxed at a rate below 35 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 35-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (iii) 38.5-percent bracket The maximum taxable income which is taxed at a rate below 38.5 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 38.5-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (C) Coordination with capital gains rates For purposes of applying section 1(h) (after the modifications under paragraph (5))— (i) the maximum zero rate amount shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the amount in effect under paragraph (5)(B)(i)(IV) for the taxable year, and (ii) the maximum 15-percent rate amount shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the amount in effect under paragraph (5)(B)(ii)(IV) for the taxable year. (D) Earned taxable income For purposes of this paragraph, the term earned taxable income means, with respect to any child for any taxable year, the taxable income of such child reduced (but not below zero) by the net unearned income (as defined in subsection (g)(4)) of such child. (5) Application of current income tax brackets to capital gains brackets (A) In general Section 1(h)(1) shall be applied— (i) by substituting below the maximum zero rate amount for which would (without regard to this paragraph) be taxed at a rate below 25 percent in subparagraph (B)(i), and (ii) by substituting below the maximum 15-percent rate amount for which would (without regard to this paragraph) be taxed at a rate below 39.6 percent in subparagraph (C)(ii)(I). (B) Maximum amounts defined For purposes of applying section 1(h) with the modifications described in subparagraph (A)— (i) Maximum zero rate amount The maximum zero rate amount shall be— (I) in the case of a joint return or surviving spouse, $77,200, (II) in the case of an individual who is a head of 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 subclause (I), and (IV) in the case of an estate or trust, $2,600. (ii) Maximum 15-percent rate amount The maximum 15-percent rate amount 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 clauses (i) and (ii) of subparagraph (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under subsection (f)(3) 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. (6) Section 15 not to apply Section 15 shall not apply to any change in a rate of tax by reason of this subsection. . (b) Due diligence tax preparer requirement with respect to head of household filing status Subsection (g) of section 6695 is amended to read as follows: (g) Failure To be diligent in determining eligibility for certain tax benefits Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining— (1) eligibility to file as a head of household (as defined in section 2(b)) on the return, or (2) eligibility for, or the amount of, the credit allowable by section 24, 25A(a)(1), or 32, shall pay a penalty of $500 for each such failure. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11002. Inflation adjustments based on chained CPI (a) In general Subsection (f) of section 1 is amended by striking paragraph (3) and by inserting after paragraph (2) the following new paragraph: (3) 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 CPI for calendar year 2016, multiplied by the amount determined under subparagraph (B). (B) Amount determined The amount determined under this clause is the amount obtained by dividing— (i) the C–CPI–U for calendar year 2016, by (ii) the CPI for calendar year 2016. (C) Special rule for adjustments with a base year after 2016 For purposes of any provision of this title which provides for the substitution of a year after 2016 for 2016 in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting the C–CPI–U for calendar year 2016 for the CPI for calendar year 2016 and all that follows in clause (ii) thereof. . (b) C–CPI–U Subsection (f) of section 1 is amended by striking paragraph (7), by redesignating paragraph (6) as paragraph (7), and by inserting after paragraph (5) the following new paragraph: (6) 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. . (c) Application To permanent tax tables Section 1(f)(2)(A) is amended by inserting , determined by substituting 1992 for 2016 in paragraph (3)(A)(ii) . (d) Application to other Internal Revenue Code of 1986 provisions (1) The following sections are each amended by striking for calendar year 1992 in subparagraph (B) and inserting for calendar year 2016 in subparagraph (A)(ii) : (A) Section 23(h)(2). (B) Paragraphs (1)(A)(ii) and (2)(A)(ii) of section 25A(h). (C) Section 25B(b)(3)(B). (D) Subsection (b)(2)(B)(ii)(II), and clauses (i) and (ii) of subsection (j)(1)(B), of section 32. (E) Section 36B(f)(2)(B)(ii)(II). (F) Section 41(e)(5)(C)(i). (G) Subsections (e)(3)(D)(ii) and (h)(3)(H)(i)(II) of section 42. (H) Section 45R(d)(3)(B)(ii). (I) Section 55(d)(4)(A)(ii). (J) Section 62(d)(3)(B). (K) Section 63(c)(4)(B). (L) Section 125(i)(2)(B). (M) Section 135(b)(2)(B)(ii). (N) Section 137(f)(2). (O) Section 146(d)(2)(B). (P) Section 147(c)(2)(H)(ii). (Q) Section 151(d)(4)(B). (R) Section 179(b)(6)(A)(ii). (S) Subsections (b)(5)(C)(i)(II) and (g)(8)(B) of section 219. (T) Section 220(g)(2). (U) Section 221(f)(1)(B). (V) Section 223(g)(1)(B). (W) Section 408A(c)(3)(D)(ii). (X) Section 430(c)(7)(D)(vii)(II). (Y) Section 512(d)(2)(B). (Z) Section 513(h)(2)(C)(ii). (AA) Section 831(b)(2)(D)(ii). (BB) Section 877A(a)(3)(B)(i)(II). (CC) Section 2010(c)(3)(B)(ii). (DD) Section 2032A(a)(3)(B). (EE) Section 2503(b)(2)(B). (FF) Section 4261(e)(4)(A)(ii). (GG) Section 5000A(c)(3)(D)(ii). (HH) Section 6323(i)(4)(B). (II) Section 6334(g)(1)(B). (JJ) Section 6601(j)(3)(B). (KK) Section 6651(i)(1). (LL) Section 6652(c)(7)(A). (MM) Section 6695(h)(1). (NN) Section 6698(e)(1). (OO) Section 6699(e)(1). (PP) Section 6721(f)(1). (QQ) Section 6722(f)(1). (RR) Section 7345(f)(2). (SS) Section 7430(c)(1). (TT) Section 9831(d)(2)(D)(ii)(II). (2) Sections 41(e)(5)(C)(ii) and 68(b)(2)(B) are each amended— (A) by striking 1(f)(3)(B) and inserting 1(f)(3)(A)(ii) , and (B) by striking 1992 and inserting 2016 . (3) Section 42(h)(6)(G) is amended— (A) by striking for calendar year 1987 in clause (i)(II) and inserting for calendar year 2016 in subparagraph (A)(ii) thereof , and (B) by striking if the CPI for any calendar year and all that follows in clause (ii) and inserting if the C–CPI–U for any calendar year (as defined in section 1(f)(6)) exceeds the C–CPI–U for the preceding calendar year by more than 5 percent, the C–CPI–U for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i). In the case of a base calendar year before 2017, the C–CPI–U for such year shall be determined by multiplying the CPI for such year by the amount determined under section 1(f)(3)(B). . (4) Section 59(j)(2)(B) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (5) Section 132(f)(6)(A)(ii) is amended by striking for calendar year 1992 and inserting for calendar year 2016 in subparagraph (A)(ii) thereof . (6) Section 162(o)(3) is amended by striking adjusted for changes in the Consumer Price Index (as defined in section 1(f)(5)) since 1991 and inserting “adjusted by increasing any such amount under the 1991 agreement by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1990 for calendar year 2016 in subparagraph (A)(ii) thereof . (7) So much of clause (ii) of section 213(d)(10)(B) as precedes the last sentence is amended to read as follows: (ii) Medical care cost adjustment For purposes of clause (i), the medical care cost adjustment for any calendar year is the percentage (if any) by which— (I) the medical care component of the C–CPI–U (as defined in section 1(f)(6)) for August of the preceding calendar year, exceeds (II) such component of the CPI (as defined in section 1(f)(4)) for August of 1996, multiplied by the amount determined under section 1(f)(3)(B). . (8) Subparagraph (B) of section 280F(d)(7) is amended to read as follows: (B) Automobile price inflation adjustment For purposes of this paragraph— (i) In general The automobile price inflation adjustment for any calendar year is the percentage (if any) by which— (I) the C–CPI–U automobile component for October of the preceding calendar year, exceeds (II) the automobile component of the CPI (as defined in section 1(f)(4)) for October of 1987, multiplied by the amount determined under 1(f)(3)(B). (ii) C–CPI–U automobile component The term C–CPI–U automobile component means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)). . (9) Section 911(b)(2)(D)(ii)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (10) Paragraph (2) of section 1274A(d) is amended to read as follows: (2) Adjustment for inflation In the case of any debt instrument arising out of a sale or exchange during any calendar year after 1989, each dollar amount contained in the preceding provisions of this section shall be increased by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1988 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). . (11) Section 4161(b)(2)(C)(i)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (12) Section 4980I(b)(3)(C)(v)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (13) Section 6039F(d) is amended by striking subparagraph (B) thereof shall be applied by substituting 1995 for 1992 and inserting subparagraph (A)(ii) thereof shall be applied by substituting 1995 for 2016 . (14) Section 7872(g)(5) is amended to read as follows: (5) Adjustment of limit for inflation In the case of any loan made during any calendar year after 1986, the dollar amount in paragraph (2) shall be increased by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1985 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. II Deduction for qualified business income of pass-thru entities 11011. Deduction for qualified business income (a) In general Part VI of subchapter B of chapter 1 is amended by adding at the end the following new section: 199A. Qualified business income (a) In general In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the lesser of— (1) the combined qualified business income amount of the taxpayer, or (2) an amount equal to 23 percent of the excess (if any) of— (A) the taxable income of the taxpayer for the taxable year, over (B) any net capital gain (as defined in section 1(h)) of the taxpayer for the taxable year. (b) Combined qualified business income amount For purposes of this section— (1) In general The term combined qualified business income amount means, with respect to any taxable year, an amount equal to— (A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus (B) 23 percent of the aggregate amount of the qualified REIT dividends and qualified cooperative dividends of the taxpayer for the taxable year. (2) Determination of deductible amount for each trade or business The amount determined under this paragraph with respect to any qualified trade or business is the lesser of— (A) 23 percent of the taxpayer's qualified business income with respect to the qualified trade or business, or (B) 50 percent of the W–2 wages with respect to the qualified trade or business. (3) Modifications to the wage limit based on taxable income (A) Exception from wage limit In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph (2) shall be applied without regard to subparagraph (B). (B) Phase-in of limit for certain taxpayers (i) In general If— (I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and (II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business, then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii). (ii) Amount of reduction The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as— (I) the amount by which the taxpayer's taxable income for the taxable year exceeds the threshold amount, bears to (II) $50,000 ($100,000 in the case of a joint return). (iii) Excess amount For purposes of clause (ii), the excess amount is the excess of— (I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over (II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph). (4) Wages, etc (A) In general The term W–2 wages means, with respect to any person for any taxable year of such person, the amounts described in paragraphs (3) and (8) of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. (B) Limitation to wages attributable to qualified business income Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1). (C) Return requirement Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return. (5) Acquisitions, dispositions, and short taxable years The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year. (c) Qualified business income For purposes of this section— (1) In general The term qualified business income means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. (2) Carryover of losses If the net amount of qualified income, gain, deduction, and loss with respect to qualified trade or businesses of the taxpayer amount for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year. (3) Qualified items of income, gain, deduction, and loss For purposes of this subsection— (A) In general The term qualified items of income, gain, deduction, and loss means items of income, gain, deduction, and loss to the extent such items are— (i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting qualified trade or business (within the meaning of section 199A) for nonresident alien individual or a foreign corporation or for a foreign corporation each place it appears), and (ii) included or allowed in determining taxable income for the taxable year. (B) Exceptions The following investment items shall not be taken into account as a qualified item of income, gain, deduction, or loss: (i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss. (ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). (iii) Any interest income other than interest income which is properly allocable to a trade or business. (iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting qualified trade or business for controlled foreign corporation ). (v) 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)). (vi) Any amount received from an annuity which is not received in connection with the trade or business. (vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses. (4) Treatment of reasonable compensation and guaranteed payments Qualified business income shall not include— (A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business, (B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and (C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business. (d) Qualified trade or business For purposes of this section— (1) In general The term qualified trade or business means any trade or business other than a specified service trade or business or the trade or business of performing services as an employee. (2) Specified service trade or business The term specified service trade or business means any trade or business involving the performance of services described in section 1202(e)(3)(A), including investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). (3) Exception for specified service businesses based on taxpayer's income (A) In general If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then— (i) the exception under paragraph (1) shall not apply to specified service trades or businesses of the taxpayer for the taxable year, but (ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages, of the taxpayer allocable to such specified service trades or businesses shall be taken into account in computing the qualified business income and W–2 wages of the taxpayer for the taxable year for purposes of applying this section. (B) Applicable percentage For purposes of subparagraph (A), the term applicable percentage means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of— (i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to (ii) $50,000 ($100,000 in the case of a joint return). (e) Other definitions For purposes of this section— (1) Taxable income Taxable income shall be computed without regard to the deduction allowable under this section. (2) Threshold amount (A) In general The term threshold amount means $250,000 (200 percent of such amount in the case of a joint return). (B) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amount in paragraph (1) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 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, such amount shall be rounded to the nearest multiple of $1,000. (3) Qualified REIT dividend The term qualified REIT dividend means any dividend from a real estate investment trust received during the taxable year which— (A) is not a capital gain dividend, as defined in section 857(b)(3), and (B) is not qualified dividend income, as defined in section 1(h)(11). (4) Qualified cooperative dividend The term qualified cooperative dividend means any patronage dividend (as defined in section 1388(a)), any per-unit retain allocation (as defined in section 1388(f)), and any qualified written notice of allocation (as defined in section 1388(c)), or any similar amount received from an organization described in subparagraph (B)(ii), which— (A) is includible in gross income, and (B) is received from— (i) an organization or corporation described in section 501(c)(12) or 1381(a), or (ii) an organization which is governed under this title by the rules applicable to cooperatives under this title before the enactment of subchapter T. (f) Special rules (1) Application to partnerships and S corporations (A) In general In the case of a partnership or S corporation— (i) this section shall be applied at the partner or shareholder level, (ii) each partner or shareholder shall take into account such person's allocable share of each qualified item of income, gain, deduction, and loss, and (iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages for the taxable year in an amount equal to such person's allocable share of the W–2 wages of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary). For purposes of clause (iii), a partner's or shareholder's allocable share of W–2 wages shall be determined in the same manner as the partner's or shareholder's allocable share of wage expenses. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder's pro rata share of an item. (B) Application to trusts and estates This section shall not apply to any trust or estate. (C) Treatment of trades or business in Puerto Rico (i) In general In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term United States shall include the Commonwealth of Puerto Rico. (ii) Special rule for applying wage limitation In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico. (2) Coordination with minimum tax For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59. (3) Deduction limited to income taxes The deduction under subsection (a) shall only be allowed for purposes of this chapter. (4) Regulations The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations— (A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and (B) for the application of this section in the case of tiered entities. (g) Deduction allowed to specified agricultural or horticultural cooperatives (1) In general In the case of any taxable year of a specified agricultural or horticultural cooperative beginning after December 31, 2018, there shall be allowed a deduction in an amount equal to the lesser of— (A) 23 percent of the cooperative's taxable income for the taxable year, or (B) 50 percent of the W–2 wages of the cooperative with respect to its trade or business. (2) Specified agricultural or horticultural cooperative For purposes of this subsection, the term specified agricultural or horticultural cooperative means an organization to which part I of subchapter T applies which is engaged in— (A) the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, (B) the marketing of agricultural or horticultural products which its patrons have so manufactured, produced, grown, or extracted, or (C) the provision of supplies, equipment, or services to farmers or to organizations described in subparagraph (A) or (B). (h) Termination This section shall not apply to taxable years beginning after December 31, 2025. . (b) Application to publicly traded partnerships (1) In general Section 199A(b)(1)(B), as added by subsection (a), is amended by striking and qualified cooperative dividends and inserting , qualified cooperative dividends, and qualified publicly traded partnership income . (2) Qualified publicly traded partnership income Section 199A(e), as added by subsection (a), is amended by adding at the end the following new paragraph: (5) Qualified publicly traded partnership income The term qualified publicly traded partnership income means, with respect to any qualified trade or business of a taxpayer, the sum of— (A) the net amount of such taxpayer's allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) which is not treated as a corporation under section 7704(c), plus (B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a). . (3) Conforming amendment Section 199A(c)(1), as added by subsection (a), is amended by adding at the end the following new sentence: Such term shall not include any qualified publicly traded partnership income. . (c) Accuracy-related penalty on determination of applicable percentage Section 6662(d)(1) is amended by inserting at the end the following new subparagraph: (C) Special rule for taxpayers claiming section 199A deduction In the case of any taxpayer who claims the deduction allowed under section 199A for the taxable year, subparagraph (A) shall be applied by substituting 5 percent for 10 percent . . (d) Conforming amendments (1) Section 170(b)(2)(D) is amended by striking , and at the end of clause (iv), by redesignating clause (v) as clause (vi), and by inserting after clause (iv) the following new clause: (v) section 199A, and . (2) Section 172(d) is amended by adding at the end the following new paragraph: (8) Qualified business income deduction The deduction under section 199A shall not be allowed. . (3) Section 246(b)(1) is amended by inserting 199A, before 243(a)(1) . (4) Section 613(a) is amended by inserting and without the deduction under section 199A after and without the deduction under section 199 . (5) Section 613A(d)(1) is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B), the following new subparagraph: (C) any deduction allowable under section 199A, . (6) The table of sections for part VI of subchapter B of chapter 1 is amended by inserting at the end the following new item: Sec. 199A. Qualified business income. . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11012. Limitation on losses for taxpayers other than corporations (a) In general Section 461 is amended by adding at the end the following new subsection: (l) Limitation on excess business losses of noncorporate taxpayers (1) Limitation In the case of taxable year of a taxpayer other than a corporation beginning after December 31, 2017, and before January 1, 2026— (A) subsection (j) (relating to limitation on excess farm losses of certain taxpayers) shall not apply, and (B) any excess business loss of the taxpayer for the taxable year shall not be allowed. (2) Disallowed loss carryover Any loss which is disallowed under paragraph (1) shall be treated as a net operating loss carryover to the following taxable year under section 172. (3) Excess business loss For purposes of this subsection— (A) In general The term excess business loss means the excess (if any) of— (i) the aggregate deductions of the taxpayer for the taxable year which are attributable to trades or businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1)), over (ii) the sum of— (I) the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such trades or businesses, plus (II) $250,000 (200 percent of such amount in the case of a joint return). (B) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $250,000 amount in subparagraph (A)(ii)(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(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. (4) Application of subsection in case of partnerships and s corporations In the case of a partnership or S corporation— (A) this subsection shall be applied at the partner or shareholder level, and (B) each partner's or shareholder's allocable share of the items of income, gain, deduction, or loss of the partnership or S corporation for any taxable year from trades or businesses attributable to the partnership or S corporation shall be taken into account by the partner or shareholder in applying this subsection to the taxable year of such partner or shareholder with or within which the taxable year of the partnership or S corporation ends. For purposes of this paragraph, in the case of an S corporation, an allocable share shall be the shareholder’s pro rata share of an item. (5) Additional reporting The Secretary shall prescribe such additional reporting requirements as the Secretary determines appropriate to carry out the purposes of this subsection. (6) Coordination with section 469 This subsection shall be applied after the application of section 469. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. III Tax benefits for families and individuals 11021. Increase in standard deduction (a) In general Subsection (c) of section 63 is amended by adding at the end the following new paragraph: (7) Special rules for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Increase in standard deduction Paragraph (2) shall be applied— (i) by substituting $18,000 for $4,400 in subparagraph (B), and (ii) by substituting $12,000 for $3,000 in subparagraph (C). (B) Adjustment for inflation (i) In general Paragraph (4) shall not apply to the dollar amounts contained in paragraphs (2)(B) and (2)(C). (ii) Adjustment of increased amounts In the case of a taxable year beginning after 2018, the $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11022. Increase in and modification of child tax credit (a) In general Section 24 is amended by adding at the end the following new subsection: (h) Special rules for taxable years 2018 through 2025 (1) In general In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, this section shall be applied as provided in paragraphs (2), (3), (5), (6), (7), and (8). In the case of taxable year beginning after December 31, 2017 and before January 1, 2025, this section shall be applied as provided in paragraph (4). (2) Credit amount Subsection (a) shall be applied by substituting $2,000 for $1,000 . (3) Limitation In lieu of the amount determined under subsection (b)(2), the threshold amount shall be $500,000. (4) Definition of qualifying child Paragraph (1) of subsection (c) shall be applied by substituting 18 for 17 . (5) Partial credit allowed for certain other dependents (A) In general The credit determined under subsection (a) (after the application of paragraph (2)) shall be increased by $500 for each dependent of the taxpayer (as defined in section 152) other than a qualifying child described in subsection (c) (after the application of paragraph (4)). (B) Exception for certain noncitizens Subparagraph (A) shall not apply with respect to any individual who would not be a dependent if subparagraph (A) of section 152(b)(3) were applied without regard to all that follows resident of the United States . (6) Maximum amount of refundable credit (A) In general Subsection (d)(1)(A) shall be applied without regard to paragraphs (2) and (5) of this subsection. (B) Adjustment for inflation In the case of a taxable year beginning after 2017, subsection (d)(1)(A) shall be applied as if the $1,000 amount in subsection (a) were increased (but not to exceed the amount under paragraph (2) of this subsection) by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins. Any increase determined under the preceding sentence shall be rounded to the next highest multiple of $100. (7) Earned income threshold for refundable credit Subsection (d)(1)(B)(i) shall be applied by substituting $2,500 for $3,000 . (8) Social security number required No credit shall be allowed under subsection (d) to a taxpayer with respect to any qualifying child unless the taxpayer includes the social security number of such child on the return of tax for the taxable year. For purposes of the preceding sentence, 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 is issued 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. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11023. Increased limitation for certain charitable contributions (a) 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 beginning after December 31, 2017, and before January 1, 2026, 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) for any taxable year described in such clause, 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 For each taxable year described in clause (i), and each taxable year to which any contribution under this subparagraph is carried over under clause (ii), subparagraph (A) shall be applied by reducing (but not below zero) the contribution limitation allowed for the taxable year under such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year, and subparagraph (B) shall be applied by treating any reference to subparagraph (A) as a reference to both subparagraph (A) and this subparagraph. . (b) Effective date The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2017. 11024. Increased contributions to ABLE accounts (a) Increase in limitation for contributions from compensation of individuals with disabilities (1) In general Section 529A(b)(2)(B) is amended to read as follows: (B) except in the case of contributions under subsection (c)(1)(C), if such contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the sum of— (i) the amount in effect under section 2503(b) for the calendar year in which the taxable year begins, plus (ii) in the case of any contribution by a designated beneficiary described in paragraph (7) before January 1, 2026, the lesser of— (I) compensation (as defined by section 219(f)(1)) includible in the designated beneficiary's gross income for the taxable year, or (II) an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins. . (2) Responsibility for contribution limitation Paragraph (2) of section 529A(b) is amended by adding at the end the following: A designated beneficiary (or a person acting on behalf of such beneficiary) shall maintain adequate records for purposes of ensuring, and shall be responsible for ensuring, that the requirements of subparagraph (B)(ii) are met. (3) Eligible designated beneficiary Section 529A(b) is amended by adding at the end the following: (7) Special rules related to contribution limit For purposes of paragraph (2)(B)(ii)— (A) Designated beneficiary A designated beneficiary described in this paragraph is an employee (including an employee within the meaning of section 401(c)) with respect to whom— (i) no contribution is made for the taxable year to a defined contribution plan (within the meaning of section 414(i)) with respect to which the requirements of section 401(a) or 403(a) are met, (ii) no contribution is made for the taxable year to an annuity contract described in section 403(b), and (iii) no contribution is made for the taxable year to an eligible deferred compensation plan described in section 457(b). (B) Poverty line The term poverty line has the meaning given such term by section 673 of the Community Services Block Grant Act ( 42 U.S.C. 9902 ). . (b) Allowance of saver’s credit for ABLE contributions by account holder Section 25B(d)(1) is amended by striking and at the end of subparagraph (B)(ii), by striking the period at the end of subparagraph (C) and inserting , and , and by inserting at the end the following: (D) the amount of contributions made before January 1, 2026, by such individual to the ABLE account (within the meaning of section 529A) of which such individual is the designated beneficiary. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 11025. Rollovers to ABLE programs from 529 programs (a) In general Clause (i) of section 529(c)(3)(C) is amended by striking or at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or , and by adding at the end the following: (III) before January 1, 2026, to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B)(i). . (b) Effective date The amendments made by this section shall apply to distributions after the date of the enactment of this Act. 11026. Treatment of certain individuals performing services in the Sinai Peninsula of Egypt (a) In general For purposes of the following provisions of the Internal Revenue Code of 1986, with respect to the applicable period, a qualified hazardous duty area shall be treated in the same manner as if it were a combat zone (as determined under section 112 of such Code): (1) Section 2(a)(3) (relating to special rule where deceased spouse was in missing status). (2) Section 112 (relating to the exclusion of certain combat pay of members of the Armed Forces). (3) Section 692 (relating to income taxes of members of Armed Forces on death). (4) Section 2201 (relating to members of the Armed Forces dying in combat zone or by reason of combat-zone-incurred wounds, etc.). (5) Section 3401(a)(1) (defining wages relating to combat pay for members of the Armed Forces). (6) Section 4253(d) (relating to the taxation of phone service originating from a combat zone from members of the Armed Forces). (7) Section 6013(f)(1) (relating to joint return where individual is in missing status). (8) Section 7508 (relating to time for performing certain acts postponed by reason of service in combat zone). (b) Qualified hazardous duty area For purposes of this section, the term qualified hazardous duty area means the Sinai Peninsula of Egypt, if as of the date of the enactment of this section any member of the Armed Forces of the United States is entitled to special pay under section 310 of title 37, United States Code (relating to special pay; duty subject to hostile fire or imminent danger), for services performed in such location. Such term includes such location only during the period such entitlement is in effect. (c) Applicable period (1) In general Except as provided in paragraph (2), the applicable period is— (A) the portion of the first taxable year ending after June 9, 2015, which begins on such date, and (B) any subsequent taxable year beginning before January 1, 2026. (2) Withholding In the case of subsection (a)(5), the applicable period is— (A) the portion of the first taxable year ending after the date of the enactment of this Act which begins on such date, and (B) any subsequent taxable year beginning before January 1, 2026. (d) Effective date (1) In general Except as provided in paragraph (2), the provisions of this section shall take effect on June 9, 2015. (2) Withholding Subsection (a)(5) shall apply to remuneration paid after the date of the enactment of this Act. 11027. Extension of waiver of limitations with respect to excluding from gross income amounts received by wrongfully incarcerated individuals (a) In general Section 304(d) of the Protecting Americans from Tax Hikes Act of 2015 ( 26 U.S.C. 139F note) is amended by striking 1-year and inserting 2-year . (b) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. 11028. Temporary reduction in medical expense deduction floor (a) In general Subsection (f) of section 213 is amended to read as follows: (f) Special rules for 2013 through 2018 In the case of any taxable year— (1) beginning after December 31, 2012, and ending before January 1, 2017, in the case of a taxpayer if such taxpayer or such taxpayer's spouse has attained age 65 before the close of such taxable year, and (2) beginning after December 31, 2016, and ending before January 1, 2019, in the case of any taxpayer, subsection (a) shall be applied with respect to a taxpayer by substituting 7.5 percent for 10 percent . . (b) Minimum tax preference not To apply Section 56(b)(1)(B) is amended by adding at the end the following new sentence: This subparagraph shall not apply to taxable years beginning after December 31, 2016, and ending before January 1, 2019 . (c) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 11029. Relief for 2016 disaster areas (a) In general For purposes of this section, the term 2016 disaster area means any area with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. (b) Special rules for use of retirement funds with respect to areas damaged by 2016 disasters (1) Tax-Favored Withdrawals From Retirement Plans (A) In general Section 72(t) of the Internal Revenue Code of 1986 shall not apply to any qualified 2016 disaster distribution. (B) Aggregate dollar limitation (i) In general For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified 2016 disaster distributions for any taxable year shall not exceed the excess (if any) of— (I) $100,000, over (II) the aggregate amounts treated as qualified 2016 disaster distributions received by such individual for all prior taxable years. (ii) Treatment of plan distributions If a distribution to an individual would (without regard to clause (i)) be a qualified 2016 disaster distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified 2016 disaster distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $100,000. (iii) Controlled group For purposes of clause (ii), the term controlled group means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986. (C) Amount distributed may be repaid (i) In general Any individual who receives a qualified 2016 disaster distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) of the Internal Revenue Code of 1986, as the case may be. (ii) Treatment of repayments of distributions from eligible retirement plans other than iras For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified 2016 disaster distribution in an eligible rollover distribution (as defined in section 402(c)(4) of the Internal Revenue Code of 1986) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (iii) Treatment of repayments for distributions from iras For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an individual retirement plan (as defined by section 7701(a)(37) of the Internal Revenue Code of 1986), then, to the extent of the amount of the contribution, the qualified 2016 disaster distribution shall be treated as a distribution described in section 408(d)(3) of such Code and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (D) Definitions For purposes of this paragraph— (i) Qualified 2016 disaster distribution Except as provided in subparagraph (B), the term qualified 2016 disaster distribution means any distribution from an eligible retirement plan made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was located in a disaster area described in subsection (a) and who has sustained an economic loss by reason of the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area. (ii) Eligible retirement plan The term eligible retirement plan shall have the meaning given such term by section 402(c)(8)(B) of the Internal Revenue Code of 1986. (E) Income inclusion spread over 3-year period (i) In general In the case of any qualified 2016 disaster distribution, unless the taxpayer elects not to have this subparagraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable-year period beginning with such taxable year. (ii) Special rule For purposes of clause (i), rules similar to the rules of subparagraph (E) of section 408A(d)(3) of the Internal Revenue Code of 1986 shall apply. (F) Special rules (i) Exemption of distributions from trustee to trustee transfer and withholding rules For purposes of sections 401(a)(31), 402(f), and 3405 of the Internal Revenue Code of 1986, qualified 2016 disaster distribution shall not be treated as eligible rollover distributions. (ii) Qualified 2016 disaster distributions treated as meeting plan distribution requirements For purposes of the Internal Revenue Code of 1986, a qualified 2016 disaster distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A) of the Internal Revenue Code of 1986. (2) Provisions Relating to Plan Amendments (A) In general If this paragraph applies to any amendment to any plan or annuity contract, such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii)(I). (B) Amendments to which subsection applies (i) In general This paragraph shall apply to any amendment to any plan or annuity contract which is made— (I) pursuant to any provision of this section, or pursuant to any regulation under any provision of this section; and (II) on or before the last day of the first plan year beginning on or after January 1, 2018, or such later date as the Secretary prescribes. In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), subclause (II) shall be applied by substituting the date which is 2 years after the date otherwise applied under subclause (II). (ii) Conditions This paragraph shall not apply to any amendment unless— (I) during the period— (aa) beginning on the date that this section or the regulation described in clause (i)(I) takes effect (or in the case of a plan or contract amendment not required by this section or such regulation, the effective date specified by the plan); and (bb) ending on the date described in clause (i)(II) (or, if earlier, the date the plan or contract amendment is adopted), the plan or contract is operated as if such plan or contract amendment were in effect; and (II) such plan or contract amendment applies retroactively for such period. (c) Special rules for personal casualty losses related to 2016 major disaster (1) In general If an individual has a net disaster loss for any taxable year beginning after December 31, 2017, and before January 1, 2026— (A) the amount determined under section 165(h)(2)(A)(ii) of the Internal Revenue Code of 1986 shall be equal to the sum of— (i) such net disaster loss, and (ii) so much of the excess referred to in the matter preceding clause (i) of section 165(h)(2)(A) of such Code (reduced by the amount in clause (i) of this subparagraph) as exceeds 10 percent of the adjusted gross income of the individual, (B) section 165(h)(1) of such Code shall be applied by substituting $500 for $500 ($100 for taxable years beginning after December 31, 2009) , (C) the standard deduction determined under section 63(c) of such Code shall be increased by the net disaster loss, and (D) section 56(b)(1)(E) of such Code shall not apply to so much of the standard deduction as is attributable to the increase under subparagraph (C) of this paragraph. (2) Net disaster loss For purposes of this subsection, the term net disaster loss means the excess of qualified disaster-related personal casualty losses over personal casualty gains (as defined in section 165(h)(3)(A) of the Internal Revenue Code of 1986). (3) Qualified disaster-related personal casualty losses For purposes of this paragraph, the term qualified disaster-related personal casualty losses means losses described in section 165(c)(3) of the Internal Revenue Code of 1986 which arise in a disaster area described in subsection (a) on or after January 1, 2016, and which are attributable to the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area. IV Education 11031. Treatment of student loans discharged on account of death or disability (a) In general 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 for any taxable year beginning after December 31, 2017, and before January 1, 2026, does not include any amount which (but for this subsection) would be includible in gross income for such taxable year 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) Effective date The amendment made by this section shall apply to discharges of indebtedness after December 31, 2017. 11032. Increase in deduction for teacher expenses (a) In general Subparagraph (D) of section 62(a)(2) is amended by striking $250 and inserting $250 ($500 in the case of taxable years beginning after December 31, 2017, and before January 1, 2026) . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11033. 529 account funding for elementary and secondary education (a) In general (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— (A) expenses for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school, and (B) expenses for— (i) curriculum and curricular materials, (ii) books or other instructional materials, (iii) online educational materials, (iv) tuition for tutoring or educational classes outside of the home (but only if the tutor or instructor is not related to the student), (v) dual enrollment in an institution of higher education, and (vi) educational therapies for students with disabilities, in connection with a homeschool (whether treated as a homeschool or a private school for purposes of applicable State law). . (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 described in subsection (c)(7) incurred during the taxable year. . (b) Effective date The amendments made by subsection (a) shall apply to contributions made after December 31, 2017. (c) Offset (1) Modification of rules relating to hardship withdrawals from cash or deferred arrangements 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.”. . (2) 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”. . (3) Effective date The amendments made by this subsection shall apply to plan years beginning after December 31, 2017. V Deductions and exclusions 11041. Suspension of deduction for personal exemptions (a) In general Subsection (d) of section 151 is amended— (1) by striking In the case of in paragraph (4) and inserting Except as provided in paragraph (5), in the case of , and (2) by adding at the end the following new paragraph: (5) Special rules for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Exemption amount The term exemption amount means zero. (B) References For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section. . (b) Application to estates and trusts Section 642(b)(2)(C) is amended by adding at the end the following new clause: (iii) Years when personal exemption amount is zero (I) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, clause (i) shall be applied by substituting $4,150 for the exemption amount under section 151(d) . (II) Inflation adjustment In the case of any calendar year beginning after 2018, the $4,150 amount in subparagraph (A) shall be increased by an amount equal to— (aa) such dollar amount, multiplied by (bb) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(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. . (c) Exception for wage withholding rules Section 3402(a) is amended by adding at the end the following new paragraph: (3) Years when personal exemption amount is zero (A) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, paragraph (2) shall be applied by substituting $4,150 for the amount of one personal exemption provided in section 151(b) . (B) Inflation adjustment In the case of any calendar year beginning after 2018, the $4,150 amount in subparagraph (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(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(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. . (d) Exception for determining property exempt from levy Section 6334(d) is amended by adding at the end the following new paragraph: (4) Years when personal exemption amount is zero (A) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, paragraph (2) shall not apply and for purposes of paragraph (1) the term exempt amount means an amount equal to— (i) the sum of the amount determined under subparagraph (B) and the standard deduction, divided by (ii) 52. (B) Amount determined For purposes of subparagraph (A), the amount determined under this subparagraph is $4,150 multiplied by the number of the taxpayer’s dependents for the taxable year in which the levy occurs. (C) Inflation adjustment In the case of any taxable year beginning after 2018, the $4,150 amount in subparagraph (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(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. (D) 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. . (e) Persons required To make returns of income Section 6012 is amended by adding at the end the following new subsection: (f) Special rule for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, subsection (a)(1) shall not apply, and every individual who has gross income for the taxable year shall be required to make returns with respect to income taxes under subtitle A, except that a return shall not be required of— (1) 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 (2) an individual entitled to make a joint return if— (A) 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, (B) such individual and such individual’s spouse have the same household as their home at the close of the taxable year, (C) such individual’s spouse does not make a separate return, and (D) neither such individual nor such individual’s spouse is an individual described in section 63(c)(5) who has income (other than earned income) in excess of the amount in effect under section 63(c)(5)(A). . (f) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11042. Suspension of deduction for State and local, etc. taxes (a) In general Subsection (b) of section 164 is amended by adding at the end the following new paragraph: (6) Suspension of individual deductions for taxable years 2018 through 2025 In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026— (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) 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, (D) subsection (a)(3) shall not apply to State and local taxes, and (E) paragraph (5) shall not apply. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11043. Suspension of deduction for home equity interest (a) In general Section 163(h)(3)(A)(ii) is amended by inserting in the case of taxable years beginning before January 1, 2018, or after December 31, 2025, before home equity indebtedness . (b) Effective date The amendment made by this section shall apply to taxable years ending after December 31, 2017. 11044. Modification of deduction for personal casualty losses (a) In general Subsection (h) of section 165 is amended by adding at the end the following new paragraph: (5) Limitation for taxable years 2018 through 2025 In the case of an individual, any loss described in subsection (c)(3) which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, and before January 1, 2026, shall be allowed only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)). The preceding sentence shall not apply to any deduction under section 172 which is carried to such a taxable year from a taxable year beginning before January 1, 2018. . (b) Effective date The amendment made by this section shall apply to losses incurred in taxable years beginning after December 31, 2017. 11045. Suspension of miscellaneous itemized deductions (a) In general Section 67 is amended by adding at the end the following new subsection: (g) Suspension for taxable years 2018 through 2025 Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11046. Suspension of overall limitation on itemized deductions (a) In general Section 68 is amended by adding at the end the following new subsection: (f) Section not To apply This section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11047. Modification of exclusion of gain from sale of principal residence (a) In general Section 121 is amended by adding at the end the following new subsection: (h) Special rules for sales or exchanges in taxable years 2018 through 2025 (1) In general In applying this section with respect to sales or exchanges after December 31, 2017, and before January 1, 2026— (A) 8-year shall be substituted for 5-year each place it appears in subsections (a), (b)(5)(C)(ii)(I), and (c)(1)(B)(i)(I) and paragraphs (7), (9), (10), and (12) of subsection (d), (B) 5 years shall be substituted for 2 years each place it appears in subsections (a), (b)(3), (b)(4), (b)(5)(C)(ii)(III), and (c)(1)(B)(ii), and (C) 5-year shall be substituted for 2-year in subsection (b)(3). (2) Exception for binding contracts Paragraph (1) shall not apply to any sale or exchange with respect to which there was a written binding contract in effect before January 1, 2018, and at all times thereafter before the sale or exchange. . (b) Effective date The amendment made by this section shall apply to sales and exchanges after December 31, 2017. 11048. Suspension of exclusion for qualified bicycle commuting reimbursement (a) In general Section 132(f) is amended by adding at the end the following new paragraph: (8) Suspension of qualified bicycle commuting reimbursement exclusion Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11049. Suspension of exclusion for qualified moving expense reimbursement (a) In general Section 132(g) is amended— (1) by striking For purposes of this section, the term and inserting “For purposes of this section— (1) In general The term , and (2) by adding at the end the following new paragraph: (2) Suspension for taxable years 2018 through 2025 Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11050. Suspension of deduction for moving expenses (a) In general Section 217 is amended by adding at the end the following new subsection: (k) Suspension of deduction for taxable years 2018 through 2025 Except in the case of an individual to whom subsection (g) applies, this section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11051. 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, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, 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 amendment made by this section shall apply to taxable years beginning after December 31, 2017. VI Increase in estate and gift tax exemption 11061. Increase in estate and gift tax exemption (a) In general Section 2010(c)(3) is amended by adding at the end the following new subparagraph: (C) Increase in basic exclusion amount In the case of estates of decedents dying or gifts made after December 31, 2017, and before January 1, 2026, subparagraph (A) shall be applied by substituting $10,000,000 for $5,000,000 . . (b) Conforming amendment Subsection (g) of section 2001 is amended to read as follows: (g) Modifications to tax payable (1) Modifications to gift tax payable to reflect different tax rates For purposes of applying subsection (b)(2) with respect to 1 or more gifts, the rates of tax under subsection (c) in effect at the decedent's death shall, in lieu of the rates of tax in effect at the time of such gifts, be used both to compute— (A) the tax imposed by chapter 12 with respect to such gifts, and (B) the credit allowed against such tax under section 2505, including in computing— (i) the applicable credit amount under section 2505(a)(1), and (ii) the sum of the amounts allowed as a credit for all preceding periods under section 2505(a)(2). (2) Modifications to estate tax payable to reflect different basic exclusion amounts The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this section with respect to any difference between— (A) the basic exclusion amount under section 2010(c)(3) applicable at the time of the decedent's death, and (B) the basic exclusion amount under such section applicable with respect to any gifts made by the decedent. . (c) Effective date The amendments made by this section shall apply to estates of decedents dying and gifts made after December 31, 2017. VII Taxpayer rights and tax administration 11071. Extension of time limit for contesting IRS levy (a) Extension of Time for Return of Property Subject to Levy Subsection (b) of section 6343 is amended by striking 9 months and inserting 2 years . (b) Period of Limitation on Suits Subsection (c) of section 6532 is amended— (1) by striking 9 months in paragraph (1) and inserting 2 years , and (2) by striking 9-month in paragraph (2) and inserting 2-year . (c) Effective Date The amendments made by this section shall apply to— (1) levies made after the date of the enactment of this Act, and (2) levies made on or before such date if the 9-month period has not expired under section 6343(b) of the Internal Revenue Code of 1986 (without regard to this section) as of such date. 11072. Modification of user fee requirements for installment agreements (a) In general Section 6159 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection: (f) Installment agreement fees (1) Limitation on fee amount The amount of any fee imposed on an installment agreement under this section may not exceed the amount of such fee as in effect on the date of the enactment of this subsection. (2) Waiver or reimbursement In the case of any taxpayer with an adjusted gross income, as determined for the most recent year for which such information is available, which does not exceed 250 percent of the applicable poverty level (as determined by the Secretary)— (A) if the taxpayer has agreed to make payments under the installment agreement by electronic payment through a debit instrument, no fee shall be imposed on an installment agreement under this section, and (B) if the taxpayer is unable to make payments under the installment agreement by electronic payment through a debit instrument, the Secretary shall, upon completion of the installment agreement, pay the taxpayer an amount equal to any such fees imposed. . (b) Effective date The amendments made by this section shall apply to agreements entered into on or after the date which is 60 days after the date of the enactment of this Act. 11073. Attorneys' fees relating to awards to whistleblowers (a) In general Paragraph (21) of section 62(a) is amended to read as follows: (21) Attorneys' fees relating to awards to whistleblowers (A) In general Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any award under— (i) section 7623(b), or (ii) any action brought under— (I) section 21F of the Securities Exchange Act of 1934 ( 15 U.S.C. 78u–6 ), (II) a State false claims act, including a State false claims act with qui tam provisions, or (III) section 23 of the Commodity Exchange Act ( 7 U.S.C. 26 ). (B) May not exceed award Subparagraph (A) shall not apply to any deduction in excess of the amount includible in the taxpayer's gross income for the taxable year on account of such award. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11074. Clarification of whistleblower awards (a) Definition of proceeds (1) In general Section 7623 is amended by adding at the end the following new subsection: (c) Proceeds For purposes of this section, the term proceeds includes— (1) penalties, interest, additions to tax, and additional amounts provided under the internal revenue laws, and (2) any proceeds arising from laws for which the Internal Revenue Service is authorized to administer, enforce, or investigate, including— (A) criminal fines and civil forfeitures, and (B) violations of reporting requirements. . (2) Conforming amendments Paragraphs (1) and (2)(A) of section 7623(b) are each amended by striking collected proceeds (including penalties, interest, additions to tax, and additional amounts) resulting from the action and inserting proceeds collected as a result of the action . (b) Amount of proceeds determined without regard To availability Paragraphs (1) and (2)(A) of section 7623(b) are each amended by inserting (determined without regard to whether such proceeds are available to the Secretary) after in response to such action . (c) Disputed amount threshold Section 7623(b)(5)(B) is amended by striking tax, penalties, interest, additions to tax, and additional amounts and inserting proceeds . (d) Effective date The amendments made by this section shall apply to information provided before, on, or after the date of the enactment of this Act with respect to which a final determination for an award has not been made before such date of enactment. VIII Individual mandate 11081. Elimination of shared responsibility payment for individuals failing to maintain minimum essential coverage (a) In general Section 5000A(c) is amended— (1) in paragraph (2)(B)(iii), by striking 2.5 percent and inserting Zero percent , and (2) in paragraph (3)— (A) by striking $695 in subparagraph (A) and inserting $0 , and (B) by striking subparagraph (D). (b) Effective date The amendments made by this section shall apply to months beginning after December 31, 2018. B Alternative minimum tax 12001. Increased exemption for individuals (a) Increased exemption Section 55(d) is amended by adding at the end the following new paragraph: (5) Special rule for taxable years beginning after 2017 and before 2026 (A) In general In the case of any taxable year beginning after December 31, 2017, and before January 1, 2026— (i) paragraph (1) shall be applied— (I) by substituting $109,400 for $78,750 in subparagraph (A), and (II) by substituting $70,300 for $50,600 in subparagraph (B), and (ii) paragraph (3) shall be applied— (I) by substituting $208,400 for $150,000 in subparagraph (A), (II) by substituting $156,300 for $112,500 in subparagraph (B), and (III) in the case of a taxpayer described in paragraph (1)(D), without regard to the substitution under subclause (I). (B) Inflation adjustment (i) In general In the case of any taxable year beginning in a calendar year after 2018, the amounts described in clause (ii) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof. (ii) Amounts described The amounts described in this clause are the $109,400 amount in subparagraph (A)(i)(I), the $70,300 amount in subparagraph (A)(i)(II), the $208,400 amount in subparagraph (A)(ii)(I), and the $156,300 amount in subparagraph (A)(ii)(II). (iii) Rounding Any increased amount determined under clause (i) shall be rounded to the nearest multiple of $100. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. C Business-related provisions I Corporate provisions 13001. 20-percent corporate tax rate (a) In general Subsection (b) of section 11 is amended to read as follows: (b) Amount of tax The amount of the tax imposed by subsection (a) shall be 20 percent of taxable income. . (b) Conforming amendments (1) The following sections are each amended by striking section 11(b)(1) and inserting section 11(b) : (A) Section 280C(c)(3)(B)(ii)(II). (B) Paragraphs (2)(B) and (6)(A)(ii) of section 860E(e). (C) Section 7874(e)(1)(B). (2) (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 paragraphs (4) and (6), and by redesignating paragraph (5) as paragraph (4). (C) Section 453A(c)(3) is amended by striking or 1201 (whichever is appropriate) . (D) 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 . (E) Sections 594(a) is amended by striking taxes imposed by section 11 or 1201(a) and inserting tax imposed by section 11 . (F) Section 691(c)(4) is amended by striking 1201, . (G) 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 . (H) Section 831(e) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (I) Sections 832(c)(5) and 834(b)(1)(D) are each amended by striking sec. 1201 and following, . (J) Section 852(b)(3)(A) is amended by striking section 1201(a) and inserting section 11(b) . (K) 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. . (L) Section 882(a)(1) is amended by striking , 55, or 1201(a) and inserting or 55 . (M) Section 904(b) is amended— (i) by striking or 1201(a) in paragraph (2)(C), (ii) by striking paragraph (3)(D) and inserting the following: (D) Capital gain rate differential There is a capital gain rate differential for any year if subsection (h) of section 1 applies to such taxable year. , and (iii) by striking paragraph (3)(E) and inserting the following: (E) Rate differential portion The rate differential portion of foreign source net capital gain, net capital gain, or the excess of net capital gain from sources within the United States over net capital gain, as the case may be, is the same proportion of such amount as— (i) the excess of— (I) the highest rate of tax set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies), over (II) the alternative rate of tax determined under section 1(h), bears to (ii) that rate referred to in subclause (I). . (N) Section 1374(b) is amended by striking paragraph (4). (O) Section 1381(b) is amended by striking taxes imposed by section 11 or 1201 and inserting tax imposed by section 11 . (P) Sections 6425(c)(1)(A) and 6655(g)(1)(A)(i) are each amended by striking or 1201(a), . (Q) Section 7518(g)(6)(A) is amended by striking or 1201(a) . (3) (A) Section 1445(e)(1) is amended— (i) by striking 35 percent and inserting the highest rate of tax in effect for the taxable year under section 11(b) , and (ii) by striking of the gain and inserting multiplied by the gain . (B) Section 1445(e)(2) is amended by striking 35 percent of the amount and inserting the highest rate of tax in effect for the taxable year under section 11(b) multiplied by the amount . (C) Section 1445(e)(6) is amended— (i) by striking 35 percent and inserting the highest rate of tax in effect for the taxable year under section 11(b) , and (ii) by striking of the amount and inserting multiplied by the amount . (D) Section 1446(b)(2)(B) is amended by striking section 11(b)(1) and inserting section 11(b) . (4) Section 852(b)(1) is amended by striking the last sentence. (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 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(a) is amended— (i) by striking paragraph (1) and redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively, (ii) by striking amounts specified in paragraph (1) and the amount specified in paragraph (3) and inserting the amount specified in paragraph (2) , (iii) by striking The amounts specified in paragraph (2) and inserting The amounts specified in paragraph (1) , (iv) by striking the third sentence in the flush language, and (v) by striking under paragraph (3) and inserting under paragraph (2) . (B) The first sentence of section 1561(b) is amended to read as follows: 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)(1) divided by the number of corporations which are component members of such group on the last day of such taxable year. (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, 2018. (2) Withholding The amendments made by subsection (b)(3) shall apply to distributions made after December 31, 2018. (3) Certain transfers The amendments made by subsection (b)(6) shall apply to transfers made after December 31, 2018. (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 determined under 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. 13002. Reduction in dividend received deductions to reflect lower corporate income tax rates (a) Dividends received by corporations (1) In general Section 243(a)(1) is amended by striking 70 percent and inserting 50 percent . (2) Dividends from 20-percent owned corporations Section 243(c)(1) is amended— (A) by striking 80 percent and inserting 65 percent , and (B) by striking 70 percent and inserting 50 percent . (3) Conforming amendment The heading for section 243(c) is amended by striking Retention of 80-percent dividend received deduction and inserting Increased percentage . (b) Dividends received from FSC Section 245(c)(1)(B) is amended— (1) by striking 70 percent and inserting 50 percent , and (2) by striking 80 percent and inserting 65 percent . (c) Limitation on aggregate amount of deductions Section 246(b)(3) is amended— (1) by striking 80 percent in subparagraph (A) and inserting 65 percent , and (2) by striking 70 percent in subparagraph (B) and inserting 50 percent . (d) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) is amended— (1) by striking 70 percent and inserting 50 percent , and (2) by striking 80 percent and inserting 65 percent . (e) Income from sources within the United States Section 861(a)(2) is amended— (1) by striking 100/70th and inserting 100/50th in subparagraph (B), and (2) in the flush sentence at the end— (A) by striking 100/80th and inserting 100/65th , and (B) by striking 100/70th and inserting 100/50th . (f) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. II Small business reforms 13101. Modifications of rules for expensing depreciable business assets (a) Increase in limitation (1) Dollar limitation Section 179(b)(1) is amended by striking $500,000 and inserting $1,000,000 . (2) Reduction in limitation Section 179(b)(2) is amended by striking $2,000,000 and inserting $2,500,000 . (3) Inflation adjustments (A) In general Subparagraph (A) of section 179(b)(6), as amended by section 11002(d), is amended— (i) by striking 2015 and inserting 2018 , and (ii) in clause (ii), by striking calendar year 2014 and inserting calendar year 2017 . (B) Sport utility vehicles Section 179(b)(6) is amended— (i) in subparagraph (A), by striking paragraphs (1) and (2) and inserting paragraphs (1), (2), and (5)(A) , and (ii) in subparagraph (B), by inserting ($100 in the case of any increase in the amount under paragraph (5)(A)) after $10,000 . (b) Section 179 property To include qualified real property (1) In general Subparagraph (B) of section 179(d)(1) is amended to read as follows: (B) which is— (i) section 1245 property (as defined in section 1245(a)(3)), or (ii) at the election of the taxpayer, qualified real property (as defined in subsection (f)), and . (2) Qualified real property defined Subsection (f) of section 179 is amended to read as follows: (f) Qualified real property For purposes of this section, the term qualified real property means— (1) any qualified improvement property described in section 168(e)(6), and (2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: (A) Roofs. (B) Heating, ventilation, and air-conditioning property. (C) Fire protection and alarm systems. (D) Security systems. . (c) Repeal of exclusion for certain property The last sentence of section 179(d)(1) is amended by inserting (other than paragraph (2) thereof) after section 50(b) . (d) Effective date The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2017. 13102. Modifications of gross receipts test for use of cash method of accounting by corporations and partnerships (a) Modifications of gross receipts test (1) In general So much of section 448(c) as precedes paragraph (2) is amended to read as follows: (c) Gross receipts test (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 the applicable dollar limit. . (2) Applicable dollar limit Subsection (c) of section 448 is amended by adding at the end the following new paragraph: (4) Applicable dollar limit (A) In general The applicable dollar limit is $15,000,000. (B) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $15,000,000 amount under subparagraph (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(f)(3) 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, such amount shall be rounded to the next lowest multiple of $1,000. . (3) Change in method of accounting Paragraph (7) of section 448(d) is amended— (A) by striking In the case of and all that follows up to subparagraph (A) and inserting: If a taxpayer changes its method of accounting because the taxpayer is prohibited from using the cash receipts and disbursement method of accounting by reason of subsection (a) or is no longer prohibited from using such method by reason of such subsection— , and (B) by inserting and at the end of subparagraph (A), by striking , and at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C). (4) Conforming amendment Paragraph (3) of section 448(b) is amended to read as follows: (3) Entities satisfying 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 meets the gross receipts test of subsection (c) for the taxable year. . (b) Application of modifications To farming corporations (1) In general Paragraph (1) of section 447(d) is amended to read as follows: (1) In general A corporation meets the requirements of this subsection for any taxable year with respect to its gross receipts if the corporation meets the gross receipts test of section 448(c) for the taxable year. . (2) Family corporations Paragraph (2) of section 447(d) is amended— (A) by striking subparagraph (A) and inserting the following: (A) In general In the case of a family corporation, in applying section 448(c) for purposes of paragraph (1)— (i) paragraph (1) of section 448(c) shall be applied by substituting the applicable family corporation limit for the applicable dollar limit, and (ii) the rules of subparagraph (B) shall apply in computing gross receipts. , (B) in subparagraph (B)(i), by striking the last sentence of paragraph (1) and inserting paragraph (2) of section 448(c) , and (C) by adding at the end the following new subparagraph: (D) Applicable family corporation limit (i) In general The applicable family corporation limit is $25,000,000. (ii) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $25,000,000 amount under clause (i) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, 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, such amount shall be rounded to the next lowest multiple of $1,000. . (3) Exception for certain corporations Subsection (c) of section 447 is amended by inserting for any taxable year after not being a corporation . (4) Change in method of accounting Section 447(f) is amended— (A) by striking In the case of and all that follows up to paragraph (1) and inserting the following: If a taxpayer changes its method of accounting because the taxpayer is required to use an accrual method of accounting by reason of subsection (a) or is no longer required to use such method by reason of such subsection— , and (B) by striking paragraph (2) and inserting the following: (2) such change shall be treated as initiated by the taxpayer, and . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13103. Clarification of inventory accounting rules for small businesses (a) Clarification of inventory rules (1) In general Section 471 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Small business taxpayers not required To use inventories (1) In general A qualified taxpayer shall not be required to use inventories under this section for a taxable year. (2) Treatment of taxpayers not using inventories A qualified taxpayer who is not required under this subsection to use inventories with respect to any property for a taxable year beginning after December 31, 2017, may treat such property— (A) as a non-incidental material or supply, or (B) in a manner which conforms to the taxpayer's method for accounting for such property in— (i) an applicable financial statement (as defined in section 451(b)(3)), or (ii) in the case of a taxpayer that does not have an applicable financial statement, their books and records used for purposes of determining tax imposed by this title. (3) Qualified taxpayer For purposes of this subsection, the term qualified taxpayer means, with respect to any taxable year, a taxpayer who meets the gross receipts test of section 448(c) for the taxable year (or, in the case of a sole proprietorship, who would meet such test if such proprietorship were a corporation). Such term shall not include a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3). (4) Coordination with section 481 If a taxpayer changes its method of accounting because the taxpayer is not required to use inventories by reason of paragraph (1) or is required to use inventories because such paragraph no longer applies to the taxpayer— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as made with the consent of the Secretary. . (2) Conforming amendment Subsection (c) of section 263A is amended by adding at the end the following new paragraph: (8) Exclusion from inventory rules Nothing in this section shall require the use of inventories for any taxable year by a qualified taxpayer (within the meaning of section 471(c)(3)) who is not required to use inventories under section 471 for such taxable year. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13104. Modification of rules for uniform capitalization of certain expenses (a) In general Section 263A(b) is amended by striking all that follows paragraph (1) and inserting the following new paragraphs: (2) Property acquired for resale Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale. (3) Exception for small businesses This section shall not apply to any taxpayer who meets the gross receipts test under section 448(c) for the taxable year (or, in the case of a sole proprietorship, who would meet such test if such proprietorship were a corporation), other than a tax shelter prohibited from using the cash receipts and disbursements method of accounting under section 448(a)(3). (4) Films, sound recordings, books, etc For purposes of this subsection, the term tangible personal property shall include a film, sound recording, video tape, book, or similar property. (5) Coordination with section 481 If a taxpayer changes its method of accounting because this section does not apply to the taxpayer by reason of the exception under paragraph (3) or this section applies to the taxpayer because such exception no longer applies to the taxpayer— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as 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. 13105. Increase in gross receipts test for construction contract exception to percentage of completion method (a) Increase (1) In general Section 460(e)(1)(B) is amended— (A) in the matter preceding clause (i), 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 , and (B) by striking clause (ii) and inserting the following: (ii) who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into (or, in the case of a sole proprietorship, who would meet such test if such proprietorship were a corporation). . (2) Conforming amendments (A) Section 460(e) is amended by striking paragraphs (2) and (3) and by redesignating paragraphs (4) through (6) as paragraphs (2) through (4), respectively. (B) The last sentence of section 56(a)(3) is amended by striking section 460(e)(6) and inserting section 460(e)(4) . (b) Coordination with section 481 Section 460(e), as amended by subsection (a), is amended by adding at the end the following: (5) Coordination with section 481 If a taxpayer changes its method of accounting because subsections (a), (b), (c)(1), and (c)(2) do not apply by reason of the exception under paragraph (1)(B) or such subsections apply to the taxpayer because such exception no longer applies to the taxpayer— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as made with the consent of the Secretary, and (C) such change shall be permitted only on a cut-off basis for all similarly classified contracts entered into on or after the year of change and no adjustments under section 481(a) shall be made. . (c) Effective date The amendment made by this section shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date. III Cost recovery and accounting methods A Cost recovery 13201. Temporary 100-percent expensing for certain business assets (a) Increased expensing (1) In general Section 168(k) is amended— (A) in paragraph (1)(A), by striking 50 percent and inserting the applicable percentage , and (B) in paragraph (5)(A)(i), by striking 50 percent and inserting the applicable percentage . (2) Applicable percentage Paragraph (6) of section 168(k) is amended to read as follows: (6) Applicable percentage For purposes of this subsection— (A) In general Except as otherwise provided in this paragraph, the term applicable percentage means— (i) in the case of property placed in service after September 27, 2017, and before January 1, 2023, 100 percent, (ii) in the case of property placed in service after December 31, 2022, and before January 1, 2024, 80 percent, (iii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 60 percent, (iv) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 40 percent, and (v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent. (B) Rule for property with longer production periods In the case of property described in paragraph (2)(B) or (C), the term applicable percentage means— (i) in the case of property placed in service after September 27, 2017, and before January 1, 2024, 100 percent, (ii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 80 percent, (iii) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 60 percent, (iv) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 40 percent, and (v) in the case of property placed in service after December 31, 2026, and before January 1, 2028, 20 percent. (C) Rule for plants bearing fruits and nuts In the case of a specified plant described in paragraph (5), the term applicable percentage means— (i) in the case of a plant which is planted or grafted after September 27, 2017, and before January 1, 2023, 100 percent, (ii) in the case of a plant which is planted or grafted after December 31, 2022, and before January 1, 2024, 80 percent, (iii) in the case of a plant which is planted or grafted after December 31, 2023, and before January 1, 2025, 60 percent, (iv) in the case of a plant which is planted or grafted after December 31, 2024, and before January 1, 2026, 40 percent, and (v) in the case of a plant which is planted or grafted after December 31, 2025, and before January 1, 2027, 20 percent. . (3) Conforming amendment Paragraph (5) of section 168(k) is amended by striking subparagraph (F). (b) Extension (1) In general Section 168(k) is amended— (A) in paragraph (2)— (i) in subparagraph (A)(iii), clauses (i)(III) and (ii) of subparagraph (B), and subparagraph (E)(i), by striking January 1, 2020 each place it appears and inserting January 1, 2027 , and (ii) in subparagraph (B)— (I) in clause (i)(II), by striking January 1, 2021 and inserting January 1, 2028 , and (II) in the heading of clause (ii), by striking pre-January 1, 2020 and inserting pre-January 1, 2027 , and (B) in paragraph (5)(A), by striking January 1, 2020 and inserting January 1, 2027 . (2) Conforming amendments (A) Clause (ii) of section 460(c)(6)(B) is amended by striking January 1, 2020 (January 1, 2021 and inserting January 1, 2027 (January 1, 2028 . (B) The heading of section 168(k) is amended by striking acquired after December 31, 2007, and before January 1, 2020 . (c) Exception for public utilities Section 168(k) is amended by adding at the end the following new paragraph: (8) Exception for certain property The term qualified property shall not include any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A). . (d) Special rule Section 168(k), as amended by subsection (c), is amended by adding at the end the following new paragraph: (9) Special rule for property placed in service during certain periods (A) In general In the case of qualified property placed in service by the taxpayer during the first taxable year ending after September 27, 2017, if the taxpayer elects to have this paragraph apply for such taxable year, paragraphs (1)(A) and (5)(A)(i) shall be applied by substituting ‘50 percent’ for ‘the applicable percentage’. (B) Form of election Any election under this paragraph shall be made at such time and in such form and manner as the Secretary may prescribe. . (e) Coordination with section 280F Section 168(k)(2)(F) is amended by striking clause (iii). (f) Qualified film and television and live theatrical productions (1) In general Clause (i) of section 168(k)(2)(A), as amended by section 13204, is amended— (A) in subclause (II), by striking or , (B) in subclause (III), by adding or after the comma, and (C) by adding at the end the following: (IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, or (V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, . (2) Production placed in service Paragraph (2) of section 168(k) is amended by adding at the end the following: (H) Production placed in service For purposes of subparagraph (A)— (i) a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast, and (ii) a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance. . (g) Effective dates The amendments made by this section shall apply to property placed in service, and specified plants planted or grafted after, after September 27, 2017, in taxable years ending after such date. 13202. Modifications to depreciation limitations on luxury automobiles and personal use property (a) Luxury automobiles (1) In general 280F(a)(1)(A) is amended— (A) in clause (i), by striking $2,560 and inserting $10,000 , (B) in clause (ii), by striking $4,100 and inserting $16,000 , (C) in clause (iii), by striking $2,450 and inserting $9,600 , and (D) in clause (iv), by striking $1,475 and inserting $5,760 . (2) Conforming amendments (A) Clause (ii) of section 280F(a)(1)(B) is amended by striking $1,475 in the text and heading and inserting $5,760 . (B) Paragraph (7) of section 280F(d) is amended— (i) in subparagraph (A), by striking 1988 and inserting 2018 , and (ii) in subparagraph (B)(i)(II), by striking 1987 and inserting 2017 . (b) Removal of computer equipment from listed property (1) In general Section 280F(d)(4)(A) is amended— (A) by inserting and at the end of clause (iii), (B) by striking clause (iv), and (C) by redesignating clause (v) as clause (iv). (2) Conforming amendment Section 280F(d)(4) is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B). (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 13203. Modifications of treatment of certain farm property (a) Treatment of certain farm property as 5-Year property Clause (vii) of section 168(e)(3)(B) is amended by striking after December 31, 2008, and which is placed in service before January 1, 2010 and inserting after December 31, 2017 . (b) Repeal of required use of 150-Percent declining balance method Section 168(b)(2) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 13204. Applicable recovery period for real property (a) Residential rental property and nonresidential real property (1) Reduction of recovery period The table contained in section 168(c) is amended— (A) by striking 27.5 years and inserting 25 years , and (B) by striking 39 years and inserting 25 years . (2) Statutory recovery period The table contained in section 467(e)(3)(A) is amended— (A) by inserting (other than residential rental property and nonresidential real property) after 15-year and 20-year property , and (B) by striking 19 years and inserting 25 years . (3) Conforming amendment Clause (ii) of section 168(e)(2)(B) is amended by striking 27.5 years and inserting 25 years . (b) Improvements to real property (1) Classification of qualified improvement property as 10-year property Subparagraph (D) of section 168(e)(3) is amended— (A) in clause (iii), by striking and , (B) in clause (iv), by striking the period and inserting , and , and (C) by adding at the end the following new clause: (v) any qualified improvement property described in subsection (e)(6). . (2) Elimination of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property Subsection (e) of section 168 is amended— (A) in subparagraph (E) of paragraph (3)— (i) by striking clauses (iv), (v), and (ix), (ii) in clause (vii), by inserting and at the end, (iii) in clause (viii), by striking , and and inserting a period, and (iv) by redesignating clauses (vi), (vii), and (viii), as so amended, as clauses (iv), (v), and (vi), respectively, and (B) by striking paragraphs (6), (7), and (8). (3) Application of straight line method to qualified improvement property Paragraph (3) of section 168(b) is amended— (A) by striking subparagraphs (G), (H), and (I), and (B) by inserting after subparagraph (F) the following new subparagraph: (G) Qualified improvement property described in subsection (e)(6). . (4) Alternative Depreciation System (A) Electing real property trade or business Subsection (g) of section 168 is amended— (i) in paragraph (1)— (I) in subparagraph (D), by striking and at the end, (II) in subparagraph (E), by inserting and at the end, and (III) by inserting after subparagraph (E) the following new subparagraph: (F) any property described in paragraph (8), , and (ii) by adding at the end the following new paragraph: (8) Electing real property trade or business The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)). . (B) Qualified improvement property The table contained in subparagraph (B) of section 168(g)(3) is amended— (i) by inserting after the item relating to subparagraph (D)(ii) the following new item: (D)(v) 20 . , and (ii) by striking the item relating to subparagraph (E)(iv) and all that follows through the item relating to subparagraph (E)(ix) and inserting the following: (E)(iv) 20 (E)(v) 30 (E)(vi) 35 . (C) Applicable recovery period for residential rental property The table contained in subparagraph (C) of section 168(g)(2) is amended by striking clauses (iii) and (iv) and inserting the following: (iii) Residential rental property 30 years (iv) Nonresidential real property 40 years (v) Any railroad grading or tunnel bore or water utility property 50 years . (5) Conforming amendments (A) Clause (i) of section 168(k)(2)(A) is amended— (i) in subclause (II), by inserting or after the comma, (ii) in subclause (III), by striking or at the end, and (iii) by striking subclause (IV). (B) Section 168 is amended— (i) in subsection (e), as amended by paragraph (2)(B), by adding at the end the following: (6) Qualified improvement property (A) In general The term qualified improvement property means any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. (B) Certain improvements not included Such term shall not include any improvement for which the expenditure is attributable to— (i) the enlargement of the building, (ii) any elevator or escalator, or (iii) the internal structural framework of the building. . (ii) in subsection (k), by striking paragraph (3). (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 2017. (2) Amendments related to electing real property trade or business The amendments made by subsection (b)(4)(A) shall apply to taxable years beginning after December 31, 2017. 13205. Use of alternative depreciation system for electing farming businesses (a) In general Section 168(g)(1), as amended by section 13204, is amended by striking and at the end of subparagraph (E), by inserting and at the end of subparagraph (F), and by inserting after subparagraph (F) the following new subparagraph: (G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)), . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13206. Amortization of research and experimental expenditures (a) In general Section 174 is amended to read as follows: 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business. (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Change in method of accounting The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and— (1) such change shall be treated as initiated by the taxpayer, (2) such change shall be treated as made with the consent of the Secretary, and (3) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2025, and no adjustments under section 481(a) shall be made. (c) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: Sec. 174. Amortization of research and experimental expenditures. . (d) Conforming amendments (1) Section 41(d)(1)(A) is amended by striking expenses under section 174 and inserting specified research or experimental expenditures under section 174 . (2) Subsection (c) of section 280C is amended— (A) by striking paragraph (1) and inserting the following: (1) In general If— (A) the amount of the credit determined for the taxable year under section 41(a)(1), exceeds (B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses, the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess. , (B) by striking paragraph (2), (C) by redesignating paragraphs (3) (as amended by this Act) and (4) as paragraphs (2) and (3), respectively, and (D) in paragraph (2), as redesignated by subparagraph (C), by striking paragraphs (1) and (2) and inserting paragraph (1) . (e) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2025. 13207. Expensing of certain costs of replanting citrus plants lost by reason of casualty (a) In general Section 263A(d)(2) is amended by adding at the end the following new subparagraph: (C) Special temporary rule for citrus plants lost by reason of casualty (i) In general In the case of the replanting of citrus plants, subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if— (I) the taxpayer described in subparagraph (A) has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which such amounts were paid or incurred and such other person holds any part of the remaining equity interest, or (II) such other person acquired the entirety of such taxpayer’s equity interest in the land on which the lost or damaged citrus plants were located at the time of such loss or damage, and the replanting is on such land. (ii) Termination Clause (i) shall not apply to any cost paid or incurred after the date which is 10 years after the date of the enactment of the Tax Cuts and Jobs Act . . (b) Effective date The amendment made by this section shall apply to costs paid or incurred after the date of the enactment of this Act. B Accounting methods 13221. Certain special rules for taxable year of inclusion (a) Inclusion not later than for financial accounting purposes Section 451 is amended by redesignating subsections (b) through (i) as subsections (c) through (j), respectively, and by inserting after subsection (a) the following new subsection: (b) Inclusion not later than for financial accounting purposes (1) Income taken into account in financial statement (A) In general In the case of a taxpayer the taxable income of which is computed under an accrual method of accounting, the all events test with respect to any item of gross income (or portion thereof) shall not be treated as met any later than when such item (or portion thereof) is taken into account as revenue in— (i) an applicable financial statement of the taxpayer, or (ii) such other financial statement as the Secretary may specify for purposes of this subsection. (B) Exception This paragraph shall not apply to— (i) a taxpayer which does not have a financial statement described in clause (i) or (ii) of subparagraph (A) for a taxable year, or (ii) any item of gross income in connection with a mortgage servicing contract. (C) All events test For purposes of this section, the all events test is met with respect to any item of gross income if all the events have occurred which fix the right to receive such income and the amount of such income can be determined with reasonable accuracy. (2) Coordination with special methods of accounting Paragraph (1) shall not apply with respect to any item of gross income for which the taxpayer uses a special method of accounting provided under any other provision of this chapter, other than any provision of part V of subchapter P (except as provided in clause (ii) of paragraph (1)(B)). (3) 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 agency for purposes other than Federal tax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), (B) a financial statement which is made on the basis of international financial reporting standards and is filed by the taxpayer with an agency of a foreign government which is equivalent to the United States Securities and Exchange Commission and which has reporting standards not less stringent than the standards required by such Commission, but only if there is no statement of the taxpayer described in subparagraph (A), or (C) a financial statement filed by the taxpayer with any other regulatory or governmental body specified by the Secretary, but only if there is no statement of the taxpayer described in subparagraph (A) or (B). (4) Allocation of transaction price For purposes of this subsection, in the case of a contract which contains multiple performance obligations, the allocation of the transaction price to each performance obligation shall be equal to the amount allocated to each performance obligation for purposes of including such item in revenue in the applicable financial statement of the taxpayer. (5) Group of entities For purposes of paragraph (1), if the financial results of a taxpayer are reported on the applicable financial statement (as defined in paragraph (3)) for a group of entities, such statement may be treated as the applicable financial statement of the taxpayer. . (b) Treatment of advance payments Section 451 , as amended by subsection (a), is amended by redesignating subsections (c) through (j) as subsections (d) through (k), respectively, and by inserting after subsection (b) the following new subsection: (c) Treatment of advance payments (1) In general A taxpayer which computes taxable income under the accrual method of accounting, and receives any advance payment during the taxable year, shall— (A) except as provided in subparagraph (B), include such advance payment in gross income for such taxable year, or (B) if the taxpayer elects the application of this subparagraph with respect to the category of advance payments to which such advance payment belongs, the taxpayer shall— (i) to the extent that any portion of such advance payment is required under subsection (b) to be included in gross income in the taxable year in which such payment is received, so include such portion, and (ii) include the remaining portion of such advance payment in gross income in the taxable year following the taxable year in which such payment is received. (2) Election (A) In general Except as otherwise provided in this paragraph, the election under paragraph (1)(B) shall be made at such time, in such form and manner, and with respect to such categories of advance payments, as the Secretary may provide. (B) Period to which election applies An election under paragraph (1)(B) shall be effective for the taxable year with respect to which it is first made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to revoke such election. For purposes of this title, the computation of taxable income under an election made under paragraph (1)(B) shall be treated as a method of accounting. (3) Taxpayers ceasing to exist Except as otherwise provided by the Secretary, the election under paragraph (1)(B) shall not apply with respect to advance payments received by the taxpayer during a taxable year if such taxpayer ceases to exist during (or with the close of) such taxable year. (4) Advance payment For purposes of this subsection— (A) In general The term advance payment means any payment— (i) the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting under this section (determined without regard to this subsection), (ii) any portion of which is included in revenue by the taxpayer in a financial statement described in clause (i) or (ii) of subsection (b)(1)(A) for a subsequent taxable year, and (iii) which is for goods, services, or such other items as may be identified by the Secretary for purposes of this clause. (B) Exclusions Except as otherwise provided by the Secretary, such term shall not include— (i) rent, (ii) insurance premiums governed by subchapter L, (iii) payments with respect to financial instruments, (iv) payments with respect to warranty or guarantee contracts under which a third party is the primary obligor, (v) payments subject to section 871(a), 881, 1441, or 1442, (vi) payments in property to which section 83 applies, and (vii) any other payment identified by the Secretary for purposes of this subparagraph. (C) Receipt For purposes of this subsection, an item of gross income is received by the taxpayer if it is actually or constructively received, or if it is due and payable to the taxpayer. (D) Allocation of transaction price For purposes of this subsection, rules similar to subsection (b)(4) shall apply. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (d) Coordination with section 481 (1) In general In the case of any qualified change in method of accounting for the taxpayer’s first taxable year beginning after December 31, 2017— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as made with the consent of the Secretary of the Treasury. (2) Qualified change in method of accounting For purposes of this subsection, the term qualified change in method of accounting means any change in method of accounting which— (A) is required by the amendments made by this section, or (B) was prohibited under the Internal Revenue Code of 1986 prior to such amendments and is permitted under such Code after such amendments. (e) Special rules for original issue discount Notwithstanding subsection (c), in the case of income from a debt instrument having original issue discount— (1) the amendments made by this section shall apply to taxable years beginning after December 31, 2018, and (2) the period for taking into account any adjustments under section 481 by reason of a qualified change in method of accounting (as defined in subsection (d)) shall be 6 years. IV Business-related exclusions and deductions 13301. Limitation on deduction for interest (a) In general Section 163(j) is amended to read as follows: (j) Limitation on business interest (1) In general The amount allowed as a deduction under this chapter for any taxable year 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) shall not be less than zero. (2) Carryforward of disallowed business interest The amount of any business interest not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as business interest paid or accrued in the succeeding taxable year. (3) 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. (4) 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, and (ii) the adjusted taxable income of each partner of such partnership— (I) shall be determined without regard to such partner’s distributive share of any items of income, gain, deduction, or loss of such partnership, and (II) shall be increased by such partner’s distributive share of such partnership’s excess taxable income. For purposes of clause (ii)(II), a partner's distributive share of partnership excess taxable income shall be determined in the same manner as the partner's distributive share of nonseparately stated taxable income or loss of the partnership. (B) Special rules for carryforwards (i) In general The amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year— (I) shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and (II) shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership. (ii) Treatment of excess business interest allocated to partners If a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year— (I) such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and (II) any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years. For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii). (iii) Basis adjustments (I) In general The adjusted basis of a partner in a partnership interest shall be reduced (but not below zero) by the amount of excess business interest allocated to the partner under clause (i)(II). (II) Special rule for dispositions If a partner disposes of a partnership interest, the adjusted basis of the partner in the partnership interest shall be increased immediately before the disposition by the amount of the excess (if any) of the amount of the basis reduction under subclause (I) over the portion of any excess business interest allocated to the partner under clause (i)(II) which has previously been treated under clause (ii) as business interest paid or accrued by the partner. The preceding sentence shall also apply to transfers of the partnership interest (including by reason of death) in a transaction in which gain is not recognized in whole or in part. No deduction shall be allowed to the transferor or transferee under this chapter for any excess business interest resulting in a basis increase under this subclause. (C) Excess taxable income The term excess taxable income means, with respect to any partnership, the amount which bears the same ratio to the partnership’s adjusted taxable income as— (i) the excess (if any) of— (I) the amount determined for the partnership under paragraph (1)(B), over (II) the amount (if any) by which the business interest of the partnership exceeds the business interest income of the partnership, bears to (ii) the amount determined for the partnership under paragraph (1)(B). (D) Application to S corporations Rules similar to the rules of subparagraphs (A) and (C) shall apply with respect to any S corporation and its shareholders. (5) 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)). (6) 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)). (7) Trade or business For purposes of this subsection— (A) In general The term trade or business shall not include— (i) the trade or business of performing services as an employee, (ii) any electing real property trade or business, (iii) any electing farming business, or (iv) 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, 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, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative. (B) Electing real property trade or business For purposes of this paragraph, the term electing real property trade or business means any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable. (C) Electing farming business For purposes of this paragraph, the term electing farming business means— (i) a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or (ii) any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2)) with respect to which the cooperative makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable. (8) 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) the amount of any deduction allowed under section 199 or 199A, and (B) computed with such other adjustments as provided by the Secretary. (9) Cross references (A) For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F). (B) For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G). . (b) 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 business interest The carryover of disallowed business interest described in section 163(j)(2) 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(n) 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). . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13302. Modification of net operating loss deduction (a) Limitation on deduction (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 (80 percent in the case of taxable years beginning after December 31, 2022) 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 . . (b) Repeal of net operating loss carryback; indefinite carryforward (1) In general Section 172(b)(1)(A) is amended— (A) by striking shall be a net operating loss carryback to each of the 2 taxable years in clause (i) and inserting except as otherwise provided in this paragraph, shall not be a net operating loss carryback to any taxable year , and (B) by striking to each of the 20 taxable years in clause (ii) and inserting to each taxable year . (2) Conforming amendment Section 172(b)(1) is amended by striking subparagraphs (B) through (F). (c) Treatment of farming losses (1) Allowance of carrybacks Section 172(b)(1), as amended by subsection (b)(2), is amended by adding at the end the following new subparagraph: (B) Farming losses (i) In general In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss. (ii) Farming loss For purposes of this section, the term farming loss means the lesser of— (I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or (II) the amount of the net operating loss for such taxable year. (iii) Coordination with paragraph (2) For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year. (iv) Election Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year. . (2) Conforming amendments (A) Section 172 is amended by striking subsections (f), (g), and (h), and by redesignating subsection (i) as subsection (f). (B) Section 537(b)(4) is amended by inserting (as in effect before the date of enactment of the Tax Cuts and Jobs Act ) after as defined in section 172(f) . (d) Treatment of certain insurance losses (1) Treatment of carryforwards and carrybacks Section 172(b)(1), as amended by subsections (b)(2) and (c)(1), is amended by adding at the end the following new subparagraph: (C) Insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year— (i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and (ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss. . (2) Exemption from limitation Section 172 , as amended by subsection (c)(2)(A), is amended by redesignating subsection (f) as subsection (g) and inserting after subsection (e) the following new subsection: (f) Special rule for insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company— (1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and (2) subparagraph (C) of subsection (b)(2) shall not apply. . (e) Effective date (1) Net operating loss limitation The amendments made by subsections (a) and (d)(2) shall apply to losses arising in taxable years beginning after December 31, 2017. (2) Carryforwards and carrybacks The amendments made by subsections (b), (c), and (d)(1) shall apply to net operating losses arising in taxable years ending after December 31, 2017. 13303. 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) (A) 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. . (B) Section 1031 is amended by striking subsection (i). (2) Section 1031 is amended by striking subsection (e). (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. 13304. Limitation on deduction by employers of expenses for fringe benefits (a) No deduction allowed for entertainment expenses (1) In general Section 274(a) is amended— (A) in paragraph (1)(A), by striking unless and all that follows through trade or business, , (B) by striking the flush sentence at the end of paragraph (1), and (C) by striking paragraph (2)(C). (2) Conforming amendments (A) Section 274(d) is amended— (i) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and (ii) in the flush text following paragraph (3) (as so redesignated)— (I) by striking , entertainment, amusement, recreation, or use of the facility or property, 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 , (B) Section 274 is amended by striking subsection (l). (C) Section 274(n) is amended by striking and entertainment in the heading. (D) Section 274(n)(1) is amended to read as follows: (1) In general The amount allowable as a deduction under this chapter for any expense for food or beverages shall not exceed 50 percent of the amount of such expense which would (but for this paragraph) be allowable as a deduction under this chapter. . (E) Section 274(n)(2) is amended— (i) in subparagraph (B), by striking in the case of an expense for food or beverages, , (ii) by striking subparagraph (C) and redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively, (iii) by striking of subparagraph (E) the last sentence and inserting of subparagraph (D) , and (iv) by striking in subparagraph (D) in the last sentence and inserting in subparagraph (C) . (F) Clause (iv) of section 7701(b)(5)(A) is amended to read as follows: (iv) a professional athlete who is temporarily in the United States to compete in a sports event— (I) which is organized for the primary purpose of benefiting an organization which is described in section 501(c)(3) and exempt from tax under section 501(a), (II) all of the net proceeds of which are contributed to such organization, and, (III) which utilizes volunteers for substantially all of the work performed in carrying out such event. . (b) Only 50 percent of expenses for meals provided on or near business premises allowed as deduction Paragraph (2) of section 274(n), as amended by subsection (a), is amended— (1) by striking subparagraph (B), (2) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, (3) by striking of subparagraph (D) in the last sentence and inserting of subparagraph (C) , and (4) by striking in subparagraph (C) in the last sentence and inserting in subparagraph (B) . (c) Treatment of transportation benefits Section 274 , as amended by subsection (a), is amended— (1) in subsection (a)— (A) in the heading, by striking or recreation and inserting recreation, or qualified transportation fringes , and (B) by adding at the end the following new paragraph: (4) Qualified transportation fringes No deduction shall be allowed under this chapter for the expense of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer. , and (2) by inserting after subsection (k) the following new subsection: (l) Transportation and commuting benefits No deduction shall be allowed under this chapter for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. . (d) Elimination of deduction for meals provided at convenience of employer Section 274 , as amended by subsection (c), is amended— (1) by redesignating subsection (o) as subsection (p), and (2) by inserting after subsection (n) the following new subsection: (o) Meals provided at convenience of employer No deduction shall be allowed under this chapter for— (1) any expense for the operation of a facility described in section 132(e)(2), and any expense for food or beverages, including under section 132(e)(1), associated with such facility, or (2) any expense for meals described in section 119(a). . (e) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to amounts incurred or paid after December 31, 2017. (2) Effective date for elimination of deduction for meals provided at convenience of employer The amendments made by subsection (d) shall apply to amounts incurred or paid after December 31, 2025. 13305. Repeal of deduction for income attributable to domestic production activities (a) Repeal (1) Taxpayers other than corporations Section 199 is amended by adding at the end the following new subsection: (e) Partial termination for taxpayers other than corporations In the case of a taxpayer other than a C corporation, this section shall not apply to any taxable year beginning after December 31, 2017. . (2) Certain special rules for cooperatives Section 199(d)(3) is amended by adding at the end the following new subparagraph: (G) Partial termination Subparagraphs (A) and (B) shall not apply to any taxable year beginning after December 31, 2017. . (3) Total repeal Part VI of subchapter B of chapter 1, as amended by paragraphs (1) and (2), 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), 135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 221(b)(2)(C), 222(b)(2)(C), 246(b)(1), and 469(i)(3)(F)(iii) are each amended by striking 199, . (2) Section 170(b)(2)(D), as amended by section 11011, is amended by striking clause (iv) and by redesignating clauses (v) and (vi) as redesignating clauses (iv) as clause (v), respectively. (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). (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2018. (2) Earlier termination for certain taxpayers The amendment made by paragraphs (1) and (2) of subsection (a) shall apply to taxable years beginning after December 31, 2017. 13306. Denial of deduction for certain fines, penalties, and other amounts (a) Denial of deduction (1) In general Subsection (f) of section 162 is amended to read as follows: (f) Fines, Penalties, and Other Amounts (1) In general Except as provided in the following paragraphs of this subsection, no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. (2) Exception for amounts constituting restitution or paid to come into compliance with law (A) In general Paragraph (1) shall not apply to any amount that— (i) the taxpayer establishes— (I) constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation of any law or the potential violation of any law, or (II) is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry described in paragraph (1), (ii) is identified as restitution or as an amount paid to come into compliance with such law, as the case may be, in the court order or settlement agreement, and (iii) in the case of any amount of restitution for failure to pay any tax imposed under this title in the same manner as if such amount were such tax, would have been allowed as a deduction under this chapter if it had been timely paid. The identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i). (B) Limitation Subparagraph (A) shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation. (3) Exception for amounts paid or incurred as the result of certain court orders Paragraph (1) shall not apply to any amount paid or incurred by reason of any order of a court in a suit in which no government or governmental entity is a party. (4) Exception for taxes due Paragraph (1) shall not apply to any amount paid or incurred as taxes due. (5) Treatment of certain nongovernmental regulatory entities For purposes of this subsection, the following nongovernmental entities shall be treated as governmental entities: (A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)). (B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function. . (2) Effective Date The amendment made by this subsection shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. (b) Reporting of deductible amounts (1) In general Subpart B of part III of subchapter A of chapter 61 is amended by inserting after section 6050W the following new section: 6050X. Information with respect to certain fines, penalties, and other amounts (a) Requirement of reporting (1) In general The appropriate official of any government or any entity described in section 162(f)(5) which is involved in a suit or agreement described in paragraph (2) shall make a return in such form as determined by the Secretary setting forth— (A) the amount required to be paid as a result of the suit or agreement to which paragraph (1) of section 162(f) applies, (B) any amount required to be paid as a result of the suit or agreement which constitutes restitution or remediation of property, and (C) any amount required to be paid as a result of the suit or agreement for the purpose of coming into compliance with any law which was violated or involved in the investigation or inquiry. (2) Suit or agreement described (A) In general A suit or agreement is described in this paragraph if— (i) it is— (I) a suit with respect to a violation of any law over which the government or entity has authority and with respect to which there has been a court order, or (II) an agreement which is entered into with respect to a violation of any law over which the government or entity has authority, or with respect to an investigation or inquiry by the government or entity into the potential violation of any law over which such government or entity has authority, and (ii) the aggregate amount involved in all court orders and agreements with respect to the violation, investigation, or inquiry is $600 or more. (B) Adjustment of reporting threshold The Secretary shall adjust the $600 amount in subparagraph (A)(ii) as necessary in order to ensure the efficient administration of the internal revenue laws. (3) Time of filing The return required under this subsection shall be filed at the time the agreement is entered into, as determined by the Secretary. (b) Statements To be furnished to individuals involved in the settlement Every person required to make a return under subsection (a) shall furnish to each person who is a party to the suit or agreement a written statement showing— (1) the name of the government or entity, and (2) the information supplied to the Secretary under subsection (a)(1). The written statement required under the preceding sentence shall be furnished to the person at the same time the government or entity provides the Secretary with the information required under subsection (a). (c) Appropriate official defined For purposes of this section, the term appropriate official means the officer or employee having control of the suit, investigation, or inquiry or the person appropriately designated for purposes of this section. . (2) Conforming amendment The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6050W the following new item: Sec. 6050X. Information with respect to certain fines, penalties, and other amounts. . (3) Effective Date The amendments made by this subsection shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. 13307. Denial of deduction for settlements subject to nondisclosure agreements paid in connection with sexual harassment or sexual abuse (a) Denial of deduction Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: (q) Payments related to sexual harassment and sexual abuse No deduction shall be allowed under this chapter for— (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. . (b) Effective date The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act. 13308. 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 on or after the date of the enactment of this Act. 13309. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 is amended— (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer’s net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years for 1 year , shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b). (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership’s proportionate interest in any of the foregoing. (4) Exceptions The term applicable partnership interest shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest To related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer’s long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer’s family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items: Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13310. Prohibition on cash, gift cards, and other non-tangible personal property as employee achievement awards (a) In general Subparagraph (A) of section 274(j)(3) is amended— (1) by striking The term and inserting the following: (i) In general The term . (2) by redesignating clauses (i), (ii), and (iii) as subclauses (I), (II), and (III), respectively, and conforming the margins accordingly, and (3) by adding at the end the following new clause: (ii) Tangible personal property For purposes of clause (i), the term tangible personal property shall not include— (I) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or (II) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. . (b) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 13311. Floor plan financing (a) Application of interest limitation (1) In general Section 163(j), as amended by section 13301, is amended— (A) in paragraph (1), by striking plus at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting , plus , and by inserting after subparagraph (B) the following new subparagraph: (C) the floor plan financing interest of such taxpayer for such taxable year. , and (B) in paragraph (4)(C)(i)(II), by inserting , reduced by the floor plan financing interest, after business interest of the partnership , and (C) by redesignating paragraph (9) as paragraph (10) and inserting after paragraph (8) the following new paragraph: (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. (B) Floor plan financing indebtedness The term floor plan financing indebtedness means indebtedness— (i) used to finance the acquisition of motor vehicles held for sale or lease, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle means a motor vehicle that is any of the following: (i) An automobile. (ii) A truck. (iii) A recreational vehicle. (iv) A motorcycle. (v) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road. (vi) A boat. (vii) Farm machinery or equipment. . (2) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2017. (b) Exception from 100 percent expensing (1) In general Paragraph (6) of section 168(k), as added by section 13201(a)(4), is amended— (A) by striking shall not include any property and inserting shall not include— (A) any property , and (B) by adding at the end the following new subparagraph: (B) any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (2) Effective date The amendments made by this subsection shall apply to property placed in service after September 27, 2017, in taxable years ending after such date. 13312. Elimination of deduction for living expenses incurred by members of Congress (a) In general Subsection (a) of section 162 is amended in the matter following paragraph (3) by striking in excess of $3,000 . (b) Effective date The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act. V Business credits A General provisions 13401. Modification of orphan drug credit (a) Credit rate Subsection (a) of section 45C is amended by striking 50 percent and inserting 27.5 percent . (b) Election of reduced credit Subsection (b) of section 280C is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Election of reduced credit (A) In general In the case of any taxable year for which an election is made under this paragraph— (i) paragraphs (1) and (2) shall not apply, and (ii) the amount of the credit under section 45C(a) shall be the amount determined under subparagraph (B). (B) Amount of reduced credit The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of— (i) the amount of credit determined under section 45C(a) without regard to this paragraph, over (ii) the product of— (I) the amount described in clause (i), and (II) the maximum rate of tax under section 11(b). (C) Election An election under this paragraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary shall prescribe. Such an election, once made, shall be irrevocable. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13402. Rehabilitation credit limited to certified historic structures (a) In general Subsection (a) of section 47 is amended to read as follows: (a) General rule (1) In general For purposes of section 46, for any taxable year during the 5-year period beginning in the taxable year in which a qualified rehabilitated building is placed in service, the rehabilitation credit for such year is an amount equal to the ratable share for such year. (2) Ratable share For purposes of paragraph (1), the ratable share for any taxable year during the period described in such paragraph is the amount equal to 20 percent of the qualified rehabilitation expenditures with respect to the qualified rehabilitated building, as allocated ratably to each year during such period. . (b) Conforming amendments (1) Section 47(c) is amended— (A) in paragraph (1)— (i) in subparagraph (A), by amending clause (iii) to read as follows: (iii) such building is a certified historic structure, and , (ii) by striking subparagraph (B), and (iii) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, and (B) in paragraph (2)(B), by amending clause (iv) to read as follows: (iv) Certified historic structure Any expenditure attributable to the rehabilitation of a qualified rehabilitated building unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)). . (2) Paragraph (4) of section 145(d) is amended— (A) by striking of section 47(c)(1)(C) each place it appears and inserting of section 47(c)(1)(B) , and (B) by striking section 47(c)(1)(C)(i) and inserting section 47(c)(1)(B)(i) . (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 with respect to any building— (A) owned or leased by the taxpayer during the entirety of the period after December 31, 2017, and (B) with respect to which the 24-month period selected by the taxpayer under section 47(c)(1)(B) of the Internal Revenue Code of 1986 (as amended by subsection (b)) begins not later than 180 days after 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. 13403. Employer credit for paid family and medical leave (a) In general (1) Allowance of credit Subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section: 45S. Employer credit for paid family and medical leave (a) Establishment of credit (1) In general For purposes of section 38, in the case of an eligible employer, the paid family and medical leave credit is an amount equal to the applicable percentage of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave. (2) Applicable percentage For purposes of paragraph (1), the term applicable percentage means 12.5 percent increased (but not above 25 percent) by 0.25 percentage points for each percentage point by which the rate of payment (as described under subsection (c)(1)(B)) exceeds 50 percent. (b) Limitation (1) In general The credit allowed under subsection (a) with respect to any employee for any taxable year shall not exceed an amount equal to the product of the normal hourly wage rate of such employee for each hour (or fraction thereof) of actual services performed for the employer and the number of hours (or fraction thereof) for which family and medical leave is taken. (2) Non-hourly wage rate For purposes of paragraph (1), in the case of any employee who is not paid on an hourly wage rate, the wages of such employee shall be prorated to an hourly wage rate under regulations established by the Secretary. (3) Maximum amount of leave subject to credit The amount of family and medical leave that may be taken into account with respect to any employee under subsection (a) for any taxable year shall not exceed 12 weeks. (c) Eligible employer For purposes of this section— (1) In general The term eligible employer means any employer who has in place a policy that meets the following requirements: (A) The policy provides— (i) in the case of a qualifying employee who is not a part-time employee (as defined in section 4980E(d)(4)(B)), not less than 2 weeks of annual paid family and medical leave, and (ii) in the case of a qualifying employee who is a part-time employee, an amount of annual paid family and medical leave that is not less than an amount which bears the same ratio to the amount of annual paid family and medical leave that is provided to a qualifying employee described in clause (i) as— (I) the number of hours the employee is expected to work during any week, bears to (II) the number of hours an equivalent qualifying employee described in clause (i) is expected to work during the week. (B) The policy requires that the rate of payment under the program is not less than 50 percent of the wages normally paid to such employee for services performed for the employer. (2) Special rule for certain employers (A) In general An added employer shall not be treated as an eligible employer unless such employer provides paid family and medical leave in compliance with a policy which ensures that the employer— (i) will not interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under the policy, and (ii) will not discharge or in any other manner discriminate against any individual for opposing any practice prohibited by the policy. (B) Added employer; added employee For purposes of this paragraph— (i) Added employee The term added employee means a qualifying employee who is not covered by title I of the Family and Medical Leave Act of 1993, as amended. (ii) Added employer The term added employer means an eligible employer (determined without regard to this paragraph), whether or not covered by that title I, who offers paid family and medical leave to added employees. (3) Aggregation rule All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer. (4) Treatment of benefits mandated or paid for by State or local governments For purposes of this section, any leave which is paid by a State or local government or required by State or local law shall not be taken into account in determining the amount of paid family and medical leave provided by the employer. (5) No inference Nothing in this subsection shall be construed as subjecting an employer to any penalty, liability, or other consequence (other than ineligibility for the credit allowed by reason of subsection (a) or recapturing the benefit of such credit) for failure to comply with the requirements of this subsection. (d) Qualifying employees For purposes of this section, the term qualifying employee means any employee (as defined in section 3(e) of the Fair Labor Standards Act of 1938, as amended) who— (1) has been employed by the employer for 1 year or more, and (2) for the preceding year, had compensation not in excess of an amount equal to 60 percent of the amount applicable for such year under clause (i) of section 414(q)(1)(B). (e) Family and medical leave (1) In general Except as provided in paragraph (2), for purposes of this section, the term family and medical leave means leave for any 1 or more of the purposes described under subparagraph (A), (B), (C), (D), or (E) of paragraph (1), or paragraph (3), of section 102(a) of the Family and Medical Leave Act of 1993, as amended, whether the leave is provided under that Act or by a policy of the employer. (2) Exclusion If an employer provides paid leave as vacation leave, personal leave, or medical or sick leave (other than leave specifically for 1 or more of the purposes referred to in paragraph (1)), that paid leave shall not be considered to be family and medical leave under paragraph (1). (3) Definitions In this subsection, the terms vacation leave , personal leave , and medical or sick leave mean those 3 types of leave, within the meaning of section 102(d)(2) of that Act. (f) Determinations made by Secretary of Treasury For purposes of this section, any determination as to whether an employer or an employee satisfies the applicable requirements for an eligible employer (as described in subsection (c)) or qualifying employee (as described in subsection (d)), respectively, shall be made by the Secretary based on such information, to be provided by the employer, as the Secretary determines to be necessary or appropriate. (g) Wages For purposes of this section, the term wages has the meaning given such term by subsection (b) of section 3306 (determined without regard to any dollar limitation contained in such section). Such term shall not include any amount taken into account for purposes of determining any other credit allowed under this subpart. (h) Election To have credit not apply (1) In general A taxpayer may elect to have this section not apply for any taxable year. (2) Other rules Rules similar to the rules of paragraphs (2) and (3) of section 51(j) shall apply for purposes of this subsection. (i) Termination This section shall not apply to wages paid in taxable years beginning after December 31, 2019. . (b) Credit part of general business credit Section 38(b) is amended by striking plus at the end of paragraph (35), by striking the period at the end of paragraph (36) and inserting , plus , and by adding at the end the following new paragraph: (37) in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a). . (c) Credit allowed against AMT Subparagraph (B) of section 38(c)(4) is amended by redesignating clauses (ix) through (xi) as clauses (x) through (xii), respectively, and by inserting after clause (viii) the following new clause: (ix) the credit determined under section 45S, . (d) Conforming amendments (1) Denial of double benefit Section 280C(a) is amended by inserting 45S(a), after 45P(a), . (2) Election to have credit not apply Section 6501(m) is amended by inserting 45S(h), after 45H(g), . (3) Clerical amendment The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item: Sec. 45S. Employer credit for paid family and medical leave. . (e) Effective date The amendments made by this section shall apply to wages paid in taxable years beginning after December 31, 2017. B Provisions relating to low-income housing credit 13411. Treatment of veterans' preference as not violating general public use requirements (a) In general Subparagraph (C) of section 42(g)(9) is amended to read as follows: (C) who are veterans of the Armed Forces. . (b) Effective date The amendment made by this section shall apply to buildings placed in service before, on, or after the date of the enactment of this Act. 13412. Increase in credit for certain rural housing (a) In general Section 42(d)(5)(B) is amended by adding at the end the following new clause: (vi) Certain new buildings in rural areas For purposes of clause (i), a building described in subsection (b)(1)(B)(i) which is located in a rural area (as defined in section 520 of the Housing Act of 1949) shall be treated in the same manner as a new building located in a difficult development area which is designated for purposes of this subparagraph. . (b) Offset Section 42(d)(5)(B)(i) is amended by striking 130 percent both places it appears in subclauses (I) and (II) and inserting 125 percent . (c) Effective date The amendments made by this section shall apply to buildings placed in service after the date of the enactment of this Act. VI Provisions related to specific entities and industries A Partnership provisions 13501. Treatment of gain or loss of foreign persons from sale or exchange of interests in partnerships engaged in trade or business within the United States (a) In general Section 864(c) is amended by adding at the end the following: (8) Gain or loss of foreign persons from sale or exchange of certain partnership interests (A) In general Notwithstanding any other provision of this subtitle, if a nonresident alien individual or foreign corporation owns, directly or indirectly, an interest in a partnership which is engaged in any trade or business within the United States, gain or loss on the sale or exchange of all (or any portion of) such interest shall be treated as effectively connected with the conduct of such trade or business to the extent such gain or loss does not exceed the amount determined under subparagraph (B). (B) Amount treated as effectively connected The amount determined under this subparagraph with respect to any partnership interest sold or exchanged— (i) in the case of any gain on the sale or exchange of the partnership interest, is— (I) the portion of the partner's distributive share of the amount of gain which would have been effectively connected with the conduct of a trade or business within the United States if the partnership had sold all of its assets at their fair market value as of the date of the sale or exchange of such interest, or (II) zero if no gain on such deemed sale would have been so effectively connected, and (ii) in the case of any loss on the sale or exchange of the partnership interest, is— (I) the portion of the partner's distributive share of the amount of loss on the deemed sale described in clause (i)(I) which would have been so effectively connected, or (II) zero if no loss on such deemed sale would be have been so effectively connected. For purposes of this subparagraph, a partner's distributive share of gain or loss on the deemed sale shall be determined in the same manner as such partner’s distributive share of the non-separately stated taxable income or loss of such partnership. (C) Coordination with United States real property interests If a partnership described in subparagraph (A) holds any United States real property interest (as defined in section 897(c)) at the time of the sale or exchange of the partnership interest, then the gain or loss treated as effectively connected income under subparagraph (A) shall be reduced by the amount so treated with respect to such United States real property interest under section 897. (D) Sale or exchange For purposes of this paragraph, an individual or corporation shall be treated as having sold or exchanged any interest in a partnership if, under any provision of this subtitle, gain or loss is realized from the sale or exchange of such interest. (E) Secretarial authority The Secretary shall prescribe such regulations as the Secretary determines appropriate for the application of this paragraph, including regulations which provide that, notwithstanding subparagraph (D), this paragraph applies in a case even if gain or loss from a sale or exchange would not be realized under any other provision of this subtitle. . (b) Withholding requirements Section 1446 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following: (f) Special rules for withholding on sales of partnership interests (1) In general Except as provided in this subsection, if any portion of the gain (if any) on any disposition of an interest in a partnership would be treated under section 864(c)(8) as effectively connected with the conduct of a trade or business within the United States, the transferee shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition. (2) Exception if nonforeign affidavit furnished (A) In general No person shall be required to deduct and withhold any amount under paragraph (1) with respect to any disposition if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor’s United States taxpayer identification number and that the transferor is not a foreign person. (B) False affidavit Subparagraph (A) shall not apply to any disposition if— (i) the transferee has actual knowledge that the affidavit is false, or the transferee receives a notice (as described in section 1445(d)) from a transferor’s agent or transferee’s agent that such affidavit or statement is false, or (ii) the Secretary by regulations requires the transferee to furnish a copy of such affidavit or statement to the Secretary and the transferee fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as required by such regulations. (C) Rules for agents The rules of section 1445(d) shall apply to a transferor’s agent or transferee’s agent with respect to any affidavit described in subparagraph (A) in the same manner as such rules apply with respect to the disposition of a United States real property interest under such section. (3) Authority of Secretary to prescribe reduced amount At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed under this title with respect to gain treated under section 864(c)(8) as effectively connected with the conduct of a trade or business with in the United States. (4) Partnership to withhold amounts not withheld by the transferee If a transferee fails to withhold any amount required to be withheld under paragraph (1), the partnership shall be required to deduct and withhold from distributions to the transferee a tax in an amount equal to the amount the transferee failed to withhold (plus interest under this title on such amount). (5) Definitions Any term used in this subsection which is also used under section 1445 shall have the same meaning as when used in such section. (6) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from the provisions of this subsection. . (c) Effective date The amendments made by this section shall apply to sales and exchanges on or after November 27, 2017. 13502. Modify definition of substantial built-in loss in the case of transfer of partnership interest (a) In general Paragraph (1) of section 743(d) is to read as follows: (1) In general For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in the partnership if— (A) the partnership’s adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of such property, or (B) the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. . (b) Effective date The amendments made by this section shall apply to transfers of partnership interests after December 31, 2017. 13503. Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss (a) In general Subsection (d) of section 704 is amended— (1) by striking A partner’s distributive share and inserting the following: (1) In general A partner’s distributive share , (2) by striking Any excess of such loss and inserting the following: (2) Carryover Any excess of such loss , and (3) by adding at the end the following new paragraph: (3) Special rules (A) In general In determining the amount of any loss under paragraph (1), there shall be taken into account the partner’s distributive share of amounts described in paragraphs (4) and (6) of section 702(a). (B) Exception In the case of a charitable contribution of property whose fair market value exceeds its adjusted basis, subparagraph (A) shall not apply to the extent of the partner’s distributive share of such excess. . (b) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. B Insurance reforms 13511. 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) (A) 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). (B) Section 831(b)(3) is amended by striking except as provided in section 844, (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 805(b)(2)(A)(iv) is amended to read as follows: (iv) any net operating loss carryback to the taxable year under section 172, and . (7) 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. . (8) Section 1351(i)(3) is amended by striking or the operations loss deduction under section 810, . (c) Effective date The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2017. 13512. 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 this Act, 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), as amended by this Act, 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 13511, 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. 13513. 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. 13514. 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. 13515. Modification of proration rules for property and casualty insurance companies (a) In general Section 832(b)(5)(B) is amended— (1) by striking 15 percent and inserting the applicable percentage , and (2) by inserting at the end the following new sentence: For purposes of this subparagraph, the applicable percentage is 5.25 percent divided by the highest rate in effect under section 11(b). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13516. 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. 13517. Computation of life insurance tax reserves (a) In general (1) Computation of reserves Section 807(c) is amended to read as follows: (c) Items taken into account The items referred to in subsections (a) and (b) are as follows— (1) The life insurance reserves (as defined in section 816(b)). (2) The unearned premiums and unpaid losses included in total reserves under section 816(c)(2). (3) The amounts (discounted at the appropriate rate of interest) necessary to satisfy the obligations under insurance and annuity contracts, but only if such obligations do not involve (at the time with respect to which the computation is made under this paragraph) life, accident, or health contingencies. (4) Dividend accumulations, and other amounts, held at interest in connection with insurance and annuity contracts. (5) Premiums received in advance, and liabilities for premium deposit funds. (6) Reasonable special contingency reserves under contracts of group term life insurance or group accident and health insurance which are established and maintained for the provision of insurance on retired lives, for premium stabilization, or a combination thereof. For purposes of paragraph (3), the appropriate rate of interest is the highest rate or rates permitted to be used to discount the obligations by the National Association of Insurance Commissioners as of the date the reserve is determined. In no case shall the amount determined under paragraph (3) for any contract be less than the net surrender value of such contract. For purposes of paragraph (2) 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) Section 807(d) is amended— (A) by striking paragraphs (1), (2), (4), and (5), (B) by redesignating paragraph (6) as paragraph (4), (C) by inserting before paragraph (3) the following new paragraphs: (1) Determination of reserve (A) In general For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract (other than a contract to which subparagraph (B) applies) shall be the greater of— (i) the net surrender value of such contract, or (ii) 92.87 percent of the reserve determined under paragraph (2). (B) Variable contracts For purposes of this part (other than section 816), the amount of the life insurance reserves for a variable contract shall be equal to the sum of— (i) the greater of— (I) the net surrender value of such contract, or (II) the portion of the reserve that is separately accounted for under section 817, plus (ii) 92.87 percent of the excess (if any) of the reserve determined under paragraph (2) over the amount in clause (i). (C) Statutory cap In no event shall the reserves determined under subparagraphs (A) or (B) for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in paragraph (4)). (2) Amount of reserve The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using the tax reserve method applicable to such contract. , (D) by striking (as of the date of issuance) in paragraph (3)(A)(iv)(I) and inserting (as of the date the reserve is determined) , (E) by striking as of the date of the issuance of in paragraph (3)(A)(iv)(II) and inserting as of the date the reserve is determined for , (F) by striking in effect on the date of the issuance of the contract in paragraph (3)(B)(i) and inserting applicable to the contract and in effect as of the date the reserve is determined , and (G) by striking in effect on the date of the issuance of the contract in paragraph (3)(B)(ii) and inserting applicable to the contract and in effect as of the date the reserve is determined . (3) Section 807(e) is amended— (A) by striking paragraphs (2) and (5), (B) by redesignating paragraphs (3), (4), (6), and (7) as paragraphs (2), (3), (4), and (5), respectively, (C) by amending paragraph (2) (as so redesignated) to read as follows: (2) Qualified supplemental benefits (A) Qualified supplemental benefits treated separately For purposes of this part, the amount of the life insurance reserve for any qualified supplemental benefit shall be computed separately as though such benefit were under a separate contract. (B) Qualified supplemental benefit For purposes of this paragraph, the term qualified supplemental benefit means any supplemental benefit described in subparagraph (C) if— (i) there is a separately identified premium or charge for such benefit, and (ii) any net surrender value under the contract attributable to any other benefit is not available to fund such benefit. (C) Supplemental benefits For purposes of this paragraph, the supplemental benefits described in this subparagraph are any— (i) guaranteed insurability, (ii) accidental death or disability benefit, (iii) convertibility, (iv) disability waiver benefit, or (v) other benefit prescribed by regulations, which is supplemental to a contract for which there is a reserve described in subsection (c). , and (D) by adding at the end the following new paragraph: (6) 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. . (4) Section 7702 is amended— (A) by striking clause (i) of subsection (c)(3)(B) and inserting the following: (i) reasonable mortality charges which meet the requirements prescribed in regulations to be promulgated by the Secretary or that do not exceed the mortality charges specified in the prevailing commissioners’ standard tables as defined in subsection (f)(10), and (B) by adding at the end of subsection (f) the following new paragraph: (10) Prevailing commissioners’ standard tables For purposes of subsection (c)(3)(B)(i), the term prevailing commissioners' standard tables means the most recent commissioners’ standard tables prescribed by the National Association of Insurance Commissioners which are permitted to be used in computing reserves for that type of contract under the insurance laws of at least 26 States when the contract was issued. If the prevailing commissioners’ standard tables as of the beginning of any calendar year (hereinafter in this paragraph referred to as the year of change ) are different from the prevailing commissioners’ standard tables as of the beginning of the preceding calendar year, the issuer may use the prevailing commissioners’ standard tables as of the beginning of the preceding calendar year with respect to any contract issued after the change and before the close of the 3-year period beginning on the first day of the year of change. . (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) or 832(c)(4) of such Code, as applicable. (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) or 832(b)(1)(C) of such Code, as applicable. 13518. 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, 70 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, 30 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. 13519. Capitalization of certain policy acquisition expenses (a) In general (1) Section 848(a)(2) is amended by striking 120-month and inserting “180-month”. (2) Section 848(c)(1) is amended by striking 1.75 percent and inserting “2.1 percent”. (3) Section 848(c)(2) is amended by striking 2.05 percent and inserting “2.46 percent”. (4) Section 848(c)(3) is amended by striking 7.7 percent and inserting “9.24 percent”. (b) Conforming amendments Section 848(b)(1) is amended by striking “120-month” and inserting 180-month . (c) Effective date (1) In general The amendments made by this section shall apply to net premiums for taxable years beginning after December 31, 2017. (2) Transition rule Specified policy acquisition expenses first required to be capitalized in a taxable year beginning before January 1, 2018, will continue to be allowed as a deduction ratably over the 120-month period beginning with the first month in the second half of such taxable year. 13520. Tax reporting for life settlement transactions (a) In general Subpart B of part III of subchapter A of chapter 61, as amended by section 13306, is amended by adding at the end the following new section: 6050Y. Returns relating to certain life insurance contract transactions (a) Requirement of reporting of certain payments (1) In general Every person who acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of such person, (B) the name, address, and TIN of each recipient of payment in the reportable policy sale, (C) the date of such sale, (D) the name of the issuer of the life insurance contract sold and the policy number of such contract, and (E) the amount of each payment. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to such person, except that in the case of an issuer of a life insurance contract, such statement is not required to include the information specified in paragraph (1)(E). (b) Requirement of reporting of seller's basis in life insurance contracts (1) In general Upon receipt of the statement required under subsection (a)(2) or upon notice of a transfer of a life insurance contract to a foreign person, each issuer of a life insurance contract shall make a return (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of the seller who transfers any interest in such contract in such sale, (B) the investment in the contract (as defined in section 72(e)(6)) with respect to such seller, and (C) the policy number of such contract. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to each seller whose name is required to be set forth in such return. (c) Requirement of reporting with respect to reportable death benefits (1) In general Every person who makes a payment of reportable death benefits during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of the person making such payment, (B) the name, address, and TIN of each recipient of such payment, (C) the date of each such payment, (D) the gross amount of each such payment, and (E) such person's estimate of the investment in the contract (as defined in section 72(e)(6)) with respect to the buyer. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to each recipient of payment whose name is required to be set forth in such return. (d) Definitions For purposes of this section: (1) Payment The term payment means, with respect to any reportable policy sale, the amount of cash and the fair market value of any consideration transferred in the sale. (2) Reportable policy sale The term reportable policy sale has the meaning given such term in section 101(a)(3)(B). (3) Issuer The term issuer means any life insurance company that bears the risk with respect to a life insurance contract on the date any return or statement is required to be made under this section. (4) Reportable death benefits The term reportable death benefits means amounts paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale. . (b) Clerical amendment The table of sections for subpart B of part III of subchapter A of chapter 61, as amended by section 13306, is amended by inserting after the item relating to section 6050X the following new item: Sec. 6050Y. Returns relating to certain life insurance contract transactions. . (c) Conforming amendments (1) Subsection (d) of section 6724 is amended— (A) by striking or at the end of clause (xxiv) of paragraph (1)(B), by striking and at the end of clause (xxv) of such paragraph and inserting or , and by inserting after such clause (xxv) the following new clause: (xxvi) section 6050Y (relating to returns relating to certain life insurance contract transactions), and , and (B) by striking or at the end of subparagraph (HH) of paragraph (2), by striking the period at the end of subparagraph (II) of such paragraph and inserting , or , and by inserting after such subparagraph (II) the following new subparagraph: (JJ) subsection (a)(2), (b)(2), or (c)(2) of section 6050Y (relating to returns relating to certain life insurance contract transactions). . (2) Section 6047 is amended— (A) by redesignating subsection (g) as subsection (h), (B) by inserting after subsection (f) the following new subsection: (g) Information relating to life insurance contract transactions This section shall not apply to any information which is required to be reported under section 6050Y. , and (C) by adding at the end of subsection (h), as so redesignated, the following new paragraph: (4) For provisions requiring reporting of information relating to certain life insurance contract transactions, see section 6050Y. . (d) Effective date The amendments made by this section shall apply to— (1) reportable policy sales (as defined in section 6050Y(d)(2) of the Internal Revenue Code of 1986 (as added by subsection (a)) after December 31, 2017, and (2) reportable death benefits (as defined in section 6050Y(d)(4) of such Code (as added by subsection (a)) paid after December 31, 2017. 13521. Clarification of tax basis of life insurance contracts (a) Clarification with respect To adjustments Paragraph (1) of section 1016(a) is amended by striking subparagraph (A) and all that follows and inserting the following: (A) for— (i) taxes or other carrying charges described in section 266; or (ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or (B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; . (b) Effective date The amendment made by this section shall apply to transactions entered into after August 25, 2009. 13522. Exception to transfer for valuable consideration rules (a) In general Subsection (a) of section 101 is amended by inserting after paragraph (2) the following new paragraph: (3) Exception to valuable consideration rules for commercial transfers (A) In general The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale. (B) Reportable policy sale For purposes of this paragraph, the term reportable policy sale means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term indirectly applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract. . (b) Conforming amendment Paragraph (1) of section 101(a) is amended by striking paragraph (2) and inserting paragraphs (2) and (3) . (c) Effective date The amendments made by this section shall apply to transfers after December 31, 2017. C Banks and Financial Instruments 13531. Limitation on deduction for FDIC premiums (a) In general Section 162, as amended by sections 13307 and 13308, is amended by redesignating subsection (s) as subsection (t) and by inserting after subsection (r) the following new subsection: (s) 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 (i) In general 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). (ii) Control of non-corporate entities 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 clause). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13532. 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. 13533. Cost basis of specified securities determined without regard to identification (a) In general Section 1012 is amended by adding at the end the following new subsection: (e) Cost basis of specified securities determined without regard to identification (1) In general Unless the Secretary permits the use of an average basis method for determining cost, in the case of the sale, exchange, or other disposition of a specified security (within the meaning of section 6045(g)(3)(B)), the basis (and holding period) of such security shall be determined on a first-in first-out basis. (2) Exception In the case of a sale, exchange, or other disposition of a specified security by a regulated investment company (as defined in section 851(a)), paragraph (1) shall not apply. . (b) Conforming amendments (1) Section 1012(c)(1) is amended by striking the conventions prescribed by regulations under this section and inserting the method applicable for determining the cost of such security . (2) Section 1012(c)(2)(A) is amended by inserting (as in effect prior to the enactment of the Tax Cuts and Jobs Act ) after this section . (3) Section 6045(g)(2)(B)(i)(I) is amended by striking unless the customer notifies the broker by means of making an adequate identification of the stock sold or transferred . (c) Effective date The amendments made by this section shall apply to sales, exchanges, and other dispositions after December 31, 2017. D S Corporations 13541. Expansion of qualifying beneficiaries of an electing small business trust (a) No look-Through for eligibility purposes Section 1361(c)(2)(B)(v) is amended by adding at the end the following new sentence: This clause shall not apply for purposes of subsection (b)(1)(C). . (b) Effective date The amendment made by this section shall take effect on January 1, 2018. 13542. Charitable contribution deduction for electing small business trusts (a) In general Section 641(c)(2) is amended by inserting after subparagraph (D) the following new subparagraph: (E) (i) Section 642(c) shall not apply. (ii) For purposes of section 170(b)(1)(G), adjusted gross income shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 13543. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from s corporation to c corporation Section 481 is amended by adding at the end the following new sub-section: (d) Adjustments attributable to conversion from s corporation to c corporation (1) IN GENERAL.—In the case of an eligible terminated S corporation, any increase in tax under this chapter by reason of an adjustment required by subsection (a)(2), and which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii), shall be taken into account ratably during the 6-taxable year period beginning with the year of change. . (b) In general Section 1371 is amended by adding at the end the following new subsection: (f) Cash distributions following post-termination transition period (1) In general In the case of a distribution of money by an eligible terminated S corporation after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation means any C corporation— (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act , and (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (c) Effective date The amendments made by this section shall apply to distributions after the date of the enactment of this Act. VII Employment A Compensation 13601. 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 Paragraph (4) of section 162(m) 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) Modification of definition of covered employees Paragraph (3) of section 162(m) 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 any individual described in subparagraph (A)) , 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. . (c) Expansion of applicable employer (1) In general 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) ). . (2) Conforming amendment Section 162(m)(3), as amended by subsection (b), is amended by adding at the end the following flush sentence: 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 Paragraph (4) of section 162(m), 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 (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Exception for binding contracts The amendments made by this section shall not apply to remuneration which is pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. 13602. 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. For purposes of the preceding sentence, remuneration shall be treated as paid when there is no substantial risk of forfeiture of the rights to such remuneration. (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 which 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)) and shall include amounts required to be included in gross income under section 457(f). (4) Remuneration from related organizations (A) In general Remuneration of a covered employee 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 which control the organization, (iii) is a supported organization (as defined in section 509(f)(3)) 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 which is a voluntary employees’ beneficiary association described in section 501(c)(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 of 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 tax under this section, including regulations preventing employees from being misclassified as contractors or from being compensated through a pass-through or other entity to avoid such tax. . (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 tax-exempt organization executive compensation. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13603. Treatment of qualified equity grants (a) In general Section 83 is amended by adding at the end the following new subsection: (i) Qualified equity grants (1) In general For purposes of this subtitle— (A) Timing of inclusion If qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection, subsection (a) shall be applied by including the amount determined under such subsection with respect to such stock in income of the employee in the taxable year determined under subparagraph (B) in lieu of the taxable year described in subsection (a). (B) Taxable year determined The taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including, solely for purposes of this clause, becoming transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary provides) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was granted by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be made in a similar manner as under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as are determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee means, with respect to any corporation, any individual— (i) who was a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who was for any of the 10 preceding taxable years one of the 4 highest compensated officers of such corporation, determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of subparagraph (B)(iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation’s outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary requires for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all persons treated as a single employer under section 414(b) shall be treated as 1 corporation. (6) Notice requirement Any corporation which transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may be eligible to elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (b) Withholding (1) Time of withholding Section 3401 is amended by adding at the end the following new subsection: (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 is amended by adding at the end the following new subsection: (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)(2)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. . (B) Employee stock purchase plans Section 423 is amended— (i) by adding at the end of subsection (a) the following flush sentence: The preceding sentence shall not apply to any share of stock with respect to which an election is made under section 83(i). , and (ii) in subsection (b)(5), by striking and before the plan and by inserting , and the rules of section 83(i) shall apply in determining which employees have a right to make an election under such section before the semicolon at the end. (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A is amended by adding at the end the following new paragraph: (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan solely because of an employee’s election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) is amended by striking and at the end of paragraph (14)(B), by striking the period at the end of paragraph (15) and inserting a comma, and by inserting after paragraph (15) the following new paragraphs: (16) the amount includible in gross income under subparagraph (A) of section 83(i)(1) with respect to an event described in subparagraph (B) of such section which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer To provide notice of tax consequences Section 6652 is amended by adding at the end the following new subsection: (p) Failure To provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary’s delegate) issues regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements. 13604. Increase in excise tax rate for stock compensation of insiders in expatriated corporations (a) In general Section 4985(a)(1) is amended by striking section 1(h)(1)(C) and inserting section 1(h)(1)(D) . (b) Effective date The amendment made by this section shall apply to corporations first becoming expatriated corporations (as defined in section 4985 of the Internal Revenue Code of 1986) after the date of enactment of this Act. B Retirement plans 13611. 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. 13612. Modification of rules applicable to length of service award plans (a) Maximum deferral amount Clause (ii) of section 457(e)(11)(B) is amended by striking $3,000 and inserting $6,000 . (b) Cost of living adjustment Subparagraph (B) of section 457(e)(11) is amended by adding at the end the following: (iii) Cost of living adjustment In the case of taxable years beginning after December 31, 2017, the Secretary shall adjust the $6,000 amount under clause (ii) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2016, and any increase under this paragraph that is not a multiple of $500 shall be rounded to the next lowest multiple of $500. . (c) Application of limitation on accruals Subparagraph (B) of section 457(e)(11), as amended by subsection (b), is amended by adding at the end the following: (iv) Special rule for application of limitation on accruals for certain plans In the case of a plan described in subparagraph (A)(ii) which is a defined benefit plan (as defined in section 414(j)), the limitation under clause (ii) shall apply to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Such actuarial present value with respect to any year shall be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant’s age at the time of the calculation. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13613. Extended rollover period for plan loan offset amounts (a) In general Paragraph (3) of section 402(c) is amended by redesignating subparagraph (B) as subparagraph (C) and by inserting after subparagraph (A) the following new subparagraph: (B) Rollover of certain plan loan offset amounts (i) In general In the case of an eligible rollover distribution of a qualified plan loan offset amount, the requirements of subparagraph (A) shall be treated as met if such transfer occurs on or before 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 severance from employment of the participant. (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 plan loan offset amounts which are treated as distributed in taxable years beginning after December 31, 2017. VIII Exempt Organizations 13701. 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. 4968. Excise tax based on investment income of private colleges and universities. 4968. 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(f)(2))— (A) which had at least 500 tuition-paying students during the preceding taxable year, (B) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities), 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 $500,000 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). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that— (A) no such amount shall be taken into account with respect to more than 1 educational institution, and (B) unless such organization is controlled by such institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account. (2) Related organization For purposes of this subsection, the term related organization means, with respect to an educational institution, any organization which— (A) controls, or is controlled by, such institution, (B) is controlled by 1 or more persons which also control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (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. 13702. Unrelated business taxable income separately computed for each trade or business activity (a) In general Subsection (a) of section 512 is amended by adding at the end the following new paragraph: (6) Special rule for organization with more than 1 unrelated trade or business In the case of any organization with more than 1 unrelated trade or business— (A) unrelated business taxable income, including for purposes of determining any net operating loss deduction, shall be computed separately with respect to each such trade or business and without regard to subsection (b)(12), (B) the unrelated business taxable income of such organization shall be the sum of the unrelated business taxable income so computed with respect to each such trade or business, less a specific deduction under subsection (b)(12), and (C) for purposes of subparagraph (B), unrelated business taxable income with respect to any such trade or business shall not be less than zero. . (b) Effective date (1) In general Except to the extent provided in paragraph (2), the amendment made by this section shall apply to taxable years beginning after December 31, 2017. (2) Carryovers of net operating losses If any net operating loss arising in a taxable year beginning before January 1, 2018, is carried over to a taxable year beginning on or after such date— (A) subparagraph (A) of section 512(a)(6) of the Internal Revenue Code of 1986, as added by this Act, shall not apply to such net operating loss, and (B) the unrelated business taxable income of the organization, after the application of subparagraph (B) of such section, shall be reduced by the amount of such net operating loss. 13703. Repeal of deduction for amounts paid in exchange for college athletic event seating rights (a) In general Section 170(l) is amended— (1) by striking paragraph (1) and inserting the following: (1) In general No deduction shall be allowed under this section for any amount described in paragraph (2). , and (2) in paragraph (2)(B), by striking such amount would be allowable as a deduction under this section but for the fact that . (b) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2017. 13704. Repeal of substantiation exception in case of contributions reported by donee (a) In general Section 170(f)(8) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D). (b) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2016. IX Other provisions A Craft Beverage Modernization and Tax Reform 13801. Production period for beer, wine, and distilled spirits (a) In general Section 263A(f) is amended— (1) by redesignating paragraph (4) as paragraph (5), and (2) by inserting after paragraph (3) the following new paragraph: (4) Exemption for aging process of beer, wine, and distilled spirits (A) In general For purposes of this subsection, the production period shall not include the aging period for— (i) beer (as defined in section 5052(a)), (ii) wine (as described in section 5041(a)), or (iii) distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes. (B) Termination This paragraph shall not apply to interest costs paid or accrued after December 31, 2019. . (b) Conforming amendment Paragraph (5)(B)(ii) of section 263A(f), as redesignated by this section, is amended by inserting except as provided in paragraph (4), before ending on the date . (c) Effective date The amendments made by this section shall apply to interest costs paid or accrued in calendar years beginning after December 31, 2017. 13802. Reduced rate of excise tax on beer (a) In general Paragraph (1) of section 5051(a) is amended to read as follows: (1) In general (A) Imposition of tax A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. Except as provided in paragraph (2), the rate of such tax shall be the amount determined under this paragraph. (B) Rate Except as provided in subparagraph (C), the rate of tax shall be $18 for per barrel. (C) Special rule In the case of beer removed after December 31, 2017, and before January 1, 2020, the rate of tax shall be— (i) $16 on the first 6,000,000 barrels of beer— (I) brewed by the brewer and removed during the calendar year for consumption or sale, or (II) imported by the importer into the United States during the calendar year, and (ii) $18 on any barrels of beer to which clause (i) does not apply. (D) Barrel For purposes of this section, a barrel shall contain not more than 31 gallons of beer, and any tax imposed under this section shall be applied at a like rate for any other quantity or for fractional parts of a barrel. . (b) Reduced rate for certain domestic production Subparagraph (A) of section 5051(a)(2) is amended— (1) in the heading, by striking $7 a barrel , and (2) by inserting ($3.50 in the case of beer removed after December 31, 2017, and before January 1, 2020) after $7 . (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (a) of section 5051 is amended— (1) in subparagraph (C)(i)(II) of paragraph (1), as amended by subsection (a), by inserting but only if the importer is an electing importer under paragraph (4) and the barrels have been assigned to the importer pursuant to such paragraph after during the calendar year , and (2) by adding at the end the following new paragraph: (4) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any barrels of beer which have been brewed or produced outside of the United States and imported into the United States, the rate of tax applicable under clause (i) of paragraph (1)(C) (referred to in this paragraph as the reduced tax rate ) may be assigned by the brewer (provided that the brewer makes an election described in subparagraph (B)(ii)) to any electing importer of such barrels pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of barrels of beer for which the reduced tax rate has been assigned by a brewer— (I) to any importer does not exceed the number of barrels of beer brewed or produced by such brewer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 6,000,000 barrels to which the reduced tax rate applies, (ii) procedures that allow the election of a brewer to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the brewer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the brewer and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the brewer, as described under paragraph (5). . (d) Controlled group and single taxpayer rules Subsection (a) of section 5051 , as amended by this section, is amended— (1) in paragraph (2)— (A) by striking subparagraph (B), and (B) by redesignating subparagraph (C) as subparagraph (B), and (2) by adding at the end the following new paragraph: (5) Controlled group and single taxpayer rules (A) In general Except as provided in subparagraph (B), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 2,000,000 barrel quantity specified in paragraph (2)(A) shall be applied to the controlled group, and the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 60,000 barrel quantity specified in paragraph (2)(A) shall be apportioned among the brewers who are members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning assigned to it by subsection (a) of section 1563, except that for such purposes the phrase more than 50 percent shall be substituted for the phrase at least 80 percent in each place it appears in such subsection. Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation. (B) Foreign manufacturers and importers For purposes of paragraph (4), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) shall be applied to the controlled group and apportioned among the members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning given such term under subparagraph (A). Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation. (C) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce beer marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. . (e) Effective date The amendments made by this section shall apply to beer removed after December 31, 2017. 13803. Transfer of beer between bonded facilities (a) In general Section 5414 is amended— (1) by striking Beer may be removed and inserting (a) In general .—Beer may be removed , and (2) by adding at the end the following: (b) Transfer of beer between bonded facilities (1) In general Beer may be removed from one bonded brewery to another bonded brewery, without payment of tax, and may be mingled with beer at the receiving brewery, subject to such conditions, including payment of the tax, and in such containers, as the Secretary by regulations shall prescribe, which shall include— (A) any removal from one brewery to another brewery belonging to the same brewer, (B) any removal from a brewery owned by one corporation to a brewery owned by another corporation when— (i) one such corporation owns the controlling interest in the other such corporation, or (ii) the controlling interest in each such corporation is owned by the same person or persons, and (C) any removal from one brewery to another brewery when— (i) the proprietors of transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and (ii) the transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax. (2) Transfer of liability for tax For purposes of paragraph (1)(C), such relief from liability shall be effective from the time of removal from the transferor's bonded premises, or from the time of divestment of interest, whichever is later. (3) Termination This subsection shall not apply to any calendar quarter beginning after December 31, 2019. . (b) Removal from brewery by pipeline Section 5412 is amended by inserting pursuant to section 5414 or before by pipeline . (c) Effective date The amendments made by this section shall apply to any calendar quarters beginning after December 31, 2017. 13804. Reduced rate of excise tax on certain wine (a) In general Section 5041(c) is amended by adding at the end the following new paragraph: (8) Special rule for 2018 and 2019 (A) In general In the case of wine removed after December 31, 2017, and before January 1, 2020, paragraphs (1) and (2) shall not apply and there shall be allowed as a credit against any tax imposed by this title (other than chapters 2, 21, and 22) an amount equal to the sum of— (i) $1 per wine gallon on the first 30,000 wine gallons of wine, plus (ii) 90 cents per wine gallon on the first 100,000 wine gallons of wine to which clause (i) does not apply, plus (iii) 53.5 cents per wine gallon on the first 620,000 wine gallons of wine to which clauses (i) and (ii) do not apply, which are produced by the producer and removed during the calendar year for consumption or sale, or which are imported by the importer into the United States during the calendar year. (B) Adjustment of credit for hard cider In the case of wine described in subsection (b)(6), subparagraph (A) of this paragraph shall be applied— (i) in clause (i) of such subparagraph, by substituting 6.2 cents for $1 , (ii) in clause (ii) of such subparagraph, by substituting 5.6 cents for 90 cents , and (iii) in clause (iii) of such subparagraph, by substituting 3.3 cents for 53.5 cents . , (b) Controlled group and single taxpayer rules Paragraph (4) of section 5041(c) is amended by striking section 5051(a)(2)(B) and inserting section 5051(a)(5) . (c) Allowance of credit for foreign manufacturers and importers Subsection (c) of section 5041 , as amended by subsection (a), is amended— (1) in subparagraph (A) of paragraph (8), by inserting but only if the importer is an electing importer under paragraph (9) and the wine gallons of wine have been assigned to the importer pursuant to such paragraph after into the United States during the calendar year , and (2) by adding at the end the following new paragraph: (9) Allowance of credit for foreign manufacturers and importers (A) In general In the case of any wine gallons of wine which have been produced outside of the United States and imported into the United States, the credit allowable under paragraph (8) (referred to in this paragraph as the tax credit ) may be assigned by the person who produced such wine (referred to in this paragraph as the foreign producer ), provided that such person makes an election described in subparagraph (B)(ii), to any electing importer of such wine gallons pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the tax credit provided under this paragraph, which shall include— (i) a limitation to ensure that the number of wine gallons of wine for which the tax credit has been assigned by a foreign producer— (I) to any importer does not exceed the number of wine gallons of wine produced by such foreign producer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 750,000 wine gallons of wine to which the tax credit applies, (ii) procedures that allow the election of a foreign producer to assign and an importer to receive the tax credit provided under this paragraph, (iii) requirements that the foreign producer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the foreign producer and the importer for the tax credit provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such credit. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the foreign producer, as described under paragraph (4). . (d) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13805. Adjustment of alcohol content level for application of excise tax rates (a) In general Paragraphs (1) and (2) of section 5041(b) are each amended by inserting (16 percent in the case of wine removed after December 31, 2017, and before January 1, 2020 after 14 percent . (b) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13806. Definition of mead and low alcohol by volume wine (a) In general Section 5041 is amended— (1) in subsection (a), by striking Still wines and inserting Subject to subsection (h), still wines , and (2) by adding at the end the following new subsection: (h) Mead and low alcohol by volume wine (1) In general For purposes of subsections (a) and (b)(1), mead and low alcohol by volume wine shall be deemed to be still wines containing not more than 16 percent of alcohol by volume. (2) Definitions (A) Mead For purposes of this section, the term mead means a wine— (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived solely from honey and water, (iii) which contains no fruit product or fruit flavoring, and (iv) which contains less than 8.5 percent alcohol by volume. (B) Low alcohol by volume wine For purposes of this section, the term low alcohol by volume wine means a wine— (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived— (I) primarily from grapes, or (II) from grape juice concentrate and water, (iii) which contains no fruit product or fruit flavoring other than grape, and (iv) which contains less than 8.5 percent alcohol by volume. (3) Termination This subsection shall not apply to wine removed after December 31, 2019. . (b) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13807. Reduced rate of excise tax on certain distilled spirits (a) In general Section 5001 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Reduced rate for 2018 and 2019 (1) In general In the case of a distilled spirits operation, the otherwise applicable tax rate under subsection (a)(1) shall be— (A) $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and (B) $13.34 per proof gallon on the first 22,130,000 of proof gallons of distilled spirits to which subparagraph (A) does not apply, which have been distilled or processed by such operation and removed during the calendar year for consumption or sale, or which have been imported by the importer into the United States during the calendar year. (2) Controlled groups (A) In general In the case of a controlled group, the proof gallon quantities specified under subparagraphs (A) and (B) of paragraph (1) shall be applied to such group and apportioned among the members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. (B) Definition For purposes of subparagraph (A), the term controlled group shall have the meaning given such term by subsection (a) of section 1563, except that more than 50 percent shall be substituted for at least 80 percent each place it appears in such subsection. (C) Rules for non-corporations Under regulations prescribed by the Secretary, principles similar to the principles of subparagraphs (A) and (B) shall be applied to a group under common control where one or more of the persons is not a corporation. (D) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce distilled spirits marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. (3) Termination This subsection shall not apply to distilled spirits removed after December 31, 2019. . (b) Conforming amendment Section 7652(f)(2) is amended by striking section 5001(a)(1) and inserting subsection (a)(1) of section 5001, determined as if subsection (c)(1) of such section did not apply . (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (c) of section 5001 , as added by subsection (a), is amended— (1) in paragraph (1), by inserting but only if the importer is an electing importer under paragraph (3) and the proof gallons of distilled spirits have been assigned to the importer pursuant to such paragraph after into the United States during the calendar year , and (2) by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any proof gallons of distilled spirits which have been produced outside of the United States and imported into the United States, the rate of tax applicable under paragraph (1) (referred to in this paragraph as the reduced tax rate ) may be assigned by the distilled sprits operation (provided that such operation makes an election described in subparagraph (B)(ii)) to any electing importer of such proof gallons pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of proof gallons of distilled spirits for which the reduced tax rate has been assigned by a distilled spirits operation— (I) to any importer does not exceed the number of proof gallons produced by such operation during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 22,230,000 proof gallons of distilled spirits to which the reduced tax rate applies, (ii) procedures that allow the election of a distilled spirits operation to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the distilled spirits operation provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the distilled spirits operation and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group (i) In general For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the distilled spirits operation, as described under paragraph (2). (ii) Apportionment For purposes of this paragraph, in the case of a controlled group, rules similar to section 5051(a)(5)(B) shall apply. . (d) Effective date The amendments made by this section shall apply to distilled spirits removed after December 31, 2017. 13808. Bulk distilled spirits (a) In general Section 5212 is amended by adding at the end the following sentence: In the case of distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020, this section shall be applied without regard to whether distilled spirits are bulk distilled spirits. . (b) Effective date The amendments made by this section shall apply distilled spirits transferred in bond after December 31, 2017. B Miscellaneous provisions 13821. Modification of tax treatment of Alaska Native Corporations and settlement trusts (a) Exclusion for ANCSA payments assigned to Alaska Native Settlement Trusts (1) In general Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section: 139G. Assignments to Alaska Native Settlement Trusts (a) In general In the case of a Native Corporation, gross income shall not include the value of any payments that would otherwise be made, or treated as being made, to such Native Corporation pursuant to, or as required by, any provision of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1601 et seq.), including any payment that would otherwise be made to a Village Corporation pursuant to section 7(j) of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1606(j) ), provided that any such payments— (1) are assigned in writing to a Settlement Trust, and (2) were not received by such Native Corporation prior to the assignment described in paragraph (1). (b) Inclusion in gross income In the case of a Settlement Trust which has been assigned payments described in subsection (a), gross income shall include such payments when received by such Settlement Trust pursuant to the assignment and shall have the same character as if such payments were received by the Native Corporation. (c) Amount and scope of assignment The amount and scope of any assignment under subsection (a) shall be described with reasonable particularity and may either be in a percentage of one or more such payments or in a fixed dollar amount. (d) Duration of assignment; revocability Any assignment under subsection (a) shall specify— (1) a duration either in perpetuity or for a period of time, and (2) whether such assignment is revocable. (e) Prohibition on deduction Notwithstanding section 247, no deduction shall be allowed to a Native Corporation for purposes of any amounts described in subsection (a). (f) Definitions For purposes of this section, the terms Native Corporation and Settlement Trust have the same meaning given such terms under section 646(h). . (2) Conforming amendment The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item: Sec. 139G. Assignments to Alaska Native Settlement Trusts. . (3) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016. (b) Deduction of contributions to Alaska Native Settlement Trusts (1) In general Part VIII of subchapter B of chapter 1 is amended by inserting before section 248 the following new section: 247. Contributions to Alaska Native Settlement Trusts (a) In general In the case of a Native Corporation, there shall be allowed a deduction for any contributions made by such Native Corporation to a Settlement Trust (regardless of whether an election under section 646 is in effect for such Settlement Trust) for which the Native Corporation has made an annual election under subsection (e). (b) Amount of deduction The amount of the deduction under subsection (a) shall be equal to— (1) in the case of a cash contribution (regardless of the method of payment, including currency, coins, money order, or check), the amount of such contribution, or (2) in the case of a contribution not described in paragraph (1), the lesser of— (A) the Native Corporation's adjusted basis in the property contributed, or (B) the fair market value of the property contributed. (c) Limitation and carryover (1) In general Subject to paragraph (2), the deduction allowed under subsection (a) for any taxable year shall not exceed the taxable income (as determined without regard to such deduction) of the Native Corporation for the taxable year in which the contribution was made. (2) Carryover If the aggregate amount of contributions described in subsection (a) for any taxable year exceeds the limitation under paragraph (1), such excess shall be treated as a contribution described in subsection (a) in each of the 15 succeeding years in order of time. (d) Definitions For purposes of this section, the terms Native Corporation and Settlement Trust have the same meaning given such terms under section 646(h). (e) Manner of making election (1) In general For each taxable year, a Native Corporation may elect to have this section apply for such taxable year on the income tax return or an amendment or supplement to the return of the Native Corporation, with such election to have effect solely for such taxable year. (2) Revocation Any election made by a Native Corporation pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Native Corporation. (f) Additional rules (1) Earnings and profits Notwithstanding section 646(d)(2), in the case of a Native Corporation which claims a deduction under this section for any taxable year, the earnings and profits of such Native Corporation for such taxable year shall be reduced by the amount of such deduction. (2) Gain or loss No gain or loss shall be recognized by the Native Corporation with respect to a contribution of property for which a deduction is allowed under this section. (3) Income Subject to subsection (g), a Settlement Trust shall include in income the amount of any deduction allowed under this section in the taxable year in which the Settlement Trust actually receives such contribution. (4) Period The holding period under section 1223 of the Settlement Trust shall include the period the property was held by the Native Corporation. (5) Basis The basis that a Settlement Trust has for which a deduction is allowed under this section shall be equal to the lesser of— (A) the adjusted basis of the Native Corporation in such property immediately before such contribution, or (B) the fair market value of the property immediately before such contribution. (6) Prohibition No deduction shall be allowed under this section with respect to any contributions made to a Settlement Trust which are in violation of subsection (a)(2) or (c)(2) of section 39 of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1629e ). (g) Election by Settlement Trust To Defer Income Recognition (1) In general In the case of a contribution which consists of property other than cash, a Settlement Trust may elect to defer recognition of any income related to such property until the sale or exchange of such property, in whole or in part, by the Settlement Trust. (2) Treatment In the case of property described in paragraph (1), any income or gain realized on the sale or exchange of such property shall be treated as— (A) for such amount of the income or gain as is equal to or less than the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, ordinary income, and (B) for any amounts of the income or gain which are in excess of the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, having the same character as if this subsection did not apply. (3) Election (A) In general For each taxable year, a Settlement Trust may elect to apply this subsection for any property described in paragraph (1) which was contributed during such year. Any property to which the election applies shall be identified and described with reasonable particularity on the income tax return or an amendment or supplement to the return of the Settlement Trust, with such election to have effect solely for such taxable year. (B) Revocation Any election made by a Settlement Trust pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Settlement Trust. (C) Certain dispositions (i) In general In the case of any property for which an election is in effect under this subsection and which is disposed of within the first taxable year subsequent to the taxable year in which such property was contributed to the Settlement Trust— (I) this section shall be applied as if the election under this subsection had not been made, (II) any income or gain which would have been included in the year of contribution under subsection (f)(3) but for the taxpayer's election under this subsection shall be included in income for the taxable year of such contribution, and (III) the Settlement Trust shall pay any increase in tax resulting from such inclusion, including any applicable interest, and increased by 10 percent of the amount of such increase with interest. (ii) Assessment Notwithstanding section 6501(a), any amount described in subclause (III) of clause (i) may be assessed, or a proceeding in court with respect to such amount may be initiated without assessment, within 4 years after the date on which the return making the election under this subsection for such property was filed. . (2) Conforming amendment The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting before the item relating to section 248 the following new item: Sec. 247. Contributions to Alaska Native Settlement Trusts. . (3) Effective date (A) In general The amendments made by this subsection shall apply to taxable years for which the period of limitation on refund or credit under section 6511 of the Internal Revenue Code of 1986 has not expired. (B) One-year waiver of statute of limitations If the period of limitation on a credit or refund resulting from the amendments made by paragraph (1) expires before the end of the 1-year period beginning on the date of the enactment of this Act, refund or credit of such overpayment (to the extent attributable to such amendments) may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period. (c) Information reporting for deductible contributions to Alaska Native Settlement Trusts (1) In general Section 6039H is amended— (A) in the heading, by striking sponsoring , and (B) by adding at the end the following new subsection: (e) Deductible contributions by Native Corporations to Alaska Native Settlement Trusts (1) In general Any Native Corporation (as defined in subsection (m) of section 3 of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1602(m) )) which has made a contribution to a Settlement Trust (as defined in subsection (t) of such section) to which an election under subsection (e) of section 247 applies shall provide such Settlement Trust with a statement regarding such election not later than January 31 of the calendar year subsequent to the calendar year in which the contribution was made. (2) Content of Statement The statement described in paragraph (1) shall include— (A) the total amount of contributions to which the election under subsection (e) of section 247 applies, (B) for each contribution, whether such contribution was in cash, (C) for each contribution which consists of property other than cash, the date that such property was acquired by the Native Corporation and the adjusted basis and fair market value of such property on the date such property was contributed to the Settlement Trust, (D) the date on which each contribution was made to the Settlement Trust, and (E) such information as the Secretary determines to be necessary or appropriate for the identification of each contribution and the accurate inclusion of income relating to such contributions by the Settlement Trust. . (2) Conforming amendment The item relating to section 6039H in the table of sections for subpart A of part III of subchapter A of chapter 61 is amended to read as follows: Sec. 6039H. Information With Respect to Alaska Native Settlement Trusts and Native Corporations. . (3) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016. 13822. Amounts paid for aircraft management services (a) In general Subsection (e) of section 4261 is amended by adding at the end the following new paragraph: (5) Amounts paid for aircraft management services (A) In general No tax shall be imposed by this section or section 4271 on any amounts paid by an aircraft owner for aircraft management services related to— (i) maintenance and support of the aircraft owner’s aircraft, or (ii) flights on the aircraft owner’s aircraft. (B) Aircraft management services For purposes of subparagraph (A), the term aircraft management services includes— (i) assisting an aircraft owner with administrative and support services, such as scheduling, flight planning, and weather forecasting, (ii) obtaining insurance, (iii) maintenance, storage and fueling of aircraft, (iv) hiring, training, and provision of pilots and crew, (v) establishing and complying with safety standards, and (vi) such other services as are necessary to support flights operated by an aircraft owner. (C) Lessee treated as aircraft owner (i) In general For purposes of this paragraph, the term aircraft owner includes a person who leases the aircraft other than under a disqualified lease. (ii) Disqualified lease For purposes of clause (i), the term disqualified lease means a lease from a person providing aircraft management services with respect to such aircraft (or a related person (within the meaning of section 465(b)(3)(C)) to the person providing such services), if such lease is for a term of 31 days or less. (D) Pro rata allocation In the case of amounts paid to any person which (but for this subsection) are subject to the tax imposed by subsection (a), a portion of which consists of amounts described in subparagraph (A), this paragraph shall apply on a pro rata basis only to the portion which consists of amounts described in such subparagraph. . (b) Effective date The amendment made by this section shall apply to amounts paid after the date of the enactment of this Act. 13823. Opportunity zones (a) In general Chapter 1 is amended by adding at the end the following: Z Opportunity Zones Sec. 1400Z–1. Designation. Sec. 1400Z–2. Special rules for capital gains invested in opportunity zones. 1400Z–1. Designation (a) Qualified opportunity zone defined For the purposes of this subchapter, the term qualified opportunity zone means a population census tract that is a low-income community that is designated as a qualified opportunity zone. (b) Designation (1) In general For purposes of subsection (a), a population census tract that is a low-income community is designated as a qualified opportunity zone if— (A) not later than the end of the determination period, the governor of the State in which the tract is located— (i) nominates the tract for designation as a qualified opportunity zone, and (ii) notifies the Secretary in writing of such nomination, and (B) the Secretary certifies such nomination and designates such tract as a qualified opportunity zone before the end of the consideration period. (2) Extension of periods A governor may request that the Secretary extend either the determination or consideration period, or both (determined without regard to this subparagraph), for an additional 30 days. (c) Other definitions For purposes of this subsection— (1) Low-income communities The term low-income community has the same meaning as when used in section 45D(e). (2) Definition of periods (A) Consideration period The term consideration period means the 30-day period beginning on the date on which the Secretary receives notice under subsection (b)(1)(A)(ii), as extended under subsection (b)(2). (B) Determination period The term determination period means the 90-day period beginning on the date of the enactment of the Tax Cuts and Jobs Act , as extended under subsection (b)(2). (3) State For purposes of this section, the term State includes any possession of the United States. (d) Number of designations (1) In general Except as provided by paragraph (2), the number of population census tracts in a State that may be designated as qualified opportunity zones under this section may not exceed 25 percent of the number of low-income communities in the State. (2) Exception If the number of low-income communities in a State is less than 100, then a total of 25 of such tracts may be designated as qualified opportunity zones. (e) Designation of tracts contiguous with low-Income communities (1) In general A population census tract that is not a low-income community may be designated as a qualified opportunity zone under this section if— (A) the tract is contiguous with the low-income community that is designated as a qualified opportunity zone, and (B) the median family income of the tract does not exceed 125 percent of the median family income of the low-income community with which the tract is contiguous. (2) Limitation Not more than 5 percent of the population census tracts designated in a State as a qualified opportunity zone may be designated under paragraph (1). (f) Period for which designation is in effect A designation as a qualified opportunity zone shall remain in effect for the period beginning on the date of the designation and ending at the close of the 10th calendar year beginning on or after such date of designation. 1400Z–2. Special rules for capital gains invested in opportunity zones (a) In general In the case of gain from the sale to, or exchange with, an unrelated person of any property held by the taxpayer, at the election of the taxpayer— (1) gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified opportunity fund during the 180-day period beginning on the date of such sale or exchange, (2) the amount of gain excluded by paragraph (1) shall be included in gross income as provided by subsection (b), and (3) subsection (c) shall apply. No election may be made under the preceding sentence with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect. (b) Deferral of gain invested in opportunity zone property (1) Year of inclusion Gain to which subsection (a)(2) applies shall be included in income in the taxable year which includes the earlier of— (A) the date on which such investment is sold or exchanged, or (B) December 31, 2026. (2) Amount includible (A) In general The amount of gain included in gross income under subsection (a)(1) shall be the excess of— (i) the lesser of the amount of gain excluded under paragraph (1) or the fair market value of the property as determined as of the date described in paragraph (1), over (ii) the taxpayer's basis in the investment. (B) Determination of basis (i) In general Except as otherwise provided in this clause or subsection (c), the taxpayer's basis in the investment shall be zero. (ii) Increase for gain recognized under subsection (a)(2) The basis in the investment shall be increased by the amount of gain recognized by reason of subsection (a)(2) with respect to such property. (iii) Investments held for 5 years In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1). (iv) Investments held for 7 years In the case of any investment held by the taxpayer for at least 7 years, in addition to any adjustment made under clause (iii), the basis of such property shall be increased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1). (c) Special rule for investments held for at least 10 years In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged. (d) Qualified opportunity fund For purposes of this section— (1) Qualified opportunity fund The term qualified opportunity fund means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property, determined— (A) on the last day of the first 6-month period of the taxable year of the fund, and (B) on the last day of the taxable year of the fund. (2) Qualified opportunity zone property (A) In general The term qualified opportunity zone property means property which is— (i) qualified opportunity zone stock, (ii) qualified opportunity zone partnership interest, or (iii) qualified opportunity zone business property. (B) Qualified opportunity zone stock (i) In general Except as provided in clause (ii), the term qualified opportunity zone stock means any stock in a domestic corporation if— (I) such stock is acquired by the taxpayer after December 31, 2017, at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash, (II) as of the time such stock was issued, such corporation was a qualified opportunity zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a qualified opportunity zone business), and (III) during substantially all of the taxpayer’s holding period for such stock, such corporation qualified as a qualified opportunity zone business. (ii) Redemptions A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (C) Qualified opportunity zone partnership interest The term qualified opportunity zone partnership interest means any capital or profits interest in a domestic partnership if— (i) such interest is acquired by the taxpayer after December 31, 2017, from the partnership solely in exchange for cash, (ii) as of the time such interest was acquired, such partnership was a qualified opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified opportunity zone business), and (iii) during substantially all of the taxpayer’s holding period for such interest, such partnership qualified as a qualified opportunity zone business. (D) Qualified opportunity zone business property (i) In general The term qualified opportunity zone business property means tangible property used in a trade or business of the taxpayer if— (I) such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after December 31, 2017, (II) the original use of such property in the qualified opportunity zone commences with the taxpayer or the taxpayer substantially improves the property, and (III) during substantially all of the taxpayer’s holding period for such property, substantially all of the use of such property was in a qualified opportunity zone. (ii) Substantial improvement For purposes of subparagraph (A)(ii), property shall be treated as substantially improved by the taxpayer only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the taxpayer exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the taxpayer. (iii) Related party For purposes of subparagraph (A)(i), the related person rule of section 179(d)(2) shall be applied pursuant to paragraph (8) of this subsection in lieu of the application of such rule in section 179(d)(2)(A). (3) Qualified opportunity zone business (A) In general The term qualified opportunity zone business means a trade or business— (i) in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property, (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (iii) which is not described in section 144(c)(6)(B). (B) Special rule For purposes of subparagraph (A), tangible property that ceases to be a qualified opportunity zone business property shall continue to be treated as a qualified opportunity zone business property for the lesser of— (i) 5 years after the date on which such tangible property ceases to be so qualified, or (ii) the date on which such tangible property is no longer held by the qualified opportunity zone business. (e) Applicable rules (1) Treatment of investments with mixed funds In the case of any investment in a qualified opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a)(1) is in effect— (A) such investment shall be treated as 2 separate investments, consisting of— (i) one investment that only includes amounts to which the election under subsection (a)(1) applies, and (ii) a separate investment consisting of other amounts, and (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i). (2) Related persons For purposes of this section, persons are related to each other if such persons are described in section 267(b) or 707(b)(1), determined by substituting 20 percent for 50 percent each place it occurs in such sections. (3) Decedents In the case of a decedent, amounts recognized under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691. (4) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including— (A) rules for the certification of qualified opportunity funds for the purposes of this section, and (B) rules to prevent abuse. (f) Failure of qualified opportunity fund to maintain investment standard (1) In general If a qualified opportunity fund fails to meet the 90-percent requirement of subsection (c)(1), the qualified opportunity fund shall pay a penalty for each month it fails to meet the requirement in an amount equal to the product of— (A) the excess of— (i) the amount equal to 90 percent of its aggregate assets, over (ii) the aggregate amount of qualified opportunity zone property held by the fund, multiplied by (B) the underpayment rate established under section 6621(a)(2) for such month. (2) Special rule for partnerships In the case that the qualified opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account proportionately as part of the distributive share of each partner of the partnership. (3) Reasonable cause exception No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause. . (b) Basis adjustments Section 1016(a) is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and , and by inserting after paragraph (37) the following: (38) to the extent provided in subsections (b)(2) and (c) of section 1400Z–2. . (c) Clerical amendment The table of subchapters for chapter 1 is amended by adding at the end the following new item: Subchapter Z. Opportunity zones . (d) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. D International tax provisions I Outbound transactions A Establishment of participation exemption system for taxation of foreign income 14101. 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— (1) In general The term specified 10-percent owned foreign corporation means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation. (2) Exclusion of passive foreign investment companies Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which 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 from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such dividend as— (A) the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to (B) the total undistributed earnings of such foreign corporation. (2) Undistributed earnings The term 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)— (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) Undistributed foreign earnings The term undistributed foreign earnings means the portion of the 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)). (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 distribution any portion of which constitutes a 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) Special rules for hybrid dividends (1) In general Subsection (a) shall not apply to any dividend received by a United States shareholder from a controlled foreign corporation if the dividend is a hybrid dividend. (2) Hybrid dividends of tiered corporations If a controlled foreign corporation with respect to which a domestic corporation is a United States shareholder receives a hybrid dividend from any other controlled foreign corporation with respect to which such domestic corporation is also a United States shareholder, then, notwithstanding any other provision of this title— (A) the hybrid dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the dividend was received, and (B) the United States shareholder shall include in gross income an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the subpart F income described in subparagraph (A). (3) Denial of foreign tax credit, etc The rules of subsection (d) shall apply to any hybrid dividend received by, or any amount included under paragraph (2) in the gross income of, a United States shareholder. (4) Hybrid dividend The term hybrid dividend means an amount received from a controlled foreign corporation— (A) for which a deduction would be allowed under subsection (a) but for this subsection, and (B) for which the controlled foreign corporation received a deduction (or other tax benefit) from taxes imposed by any foreign country. (f) Special rule for purging distributions of passive foreign investment companies Any amount which is treated as a dividend under section 1291(d)(2)(B) shall not be treated as a dividend for purposes of this section. (g) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of United States shareholders owning stock of a specified 10 percent owned foreign corporation through a partnership. . (b) Application of holding period requirement Subsection (c) of section 246 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) 1-year holding period requirement For purposes of section 245A— (i) paragraph (1)(A) shall be applied— (I) by substituting 365 days for 45 days each place it appears, and (II) by substituting 731-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 at all times during such period, and (ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation at all times during such period. . (c) Application of rules generally applicable to deductions for dividends received (1) Treatment of dividends from certain corporations Paragraph (1) of section 246(a) is amended by striking and 245 and inserting 245, and 245A . (2) Assets generating tax-exempt portion of dividend not taken into account in allocating and apportioning deductible expenses Paragraph (3) of section 864(e) is amended by striking or 245(a) and inserting , 245(a), or 245A . (3) Coordination with section 1059 Subparagraph (B) of section 1059(b)(2) is amended by striking or 245 and inserting 245, or 245A . (d) Coordination with foreign tax credit limitation Subsection (b) of section 904 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 domestic corporation which is a United States shareholder with respect to a specified 10-percent owned foreign corporation, such domestic corporation’s taxable income from sources without the United States 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 to such portion. 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) Subsection (b) of section 951 is amended by striking subpart and inserting title . (2) Subsection (a) of section 957 is amended by striking subpart in the matter preceding paragraph (1) and inserting title . (3) The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after the item relating to section 245 the following new item: Sec. 245A. Dividends received by domestic corporations from certain foreign corporations. . (f) 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. 14102. Special rules relating to sales or transfers involving specified 10-percent owned foreign corporations (a) Sales by United States persons of stock Section 1248 is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: (j) Coordination with dividends received deduction In the case of the sale or exchange by a domestic corporation of stock in a foreign corporation held for 1 year or more, any amount received by the domestic corporation which is treated as a dividend by reason of this section shall be treated as a dividend for purposes of applying section 245A. . (b) 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 receives 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. . (2) Effective date The amendments made by this subsection shall apply to dividends received in taxable years beginning after December 31, 2017. (c) Sale by a CFC of a lower tier CFC Section 964(e) is amended by adding at the end the following new paragraph: (4) Coordination with dividends received deduction (A) In general If, for any taxable year of a controlled foreign corporation beginning after December 31, 2017, any amount is treated as a dividend under paragraph (1) by reason of a sale or exchange by the controlled foreign corporation of stock in another foreign corporation held for 1 year or more, then, notwithstanding any other provision of this title— (i) the foreign-source portion of such dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the selling controlled foreign corporation for such taxable year, (ii) a United States shareholder with respect to the selling controlled foreign corporation shall include in gross income for the taxable year of the shareholder with or within which such taxable year of the controlled foreign corporation ends an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the amount treated as subpart F income under clause (i), and (iii) the deduction under section 245A(a) shall be allowable to the United States shareholder with respect to the subpart F income included in gross income under clause (ii) in the same manner as if such subpart F income were a dividend received by the shareholder from the selling controlled foreign corporation. (B) Effect of loss on earnings and profits For purposes of this title, in the case of a sale or exchange by a controlled foreign corporation of stock in another foreign corporation in a taxable year of the selling controlled foreign corporation beginning after December 31, 2017, to which this paragraph would apply if gain were recognized, the earnings and profits of the selling controlled foreign corporation shall not be reduced by reason of any loss from such sale or exchange. (C) Foreign-source portion For purposes of this paragraph, the foreign-source portion of any amount treated as a dividend under paragraph (1) shall be determined in the same manner as under section 245A(c). . (d) 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), as in effect before the date of the enactment of the Tax Cuts and Jobs Act ) 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) Limitation and carryforward based on foreign-source dividends received (1) In general The amount included in the gross income of the taxpayer under subsection (a) for any taxable year shall not exceed the amount allowed as a deduction under section 245A for such taxable year (taking into account dividends received from all specified 10-percent owned foreign corporations with respect to which the taxpayer is a United States shareholder). (2) Amounts not included carried forward Any amount not included in gross income for any taxable year by reason of paragraph (1) shall, subject to the application of paragraph (1) to the succeeding taxable year, be included in gross income for the succeeding taxable year. (c) 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. (d) Reduction for recognized gains 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)). (e) Source of income Amounts included in gross income under this section shall be treated as derived from sources within the United States. (f) Basis adjustments Consistent with such regulations or other guidance as the Secretary shall 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) 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. . (3) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. (e) Repeal of active trade or business exception under section 367 (1) In general Section 367(a) is amended by striking paragraph (3) and redesignating paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), respectively. (2) Conforming amendments Section 367(a)(4), as redesignated by paragraph (1), is amended— (A) by striking Paragraphs (2) and (3) and inserting Paragraph (2) , and (B) by striking Paragraphs (2) and (3) in the heading and inserting Paragraph (2) . (3) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. 14103. 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 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 9, 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 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 (i) In general The term aggregate foreign E&P deficit means, with respect to any United States shareholder, the lesser of— (I) 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, or (II) the amount determined under paragraph (2)(B). (ii) Allocation of deficit If the amount described in clause (i)(II) is less than the amount described in clause (i)(I), then the shareholder shall designate, in such form and manner as the Secretary determines— (I) the amount of the specified E&P deficit which is to be taken into account for each E&P deficit corporation with respect to the taxpayer, and (II) in the case of an E&P deficit corporation which has a qualified deficit (as defined in section 952), the portion (if any) of the deficit taken into account under subclause (I) which is attributable to a qualified deficit, including the qualified activities to which such portion is attributable. (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 9, 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) Treatment of earnings and profits in future years (A) Reduced earnings and profits treated as previously taxed income when distributed For purposes of applying section 959 in any taxable year beginning after December 31, 2017, with respect to any United States shareholder of a deferred foreign income corporation, an amount equal to such shareholder's reduction under paragraph (1) which is allocated to such deferred foreign income corporation under this subsection shall be treated as an amount which was included in the gross income of such United States shareholder under section 951(a). (B) E&P deficits For purposes of this title, a United States shareholder's pro rata share of the earnings and profits of any specified E&P deficit foreign corporation under this subsection shall be increased by the amount of the specified E&P deficit of such corporation taken into account by such shareholder under paragraph (1), and, for purposes of section 952, such increase shall be attributable to the same activity to which the deficit so taken into account was attributable. (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) 78.6 percent 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) 58.6 percent of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i). (2) 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, the greater 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 the close of the last taxable year of such specified foreign corporation which begins before January 1, 2018, or (ii) one half of the sum of— (I) 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 9, 2017, plus (II) 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 subclause (I). (B) Cash position For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of— (i) cash and foreign currency 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) Personal property which is of a type that is actively traded and for which there is an established financial market (other than stock in the specified foreign corporation). (II) Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government. (III) Any obligation with a term of less than one year. (IV) 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 Cash positions of a specified foreign corporation described in clause (ii) or (iii)(III) of subparagraph (B) shall not be taken into account by a United States shareholder under subparagraph (A) to the extent that such United States shareholder demonstrates to the satisfaction of the Secretary that such amount is so taken into account by such United States shareholder with respect to another specified foreign corporation. (E) Cash positions of certain non-corporate entities taken into account An entity 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— (i) such entity is a foreign entity which would be a specified foreign corporation of such United States shareholder if such entity were a corporation, or (ii) any interest in such entity is held by a specified foreign corporation of such United States shareholder (determined after application of clause (i)) and such entity would be a specified foreign corporation of such United States shareholder if such entity were a foreign corporation. (F) Anti-abuse If the Secretary determines that a 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 close of the taxable year referred to in subsection (a)) 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) in the case of a controlled foreign corporation, 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, and by only taking into account periods when the foreign corporation was a specified foreign corporation) accumulated in taxable years beginning after December 31, 1986, and determined— (A) as of the date of the taxable year referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation, and (B) without diminution by reason of dividends distributed during the taxable year ending with or including such date. (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 section 902 corporation (as defined in section 909(d)(5) as in effect before the date of the enactment of the Tax Cuts and Jobs Act ). (2) Application to section 902 corporations For purposes of sections 951 and 961, a section 902 corporation (as so defined) 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 (e)). (3) Exclusion of passive foreign investment companies Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which 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) 0.786 multiplied by 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) 0.586 multiplied by 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). (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 installments of the following amounts: (A) 8 percent of the net tax liability in the case of each of the first 5 of such installments, (B) 15 percent of the net tax liability in the case of the 6th such installment, (C) 20 percent of the net tax liability in the case of the 7th such installment, and (D) 25 percent of the net tax liability in the case of the 8th such installment. (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 shall 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 or deduction 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 of tax 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) of subparagraph (A) 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 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 shall provide. (j) Reporting by S corporation Each S corporation which is a United States shareholder of a specified foreign 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 (b). 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) Extension of limitation on assessment Notwithstanding section 6501, the limitation on the time period for the assessment of the net tax liability under this section (as defined in subsection (h)(6)) shall not expire before the date that is 6 years after the return for the taxable year described in such subsection was filed. (l) Recapture for expatriated entities (1) In general If a deduction is allowed under subsection (c) to a United States shareholder and such shareholder first becomes an expatriated entity at any time during the 10-year period beginning on the date of the enactment of the Tax Cuts and Jobs Act , then— (A) the tax imposed by this chapter shall be increased for the first taxable year in which such taxpayer becomes an expatriated entity by an amount equal to 35 percent of the amount of the deduction allowed to the specified foreign corporation under subsection (c), and (B) no credits shall be allowed against the increase in tax under subparagraph (A). (2) Expatriated entity For purposes of this subsection, the term expatriated entity has the same meaning given such term under section 7874(a)(2), except that such term shall not include an entity if the surrogate foreign corporation with respect to the entity is treated as a domestic corporation under section 7874(b). (m) Special rules for United States shareholders which are real estate investment trusts (1) In general If a real estate investment trust is a United States shareholder in 1 or more deferred foreign income corporations— (A) any amount required to be taken into account under section 951(a)(1) by reason of this section shall not be taken into account as gross income of the real estate investment trust for purposes of applying paragraphs (2) and (3) of section 856(c) to any taxable year for which such amount is taken into account under section 951(a)(1), and (B) if the real estate investment trust elects the application of this subparagraph, notwithstanding subsection (a), any amount required to be taken into account under section 951(a)(1) by reason of this section shall, in lieu of the taxable year in which it would otherwise be included in gross income ((for purposes of the computation of real estate investment trust taxable income under section 857(b)), be included in gross income as follows: (i) 8 percent of such amount in the case of each of the taxable years in the 5-taxable year period beginning with the taxable year in which such amount would otherwise be included. (ii) 15 percent of such amount in the case of the 1st taxable year following such period. (iii) 20 percent of such amount in the case of the 2nd taxable year following such period. (iv) 25 percent of such amount in the case of the 3rd taxable year following such period. (2) Rules for trusts electing deferred inclusion (A) Election Any election under paragraph (1)(B) shall be made not later than the due date for the first taxable year in the 5-taxable year period described in clause (i) of paragraph (1)(B) and shall be made in such manner as the Secretary shall provide. (B) Special rules If an election under paragraph (1)(B) is in effect with respect to any real estate investment trust, the following rules shall apply: (i) Application of participation exemption For purposes of subsection (c)(1)— (I) the aggregate amount to which subparagraph (A) or (B) of subsection (c)(1) applies shall be determined without regard to the election, (II) each such aggregate amount shall be allocated to each taxable year described in paragraph (1)(B) in the same proportion as the amount included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section is allocated to each such taxable year. (III) No installment payments The real estate investment trust may not make an election under subsection (g) for any taxable year described in paragraph (1)(B). (ii) Acceleration of inclusion If there is a liquidation or sale of substantially all the assets of the real estate investment trust (including in a title 11 or similar case), a cessation of business by such trust, or any similar circumstance, then any amount not yet included in gross income under paragraph (1)(B) shall be included in gross income as of the day before the date of the event and the unpaid portion of any tax liability with respect to such inclusion 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). (n) Election not To apply net operating loss deduction (1) In general If a United States shareholder of a deferred foreign income corporation elects the application of this subsection for the taxable year described in subsection (a), then the amount described in paragraph (2) shall not be taken into account— (A) in determining the amount of the net operating loss deduction under section 172 of such shareholder for such taxable year, or (B) in determining the amount of taxable income for such taxable year which may be reduced by net operating loss carryovers or carrybacks to such taxable year under section 172. (2) Amount described The amount described in this paragraph is the sum of— (A) the amount required to be taken into account under section 951(a)(1) by reason of this section (determined after the application of subsection (c)), plus (B) in the case of a domestic corporation which chooses to have the benefits of subpart A of part III of subchapter N for the taxable year, the taxes deemed to be paid by such corporation under subsections (a) and (b) of section 960 for such taxable year with respect to the amount described in subparagraph (A) which are treated as a dividends under section 78. (3) Election Any election under this subsection shall be made not later than the due date (including extensions) for filing the return of tax for the taxable year and shall be made in such manner as the Secretary shall prescribe. (o) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section or to prevent the avoidance of the purposes of this section, including through a reduction in earnings and profits through changes in entity classification, changes in accounting methods, or otherwise. . (b) Clerical amendment 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 965 and inserting the following: Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation. . B Rules related to passive and mobile income 1 Taxation of foreign-derived intangible income and global intangible low-taxed income 14201. Current year inclusion of global intangible low-taxed income by United States shareholders (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. Global intangible low-taxed income 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 such shareholder’s global intangible low-taxed income for such taxable year. (b) Global intangible low-taxed income For purposes of this section— (1) In general The term global intangible low-taxed income 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) such shareholder's net deemed tangible income return for such taxable year. (2) Net deemed tangible income return The term net deemed tangible income return means, with respect to any United States shareholder for any taxable year, an amount equal to 10 percent 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). (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 described in section 952(b), (II) any gross income taken into account in determining the subpart F income of such corporation, (III) any gross income excluded from the foreign base company income (as defined in section 954) and the insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4), (IV) any dividend received from a related person (as defined in section 954(d)(3)), and (V) any foreign oil and gas extraction income (as defined in section 907(c)(1)) 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). (B) Tested loss (i) In general 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). (ii) Coordination with subpart F to deny double benefit of losses Section 952(c)(1)(A) shall be applied by increasing the earnings and profits of the controlled foreign corporation by the tested loss of such corporation. (d) Qualified business asset investment For purposes of this section— (1) In general The term qualified business asset investment means, with respect to any corporation for any taxable year of such controlled foreign corporation, the average of the aggregate of the corporation’s adjusted bases as of the close of each quarter of 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 167. (2) Specified tangible property (A) In general The term specified tangible property means, except as provided in subparagraph (B), any tangible property used in the production of tested income. (B) Dual use property In the case of property used both in the production of tested income and income which is not tested income, such property shall be treated as specified tangible property in the same proportion that the gross income described in subsection (c)(1)(A) produced with respect to such property bears to the total gross income produced with respect to such property. (3) Determination of adjusted basis For purposes of this subsection, notwithstanding any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section, the adjusted basis in any property shall be determined using the alternative depreciation system under section 168(g). (4) 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) Determination of pro rata share, etc For purposes of this section— (1) In general The pro rata shares referred to in subsections (b), (c)(1)(A), and (c)(1)(B), respectively, shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income and shall be taken into account in the taxable year of the United States shareholder in which or with which the taxable year of the controlled foreign corporation ends. (2) Treatment as United States shareholder For purposes of paragraph (1), a person shall be treated as a United States shareholder of a controlled foreign corporation for any taxable year only if such person owns (within the meaning of section 958(a)) stock in such foreign corporation on the last day, in such year, on which such foreign corporation is a controlled foreign corporation. (3) Treatment as controlled foreign corporation A foreign corporation shall be treated as a controlled foreign corporation for any taxable year if such foreign corporation is a controlled foreign corporation at any time during such taxable year. (f) Treatment as subpart F income for certain purposes (1) In general (A) Application Except as provided in subparagraph (B), any global intangible low-taxed income 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). (B) Exception The Secretary shall provide rules for the application of subparagraph (A) to other provisions of this title in any case in which the determination of subpart F income is required to be made at the level of the controlled foreign corporation. (2) Allocation of global intangible low-taxed income 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 global intangible low-taxed income included in gross income of a United States shareholder under subsection (a), the portion of such global intangible low-taxed income which is treated as being with respect to such controlled foreign corporation is— (A) in the case of a controlled foreign corporation with no tested income, zero, and (B) in the case of a controlled foreign corporation with tested income, the portion of such global intangible low-taxed income which bears the same ratio to such global intangible low-taxed income 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 described in subsection (c)(1)(A) with respect to such United States shareholder. . (b) Foreign tax credit (1) Application of deemed paid foreign tax credit Section 960 is amended adding at the end 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 the product of— (A) such domestic corporation’s inclusion percentage, multiplied by (B) the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations. (2) Inclusion percentage For purposes of paragraph (1), the term inclusion percentage means, with respect to any domestic corporation, the ratio (expressed as a percentage) of— (A) such corporation’s global intangible low-taxed income (as defined in section 951A(b)), divided by (B) the aggregate amount described in 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 the tested income of such foreign corporation taken into account by such domestic corporation under section 951A. . (2) Application of foreign tax credit limitation (A) Separate basket for global intangible low-taxed income 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 (other than passive category income), . (B) Exclusion from general category income Section 904(d)(2)(A)(ii) is amended by inserting income described in paragraph (1)(A) and before passive category income . (C) No carryover or carryback 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). . (c) Clerical amendment 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. Global intangible low-taxed income 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. 14202. Deduction for foreign-derived intangible income and global intangible low-taxed income (a) In general Part VIII of subchapter B of chapter 1 is amended by adding at the end the following new section: 250. Foreign-derived intangible income and global intangible low-taxed income (a) Allowance of deduction (1) In general In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of— (A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus (B) 50 percent of the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year. (2) Limitation based on taxable income (A) In general If, for any taxable year— (i) the sum of the foreign-derived intangible income and the global intangible low-taxed income amount otherwise taken into account by the domestic corporation under paragraph (1), exceeds (ii) the taxable income of the domestic corporation (determined without regard to this section), then the amount of the foreign-derived intangible income and the global intangible low-taxed income amount so taken into account shall be reduced as provided in subparagraph (B). (B) Reduction For purposes of subparagraph (A)— (i) foreign-derived intangible income shall be reduced by an amount which bears the same ratio to the excess described in subparagraph (A) as such foreign-derived intangible income bears to the sum described in subparagraph (A)(i), and (ii) the global intangible low-taxed income amount shall be reduced by the remainder of such excess. (3) Reduction in deduction for taxable years after 2025 In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied by substituting— (A) 21.875 percent for 37.5 percent in subparagraph (A), and (B) 37.5 percent for 50 percent in subparagraph (B). (b) Foreign-derived intangible income For purposes of this section— (1) In general The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the deemed intangible income of such corporation as— (A) the foreign-derived deduction eligible income of such corporation, bears to (B) the deduction eligible income of such corporation. (2) Deemed intangible income For purposes of this subsection— (A) In general The term deemed intangible income means the excess (if any) of— (i) the deduction eligible income of the domestic corporation, over (ii) the deemed tangible income return of the corporation. (B) Deemed tangible income return The term deemed tangible income return means, with respect to any corporation, an amount equal to 10 percent of the corporation’s qualified business asset investment (as defined in section 951A(d), determined by substituting deduction eligible income for tested income in paragraph (2) thereof). (3) Deduction eligible income (A) In general The term deduction eligible income means, with respect to any domestic corporation, the excess (if any) of— (i) gross income of such corporation determined without regard to— (I) the subpart F income of such corporation determined under section 951, (II) the global intangible low-taxed income determined under section 951A, (III) any financial services income (as defined in section 904(d)(2)(D)) of such corporation which is not described in clause (ii), (IV) any dividend received from a corporation which is a controlled foreign corporation of such domestic corporation, (V) any domestic oil and gas extraction income of such corporation, and (VI) any foreign branch income (as defined in section 904(d)(2)(J)), over (ii) the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5). (B) Domestic oil and gas extraction income For purposes of subparagraph (A), the term domestic oil and gas extraction income means income described in section 907(c)(1), determined by substituting within the United States for without the United States . (4) Foreign-derived deduction eligible income The term foreign-derived deduction eligible income means, with respect to any taxpayer for any taxable year, any deduction eligible income of such taxpayer which is derived in connection with— (A) property— (i) which is sold by the taxpayer to any person who is not a United States person, and (ii) which the taxpayer establishes to the satisfaction of the Secretary is for a foreign use, or (B) services provided by the taxpayer which the taxpayer establishes to the satisfaction of the Secretary are provided to any person, or with respect to property, not located within the United States. (5) Rules relating to foreign use property or services For purposes of this subsection— (A) Foreign use The term foreign use means any use, consumption, or disposition which is not within the United States. (B) Property or services provided to domestic intermediaries (i) Property If a taxpayer sells property to another person (other than a related party) for further manufacture or other modification within the United States, such property shall not be treated as sold for a foreign use even if such other person subsequently uses such property for a foreign use. (ii) Services If a taxpayer provides services to another person (other than a related party) located within the United States, such services shall not be treated as described in paragraph (4)(B) even if such other person uses such services in providing services which are so described. (C) Special rules with respect to related party transactions (i) Sales to related parties If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless— (I) such property is ultimately sold by a related party, or used by a related party in connection with property which is sold or the provision of services, to another person who is an unrelated party who is not a United States person, and (II) the taxpayer establishes to the satisfaction of the Secretary that such property is for a foreign use. For purposes of this clause, a sale of property shall be treated as a sale of each of the components thereof. (ii) Service provided to related parties If a service is provided to a related party who is not located in the United States, such service shall not be treated described in subparagraph (A)(ii) unless the taxpayer established to the satisfaction of the Secretary that such service is not substantially similar to services provided by such related party to persons located within the United States. (D) Related party For purposes of this paragraph, the term related party means any member of 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). Any person (other than a corporation) shall be treated as a member of such group if such person is controlled by members of such group (including any entity treated as a member of such group by reason of this sentence) or controls any such member. For purposes of the preceding sentence, control shall be determined under the rules of section 954(d)(3). (E) Sold For purposes of this subsection, the terms sold , sells , and sale shall include any lease, license, exchange, or other disposition. (c) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Conforming amendments (1) Section 172(d), as amended by section 13011, is amended by adding at the end the following new paragraph: (10) Deduction for foreign-derived intangible income The deduction under section 250 shall not be allowed. . (2) Section 246(b)(1) is amended— (A) by striking and subsection (a) and (b) of section 245 the first place it appears and inserting , subsection (a) and (b) of section 245, and section 250 , (B) by striking and subsection (a) and (b) of section 245 the second place it appears and inserting subsection (a) and (b) of section 245, and 250 . (3) Section 469(i)(3)(F)(iii) is amended by striking and 222 and inserting 222, and 250 . (4) The table of sections for part VIII of subchapter B of chapter 1 is amended by adding at the end the following new item: Sec. 250. Foreign-derived intangible income and global intangible low-taxed income. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14203. Special rules for transfers of intangible property from controlled foreign corporations to United States shareholders (a) In general Subpart F of part III of subchapter N of chapter 1 is amended by adding at the end the following new section: 966. Transfers of intangible property to United States shareholders (a) In general In the case of any distribution of intangible property which is held by a controlled foreign corporation on the date of enactment of this section and which is described in subsection (b)— (1) for purposes of part I of subchapter C and any other provision of this title specified by the Secretary, the fair market value of such property on the date of such distribution shall be treated as not exceeding the adjusted basis of such property immediately before such distribution, and (2) if the distribution is to a United States shareholder and is not a dividend— (A) the United States shareholder’s adjusted basis in the stock of the controlled foreign corporation with respect to which such distribution is made shall be increased by the amount (if any) of such distribution which would (but for this subsection) be includible in gross income, and (B) the adjusted basis of such property in the hands of such United States shareholder immediately after such distribution shall be such adjusted basis immediately before such distribution reduced by the amount of the increase described in subparagraph (A). (b) Distribution A distribution is described in this section if the distribution is— (1) received by a domestic corporation from a controlled foreign corporation with respect to which such corporation is a United States shareholder, and (2) made by the controlled foreign corporation before the last day of the third taxable year of the controlled foreign corporation beginning after December 31, 2017. (c) Intangible property For purposes of this subsection, the term intangible property has the meaning given such term by section 936(h)(3)(B) or which is computer software described in section 197(e)(3)(B). . (b) Conforming amendments (1) Section 197(f)(2)(B)(i) is amended by inserting 966(a), after 731, . (2) The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by adding at the end the following new item: Sec. 966. Transfers of intangible property to United States shareholders. . (c) Effective date The amendments made by this section shall apply to distributions made in 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. 2 Other modifications of subpart F provisions 14211. Elimination of inclusion of foreign base company oil related income (a) Repeal Subsection (a) of section 954 is amended— (1) by inserting and at the end of paragraph (2), (2) by striking the comma at the end of paragraph (3) and inserting a period, and (3) by striking paragraph (5). (b) Conforming amendments (1) Section 952(c)(1)(B)(iii) is amended by striking subclause (I) and redesignating subclauses (II) through (V) as subclauses (I) through (IV), respectively. (2) Section 954(b) is amended— (A) by striking the second sentence of paragraph (4), (B) by striking the foreign base company services income, and the foreign base company oil related income in paragraph (5) and inserting and the foreign base company services income , and (C) by striking paragraph (6). (3) 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 with or within which such taxable years of foreign corporations end. 14212. 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(f)(3) 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. 14213. 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) 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. 14214. 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) Effective date The amendments made by this section shall apply to— (1) the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent taxable year of such foreign corporations, and (2) taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 14215. Modification of definition of United States shareholder (a) In general Section 951(b) is amended by inserting , or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation after such foreign corporation . (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. 14216. 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. 14217. 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, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 14218. Corporations eligible for deduction for dividends from controlled foreign corporations exempt from subpart F inclusion for investment in United States property (a) In general Section 956(a) is amended by inserting (other than a corporation) after United States shareholder in the matter preceding paragraph (1). (b) Effective date The amendment made by this section shall apply to taxable years of controlled foreign corporations ending after December 31, 2017, and to taxable years of United States shareholders with or within which such taxable years of controlled foreign corporations end. 3 Prevention of base erosion 14221. Denial of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness (a) In general Section 163 is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection: (n) Disallowance of deduction for interest expense of United States shareholders which are members of worldwide affiliated groups with excess domestic indebtedness (1) In general In the case of any domestic corporation which is a member of a worldwide affiliated group, the deduction allowed under this chapter for interest paid or accrued by such domestic corporation during the taxable year shall be reduced by the product of— (A) the net interest expense of such domestic corporation, multiplied by (B) the debt-to-equity differential percentage of such worldwide affiliated group. (2) Carryforward Any amount disallowed under paragraph (1) for any taxable year shall be treated as interest paid or accrued in the succeeding taxable year. (3) Debt-to-equity differential percentage (A) In general For purposes of this subsection, the term debt-to-equity differential percentage means, with respect to any worldwide affiliated group, the percentage which the excess domestic indebtedness of such group bears to the total indebtedness of the domestic corporations which are members of such group. (B) Excess domestic indebtedness For purposes of subparagraph (A), the term excess domestic indebtedness means, with respect to any worldwide affiliated group, the excess (if any) of— (i) the total indebtedness of the domestic corporations which are members of such group, over (ii) 110 percent of the amount which the total indebtedness of such domestic corporations would be if the ratio of such indebtedness to the total equity of such domestic corporations equaled the ratio which— (I) the total indebtedness of such group, bears to (II) the total equity of such group. (C) Total equity For purposes of subparagraph (B), the term total equity means, with respect to one or more corporations, an amount equal to— (i) the sum of the money and all other assets of such corporations, reduced (but not below one) by (ii) the total indebtedness of such corporations. (D) Special rules for determining debt and equity (i) In general For purposes of this paragraph— (I) the amount taken into account with respect to any asset shall be the adjusted basis thereof for purposes of determining gain, (II) the amount taken into account with respect to any indebtedness with original issue discount shall be its issue price plus the portion of the original issue discount previously accrued as determined under the rules of section 1272 (determined without regard to subsection (a)(7) or (b)(4) thereof), and (III) there shall be such other adjustments as the Secretary shall by regulations prescribe. (ii) Intragroup debt and equity interests disregarded For purposes of this paragraph, the total indebtedness, and the assets, of any group of corporations shall be determined by treating all members of such group as one corporation. (iii) Determination of assets of domestic group For purposes of this paragraph, the assets of the domestic corporations which are members of any worldwide affiliated group shall be determined by disregarding any interest held by any such domestic corporation in any foreign corporation which is a member of such group. (E) Phase in of percentage used in determining excess indebtedness In the case of any taxable year beginning in a calendar year before 2022, the following percentages shall be substituted for 110 percent in applying subparagraph (B)(ii): In the case of a taxable year beginning in: The percentage is: 2018 130 2019 125 2020 120 2021 115 (4) Other definitions For purposes of this subsection— (A) Worldwide affiliated group The term worldwide affiliated group means a group consisting of the includible members of 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 in such section, and (ii) without regard to paragraphs (2), (3), and (4) of section 1504(b). (B) Net interest expense The term net interest expense means the excess (if any) of (i) the interest paid or accrued by the taxpayer during the taxable year, over (ii) the amount of interest includible in the gross income of such taxpayer for such taxable year. The Secretary shall by regulations provide for adjustments in determining the amount of net interest expense if necessary. (5) Treatment of affiliated group For purposes of this subsection, all members of the same affiliated group (within the meaning of section 1504(a) applied by substituting more than 50 percent for at least 80 percent each place it appears) shall be treated as one taxpayer. (6) Regulations The Secretary shall prescribe such regulations or other guidance as may be appropriate to carry out the purposes of this subsection, including regulations or other guidance— (A) to prevent the avoidance of the purposes of this subsection, (B) providing such adjustments in the case of corporations which are members of an affiliated group as may be appropriate to carry out the purposes of this subsection, (C) providing for the coordination of this subsection with section 884, (D) providing for the reallocation of shares of partnership indebtedness, or distributive shares of the partnership’s interest income or interest expense, and (E) providing for the coordination with the limitation under subsection (j). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14222. Limitations on income shifting through intangible property transfers (a) Definition of intangible asset Section 936(h)(3)(B) is amended— (1) by striking or at the end of clause (v), (2) by striking clause (vi) and inserting the following: (vi) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment); or (vii) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. , and (3) by striking the flush language after clause (vii), as added by paragraph (2). (b) Clarification of allowable valuation methods (1) Foreign corporations Section 367(d)(2) is amended by adding at the end the following new subparagraph: (D) Regulatory authority For purposes of the last sentence of subparagraph (A), the Secretary shall require— (i) the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or (ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (2) Allocation among taxpayers Section 482 is amended by adding at the end the following: For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (c) Effective date (1) In general The amendments made by this section shall apply to transfers in taxable years beginning after December 31, 2017. (2) No inference Nothing in the amendment made by subsection (a) shall be construed to create any inference with respect to the application of section 936(h)(3) of the Internal Revenue Code of 1986, or the authority of the Secretary of the Treasury to provide regulations for such application, with respect to taxable years beginning before January 1, 2018. 14223. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (a) In general Part IX of subchapter B of chapter 1 is amended by inserting after section 267 the following: 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (a) In general No deduction shall be allowed under this chapter for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. (b) Disqualified related party amount For purposes of this section— (1) Disqualified related party amount The term disqualified related party amount means any interest or royalty paid or accrued to a related party to the extent that— (A) such amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (B) such related party is allowed a deduction with respect to such amount under the tax law of such country. Such term shall not include any payment to the extent such payment is included in the gross income of a United States shareholder under section 951(a). (2) Related party The term related party means a related person as defined in section 954(d)(3), except that such section shall be applied with respect to the person making the payment described in paragraph (1) in lieu of the controlled foreign corporation otherwise referred to in such section. (c) Hybrid transaction For purposes of this section, the term hybrid transaction means any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties for purposes of this chapter and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. (d) Hybrid entity For purposes of this section, the term hybrid entity means any entity which is either— (1) treated as fiscally transparent for purposes of this chapter but not so treated for purposes of the tax law of the foreign country of which the entity is resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this chapter. (e) Regulations The Secretary shall 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 providing for— (1) rules for treating certain conduit arrangements which involve a hybrid transaction or a hybrid entity as subject to subsection (a), (2) rules for the application of this section to foreign branches, (3) rules for treating certain structured transactions as subject to subsection (a), (4) rules for treating a tax preference as an exclusion from income for purposes of applying subsection (b)(1) if such tax preference has the effect of reducing the generally applicable statutory rate by 25 percent or more, (5) rules for treating the entire amount of interest or royalty paid or accrued to a related party as a disqualified related party amount if such amount is subject to a participation exemption system or other system which provides for the exclusion or deduction of a substantial portion of such amount, (6) rules for determining the tax residence of a foreign entity if the entity is otherwise considered a resident of more than one country or of no country, (7) exceptions from subsection (a) with respect to— (A) cases in which the disqualified related party amount is taxed under the laws of a foreign country other than the country of which the related party is a resident for tax purposes, and (B) other cases which the Secretary determines do not present a risk of eroding the Federal tax base, (8) requirements for record keeping and information reporting in addition to any requirements imposed by section 6038A. . (b) Conforming amendment The table of sections for part IX of subchapter B of chapter 1 is amended by inserting after the item relating to section 267 the following new item: Sec. 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14224. Shareholders of surrogate foreign corporations not eligible for reduced rate on dividends (a) In general Section 1(h)(11)(C)(iii) is amended— (1) by striking shall not include any foreign corporation and inserting shall not include— (I) any foreign corporation , (2) by striking the period at the end and inserting , and , and (3) by adding at the end the following new subclause: (II) any corporation which is a surrogate foreign corporation (as defined in section 7874(a)(2)(B)) other than a foreign corporation which is treated as a domestic corporation under section 7874(b). . (b) Effective date The amendments made by this section shall apply to dividends paid in taxable years beginning after December 31, 2017. C Modifications related to foreign tax credit system 14301. 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, as amended by section 14201, 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 any prior taxable year. , (2) and by adding after subsection (d) (as added by section 14201) the following new subsections: (e) 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. (f) Regulations The Secretary shall 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— (1) 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 section 960) as an item of income required to be included in the gross income of such domestic corporation under section 951(a), and (2) an amount equal to the aggregate tested foreign income taxes deemed paid by such corporation under section 960(d) (determined without regard to the phrase 80 percent of in paragraph (1) thereof) shall be treated for purposes of this title (other than section 960) as an addition to the global intangible low-taxed income of such domestic corporation under section 951A(a) for such taxable year. . (2) Paragraph (4) of section 245(a) is amended to read as follows: (4) Post-1986 undistributed earnings The term post-1986 undistributed earnings means the amount of 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— (A) as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and (B) without diminution by reason of dividends distributed during such taxable year. . (3) Section 245(a)(10)(C) is amended by striking 902, 907, and 960 and inserting 907 and 960 . (4) Sections 535(b)(1) and 545(b)(1) are each amended by striking section 902(a) or 960(a)(1) and inserting section 960 . (5) 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 . (6) Section 865(h)(1)(B) is amended by striking 902, 907, and inserting 907 . (7) Section 901(a) is amended by striking sections 902 and 960 and inserting section 960 . (8) 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 . (9) Section 901(f) is amended by striking sections 902 and 960 and inserting section 960 . (10) Section 901(j)(1)(A) is amended by striking 902 or . (11) Section 901(j)(1)(B) is amended by striking sections 902 and 960 and inserting section 960 . (12) Section 901(k)(2) is amended by striking , 902, . (13) Section 901(k)(6) is amended by striking 902 or . (14) 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). . (15) Section 904(d)(6)(A) is amended by striking 902, 907, and inserting 907 . (16) Section 904(h)(10)(A) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (17) Section 904(k) is amended to read as follows: (k) Cross references 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(c). . (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 specified 10-percent owned foreign corporation (as defined in section 245A(b)) , (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 specified 10-percent owned foreign corporation or a domestic corporation which is a United States shareholder with respect to such specified 10-percent owned foreign corporation. , and (D) by striking section 902 corporations in the heading thereof and inserting specified 10-percent owned foreign corporations . (28) Section 909(d) is amended by striking paragraph (5). (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 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. 14302. Separate foreign tax credit limitation basket for foreign branch income (a) In general Section 904(d)(1), as amended by section 14201, is amended by redesignating subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively, and by inserting after subparagraph (A) the following new subparagraph: (B) foreign branch income, . (b) Foreign branch income (1) In general Section 904(d)(2) is amended by inserting after subparagraph (I) the following new subparagraph: (J) Foreign branch income (i) In general The term foreign branch income means the business profits of such United States person which are attributable to 1 or more qualified business units (as defined in section 989(a)) in 1 or more foreign countries. For purposes of the preceding sentence, the amount of business profits attributable to a qualified business unit shall be determined under rules established by the Secretary. (ii) Exception Such term shall not include any income which is passive category income. . (2) Conforming amendment Section 904(d)(2)(A)(ii), as amended by section 14201, is amended by striking income described in paragraph (1)(A) and and inserting income described in paragraph (1)(A), foreign branch income, and . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14303. Acceleration of election to allocate interest, etc., on a worldwide basis (a) In general Section 864(f)(6) is amended by striking December 31, 2020 and inserting December 31, 2017 . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14304. 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. 14305. Election to increase percentage of domestic taxable income offset by overall domestic loss treated as foreign source (a) In general Section 904(g) is amended by adding at the end the following new paragraph: (5) Election to increase percentage of taxable income treated as foreign source (A) In general If any pre-2018 unused overall domestic loss is taken into account under paragraph (1) for any applicable taxable year, the taxpayer may elect to have such paragraph applied to such loss by substituting a percentage greater than 50 percent (but not greater than 100 percent) for 50 percent in subparagraph (B) thereof. (B) Pre-2018 unused overall domestic loss For purposes of this paragraph, the term pre-2018 unused overall domestic loss means any overall domestic loss which— (i) arises in a qualified taxable year beginning before January 1, 2018, and (ii) has not been used under paragraph (1) for any taxable year beginning before such date. (C) Applicable taxable year For purposes of this paragraph, the term applicable taxable year means any taxable year of the taxpayer beginning after December 31, 2017, and before January 1, 2028. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. II Inbound transactions 14401. Base erosion and anti-abuse tax (a) Imposition of tax Subchapter A of chapter 1 is amended by adding at the end the following new part: VII Base erosion and anti-abuse tax Sec. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts (a) Imposition of tax There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle. (b) Base erosion minimum tax amount For purposes of this section— (1) In general Except as provided in paragraphs (2) and (3), the term base erosion minimum tax amount means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of— (A) an amount equal to 10 percent of the modified taxable income of such taxpayer for the taxable year, over (B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of— (i) the credits allowed under this chapter against such regular tax liability, over (ii) the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a). (2) Modifications for taxable years beginning after 2025 In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied— (A) by substituting 12.5 percent for 10 percent in subparagraph (A) thereof, and (B) by reducing (but not below zero) the regular tax liability (as defined in section 26(b)) for purposes of subparagraph (B) thereof by the aggregate amount of the credits allowed under this chapter against such regular tax liability rather than the excess described in such subparagraph. (3) Increased rate for certain banks and securities dealers (A) In general In the case of an applicable taxpayer described in subparagraph (B) for any taxable year— (i) paragraphs (1)(A) and (2)(A) shall each be applied by substituting 11 percent for 10 percent , and (ii) paragraph (2)(A) shall be applied by substituting 13.5 percent for 12.5 percent . (B) Taxpayer described An applicable taxpayer is described in this subparagraph if such taxpayer is a member of an affiliated group (as defined in section 1504(a)(1)) which includes— (i) a bank (as defined in section 581), or (ii) a registered securities dealer under section 15(a) of the Securities Exchange Act of 1934. (c) Modified taxable income For purposes of this section— (1) In general The term modified taxable income means the taxable income of the taxpayer computed under this chapter for the taxable year, determined without regard to— (A) any base erosion tax benefit with respect to any base erosion payment, or (B) the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year. (2) Base erosion tax benefit (A) In general The term base erosion tax benefit means— (i) any deduction described in subsection (d)(1) which is allowed under this chapter for the taxable year with respect to any base erosion payment, (ii) in the case of a base erosion payment described in subsection (d)(2), any deduction allowed under this chapter for the taxable year for depreciation (or amortization in lieu of depreciation) with respect to the property acquired with such payment, and (iii) in the case of a base erosion payment described in subsection (d)(3), any reduction in gross receipts with respect to such payment in computing gross income of the taxpayer for the taxable year for purposes of this chapter. (B) Tax benefits disregarded if tax withheld on base erosion payment (i) In general Except as provided in clause (ii), any base erosion tax benefit attributable to any base erosion payment— (I) on which tax is imposed by section 871 or 881, and (II) with respect to which tax has been deducted and withheld under section 1441 or 1442, shall not be taken into account in computing modified taxable income under paragraph (1)(A) or the base erosion percentage under paragraph (4). (ii) Exception The amount not taken into account in computing modified taxable income by reason of clause (i) shall be reduced under rules similar to the rules under section 163(j)(5)(B) (as in effect before the date of the enactment of the Tax Cuts and Jobs Act ). (3) Special rules for determining interest for which deduction allowed For purposes of applying paragraph (1), in the case of a taxpayer to which subsection (j) or (n) of section 163 applies for the taxable year, the reduction in the amount of interest for which a deduction is allowed by reason of such subsection shall be treated as allocable first to interest paid or accrued to persons who are not related parties with respect to the taxpayer and then to such related parties. (4) Base erosion percentage For purposes of paragraph (1)(B)— (A) In general The term base erosion percentage means, for any taxable year, the percentage determined by dividing— (i) the aggregate amount of base erosion tax benefits of the taxpayer for the taxable year, by (ii) the aggregate amount of the deductions allowable to the taxpayer under this chapter for the taxable year. (B) Special rules The amount under subparagraph (A)(ii) shall be determined— (i) by taking into account base erosion tax benefits described in clauses (i) and (ii) of paragraph (2)(A), and (ii) by not taking into account any deduction allowed under section 172, 245A, or 250 for the taxable year. (d) Base erosion payment For purposes of this section— (1) In general The term base erosion payment means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter. (2) Purchase of depreciable property Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with the acquisition by the taxpayer from such person of property of a character subject to the allowance of depreciation (or amortization in lieu of depreciation). (3) Certain payments to expatriated entities (A) In general Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer. (B) Person described A person is described in this subparagraph if such person is a— (i) surrogate foreign corporation which is a related party of the taxpayer, but only if such person first became a surrogate foreign corporation after November 9, 2017, or (ii) foreign person which is a member of the same expanded affiliated group as the surrogate foreign corporation. (C) Definitions For purposes of this paragraph— (i) Surrogate foreign corporation The term surrogate foreign corporation has the meaning given such term by section 7874(a)(2) but does not include a foreign corporation treated as a domestic corporation under section 7874(b). (ii) Expanded affiliated group The term expanded affiliated group has the meaning given such term by section 7874(c)(1). (4) Exception for certain amounts with respect to services Paragraph (1) shall not apply to any amount paid or accrued by a taxpayer for services if— (A) such services are services which meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure), and (B) such amount constitutes the total services cost with no markup. (e) Applicable taxpayer For purposes of this section— (1) In general The term applicable taxpayer means, with respect to any taxable year, a taxpayer— (A) which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation, (B) the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and (C) the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 4 percent or higher. (2) Gross receipts (A) Special rule for foreign persons In the case of a foreign person the gross receipts of which are taken into account for purposes of paragraph (1)(B), only gross receipts which are taken into account in determining income which is effectively connected with the conduct of a trade or business within the United States shall be taken into account. In the case of a taxpayer which is a foreign person, the preceding sentence shall not apply to the gross receipts of any United States person which are aggregated with the taxpayer's gross receipts by reason of paragraph (3). (B) Other rules made applicable Rules similar to the rules of subparagraphs (B), (C), and (D) of section 448(c)(3) shall apply in determining gross receipts for purposes of this section. (3) Aggregation rules All persons treated as a single employer under subsection (a) of section 52 shall be treated as 1 person for purposes of this subsection and subsection (c)(4), except that in applying section 1563 for purposes of section 52, the exception for foreign corporations under section 1563(b)(2)(C) shall be disregarded. (f) Foreign Person For purposes of this section, the term foreign person has the meaning given such term by section 6038A(c)(3). (g) Related party For purposes of this section— (1) In general The term related party means, with respect to any applicable taxpayer— (A) any 25-percent owner of the taxpayer, (B) any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer, and (C) any other person who is related (within the meaning of section 482) to the taxpayer. (2) 25-percent owner The term 25-percent owner means, with respect to any corporation, any person who owns at least 25 percent of— (A) the total voting power of all classes of stock of a corporation entitled to vote, or (B) the total value of all classes of stock of such corporation. (3) Section 318 to apply Section 318 shall apply for purposes of paragraphs (1) and (2), except that— (A) 10 percent shall be substituted for 50 percent in section 318(a)(2)(C), and (B) subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person. (h) Exception for certain payments made in the ordinary course of trade or business For purposes of this section— (1) In general Except as provided in paragraph (3), any qualified derivative payment shall not be treated as a base erosion payment. (2) Qualified derivative payment (A) In general The term qualified derivative payment means any payment made by a taxpayer pursuant to a derivative with respect to which the taxpayer— (i) recognizes gain or loss as if such derivative were sold for its fair market value on the last business day of the taxable year (and such additional times as required by this title or the taxpayer's method of accounting), (ii) treats any gain or loss so recognized as ordinary, and (iii) treats the character of all items of income, deduction, gain, or loss with respect to a payment pursuant to the derivative as ordinary. (B) Reporting requirement No payments shall be treated as qualified derivative payments under subparagraph (A) for any taxable year unless the taxpayer includes in the information required to be reported under section 6038B(b)(2) with respect to such taxable year such information as is necessary to identify the payments to be so treated and such other information as the Secretary determines necessary to carry out the provisions of this subsection. (3) Exceptions for payments otherwise treated as base erosion payments This subsection shall not apply to any qualified derivative payment if— (A) the payment would be treated as a base erosion payment if it were not made pursuant to a derivative, including any interest, royalty, or service payment, or (B) in the case of a contract which has derivative and nonderivative components, the payment is properly allocable to the nonderivative component. (4) Derivative defined For purposes of this subsection— (A) In general The term derivative means any contract (including any option, forward contract, futures contract, short position, swap, or similar contract) the value of which, or any payment or other transfer with respect to which, is (directly or indirectly) determined by reference to one or more of the following: (i) Any share of stock in a corporation. (ii) Any evidence of indebtedness. (iii) Any commodity which is actively traded. (iv) Any currency. (v) Any rate, price, amount, index, formula, or algorithm. (B) Treatment of American Depository Receipts and similar instruments Except as otherwise provided by the Secretary, for purposes of this part, American depository receipts (and similar instruments) with respect to shares of stock in foreign corporations shall be treated as shares of stock in such foreign corporations. (i) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations— (1) providing for such adjustments to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including through— (A) the use of unrelated persons, conduit transactions, or other intermediaries, or (B) transactions or arrangements designed, in whole or in part— (i) to characterize payments otherwise subject to this section as payments not subject to this section, or (ii) to substitute payments not subject to this section for payments otherwise subject to this section and (2) for the application of subsection (g), including rules to prevent the avoidance of the exceptions under subsection (g)(3). . (b) Reporting requirements and penalties (1) In general Subsection (b) of section 6038A is amended to read as follows: (b) Required information (1) In general For purposes of subsection (a), the information described in this subsection is such information as the Secretary prescribes by regulations relating to— (A) the name, principal place of business, nature of business, and country or countries in which organized or resident, of each person which— (i) is a related party to the reporting corporation, and (ii) had any transaction with the reporting corporation during its taxable year, (B) the manner in which the reporting corporation is related to each person referred to in subparagraph (A), and (C) transactions between the reporting corporation and each foreign person which is a related party to the reporting corporation. (2) Additional information regarding base erosion payments For purposes of subsection (a) and section 6038C, if the reporting corporation or the foreign corporation to whom section 6038C applies is an applicable taxpayer, the information described in this subsection shall include— (A) such information as the Secretary determines necessary to determine the base erosion minimum tax amount, base erosion payments, and base erosion tax benefits of the taxpayer for purposes of section 59A for the taxable year, and (B) such other information as the Secretary determines necessary to carry out such section. For purposes of this paragraph, any term used in this paragraph which is also used in section 59A shall have the same meaning as when used in such section. . (2) Increase in penalty Paragraphs (1) and (2) of section 6038A(d) are each amended by striking $10,000 and inserting $25,000 . (c) Disallowance of credits against base erosion tax Paragraph (2) of section 26(b) is amended by inserting after subparagraph (A) the following new subparagraph: (B) section 59A (relating to base erosion and anti-abuse tax), . (d) Conforming amendments (1) The table of parts for subchapter A of chapter 1 is amended by adding after the item relating to part VI the following new item: Part VII. Base erosion and anti-abuse tax . (2) Paragraph (1) of section 882(a), as amended by this Act, is amended by inserting or 59A, after section 11, . (3) Subparagraph (A) of section 6425(c)(1), as amended by section 13001, is amended to read as follows: (A) the sum of— (i) the tax imposed by section 11, or subchapter L of chapter 1, whichever is applicable, plus (ii) the tax imposed by section 59A, over . (4) (A) Subparagraph (A) of section 6655(g)(1), as amended by section 13001, is amended by striking plus at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause: (ii) the tax imposed by section 59A, plus . (B) Subparagraphs (A)(i) and (B)(i) of section 6655(e)(2), as amended by section 13001, are each amended by inserting and modified taxable income after taxable income . (C) Subparagraph (B) of section 6655(e)(2) is amended by adding at the end the following new clause: (iii) Modified taxable income The term modified taxable income has the meaning given such term by section 59A(c)(1). . (e) Effective date The amendments made by this section shall apply to base erosion payments (as defined in section 59A(d) of the Internal Revenue Code of 1986, as added by this section) paid or accrued in taxable years beginning after December 31, 2017. III Other provisions 14501. 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. 14502. Repeal of fair market value method of interest expense apportionment (a) In general Paragraph (2) of section 864(e) is amended to read as follows: (2) Gross income and fair market value methods may not be used for interest All allocations and apportionments of interest expense shall be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 14503. Modification to source rules involving possessions (a) In general Subsection (b)(2) of Section 937 of the Internal Revenue Code of 1986 is amended by inserting , but only to the extent such income is attributable to an office or fixed place of business within the United States (determined under the rules of Section 864(c)(5)) before the period at the end. (b) Source rules for personal property sales Subsection (j)(3) of section 865 of the Internal Revenue Code of 1986 is amended by inserting 932, after 931, . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2018. II 20001. Oil and gas program (a) Definitions In this section: (1) Coastal Plain The term Coastal Plain means the area identified as the 1002 Area on the plates prepared by the United States Geological Survey entitled ANWR Map – Plate 1 and ANWR Map – Plate 2 , dated October 24, 2017, and on file with the United States Geological Survey and the Office of the Solicitor of the Department of the Interior. (2) Secretary The term Secretary means the Secretary of the Interior, acting through the Bureau of Land Management. (b) Oil and gas program (1) In general Section 1003 of the Alaska National Interest Lands Conservation Act ( 16 U.S.C. 3143 ) shall not apply to the Coastal Plain. (2) Establishment (A) In general The Secretary shall establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain. (B) Purposes Section 303(2)(B) of the Alaska National Interest Lands Conservation Act ( Public Law 96–487 ; 94 Stat. 2390) is amended— (i) in clause (iii), by striking and at the end; (ii) in clause (iv), by striking the period at the end and inserting ; and ; and (iii) by adding at the end the following: (v) to provide for an oil and gas program on the Coastal Plain. . (3) Management Except as otherwise provided in this section, the Secretary shall manage the oil and gas program on the Coastal Plain in a manner similar to the administration of lease sales under the Naval Petroleum Reserves Production Act of 1976 ( 42 U.S.C. 6501 et seq.) (including regulations). (4) Royalties Notwithstanding the Mineral Leasing Act ( 30 U.S.C. 181 et seq.), the royalty rate for leases issued pursuant to this section shall be 16.67 percent. (5) Receipts Notwithstanding the Mineral Leasing Act ( 30 U.S.C. 181 et seq.), of the amount of adjusted bonus, rental, and royalty receipts derived from the oil and gas program and operations on Federal land authorized under this section— (A) 50 percent shall be paid to the State of Alaska; and (B) the balance shall be deposited into the Treasury as miscellaneous receipts. (c) 2 lease sales within 10 years (1) Requirement (A) In general Subject to subparagraph (B), the Secretary shall conduct not fewer than 2 lease sales area-wide under the oil and gas program under this section by not later than 10 years after the date of enactment of this Act. (B) Sale acreages; schedule (i) Acreages The Secretary shall offer for lease under the oil and gas program under this section— (I) not fewer than 400,000 acres area-wide in each lease sale; and (II) those areas that have the highest potential for the discovery of hydrocarbons. (ii) Schedule The Secretary shall offer— (I) the initial lease sale under the oil and gas program under this section not later than 4 years after the date of enactment of this Act; and (II) a second lease sale under the oil and gas program under this section not later than 7 years after the date of enactment of this Act. (2) Rights-of-way The Secretary shall issue any rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation necessary to carry out this section. (3) Surface development In administering this section, the Secretary shall authorize up to 2,000 surface acres of Federal land on the Coastal Plain to be covered by production and support facilities (including airstrips and any area covered by gravel berms or piers for support of pipelines) during the term of the leases under the oil and gas program under this section. 20002. Limitations on amount of distributed qualified outer Continental Shelf revenues Section 105(f)(1) of the Gulf of Mexico Energy Security Act of 2006 ( 43 U.S.C. 1331 note; Public Law 109–432 ) is amended by striking exceed $500,000,000 for each of fiscal years 2016 through 2055. and inserting the following: “exceed— (A) $500,000,000 for each of fiscal years 2016 through 2019; (B) $650,000,000 for each of fiscal years 2020 and 2021; and (C) $500,000,000 for each of fiscal years 2022 through 2055. . 20003. Strategic Petroleum Reserve drawdown and sale (a) Drawdown and sale (1) In general Notwithstanding section 161 of the Energy Policy and Conservation Act ( 42 U.S.C. 6241 ), except as provided in subsections (b) and (c), the Secretary of Energy shall draw down and sell from the Strategic Petroleum Reserve 7,000,000 barrels of crude oil during the period of fiscal years 2026 through 2027. (2) Deposit of amounts received from sale Amounts received from a sale under paragraph (1) shall be deposited in the general fund of the Treasury during the fiscal year in which the sale occurs. (b) Emergency protection The Secretary of Energy shall not draw down and sell crude oil under subsection (a) in a quantity that would limit the authority to sell petroleum products under subsection (h) of section 161 of the Energy Policy and Conservation Act ( 42 U.S.C. 6241 ) in the full quantity authorized by that subsection. (c) Limitation The Secretary of Energy shall not drawdown or conduct sales of crude oil under subsection (a) after the date on which a total of $600,000,000 has been deposited in the general fund of the Treasury from sales authorized under that subsection.

Secretary

tv_txt: 115th CONGRESS 1st Session H.R. 1 In the Senate of the United States, December 20 (legislative day, December 19), 2017. Senate Amendment:

That the report of the Committee of Conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 1) entitled An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018. , fails on a point of order. That the Senate recede from its amendment to the above-titled bill with a further amendment as follows: Strike out all after the enacting clause and insert: I 11000. Short title, etc (a) Amendment of 1986 code Except as otherwise expressly provided, whenever in this title 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. A Individual tax reform I Tax rate reform 11001. Modification of rates (a) In general Section 1 is amended by adding at the end the following new subsection: (j) Modifications for taxable years 2018 through 2025 (1) In general In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) subsection (i) shall not apply, and (B) this section (other than subsection (i)) shall be applied as provided in paragraphs (2) through (6). (2) Rate tables (A) Married individuals filing joint returns and surviving spouses The following table shall be applied in lieu of the table contained in subsection (a): If taxable income is: The tax is: Not over $19,050 10% of taxable income. Over $19,050 but not over $77,400 $1,905, plus 12% of the excess over $19,050. Over $77,400 but not over $165,000 $8,907, plus 22% of the excess over $77,400. Over $165,000 but not over $315,000 $28,179, plus 24% of the excess over $165,000. Over $315,000 but not over $400,000 $64,179, plus 32% of the excess over $315,000. Over $400,000 but not over $600,000 $91,379, plus 35% of the excess over $400,000. Over $600,000 $161,379, plus 37% of the excess over $600,000. (B) Heads of households The following table shall be applied in lieu of the table contained in subsection (b): If taxable income is: The tax is: Not over $13,600 10% of taxable income. Over $13,600 but not over $51,800 $1,360, plus 12% of the excess over $13,600. Over $51,800 but not over $82,500 $5,944, plus 22% of the excess over $51,800. Over $82,500 but not over $157,500 $12,698, plus 24% of the excess over $82,500. Over $157,500 but not over $200,000 $30,698, plus 32% of the excess over $157,500. Over $200,000 but not over $500,000 $44,298, plus 35% of the excess over $200,000. Over $500,000 $149,298, plus 37% of the excess over $500,000. (C) Unmarried individuals other than surviving spouses and heads of households The following table shall be applied in lieu of the table contained in subsection (c): If taxable income is: The tax is: Not over $9,525 10% of taxable income. Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525. Over $38,700 but not over $82,500 $4,453.50, plus 22% of the excess over $38,700. Over $82,500 but not over $157,500 $14,089.50, plus 24% of the excess over $82,500. Over $157,500 but not over $200,000 $32,089.50, plus 32% of the excess over $157,500. Over $200,000 but not over $500,000 $45,689.50, plus 35% of the excess over $200,000. Over $500,000 $150,689.50, plus 37% of the excess over $500,000. (D) Married individuals filing separate returns The following table shall be applied in lieu of the table contained in subsection (d): If taxable income is: The tax is: Not over $9,525 10% of taxable income. Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525. Over $38,700 but not over $82,500 $4,453.50, plus 22% of the excess over $38,700. Over $82,500 but not over $157,500 $14,089.50, plus 24% of the excess over $82,500. Over $157,500 but not over $200,000 $32,089.50, plus 32% of the excess over $157,500. Over $200,000 but not over $300,000 $45,689.50, plus 35% of the excess over $200,000. Over $300,000 $80,689.50, plus 37% of the excess over $300,000. (E) Estates and trusts The following table shall be applied in lieu of the table contained in subsection (e): If taxable income is: The tax is: Not over $2,550 10% of taxable income. Over $2,550 but not over $9,150 $255, plus 24% of the excess over $2,550. Over $9,150 but not over $12,500 $1,839, plus 35% of the excess over $9,150. Over $12,500 $3,011.50, plus 37% of the excess over $12,500. (F) References to rate tables Any reference in this title to a rate of tax under subsection (c) shall be treated as a reference to the corresponding rate bracket under subparagraph (C) of this paragraph, except that the reference in section 3402(q)(1) to the third lowest rate of tax applicable under subsection (c) shall be treated as a reference to the fourth lowest rate of tax under subparagraph (C). (3) Adjustments (A) No adjustment in 2018 The tables contained in paragraph (2) shall apply without adjustment for taxable years beginning after December 31, 2017, and before January 1, 2019. (B) Subsequent years For taxable years beginning after December 31, 2018, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in paragraph (2) in the same manner as under paragraphs (1) and (2) of subsection (f) (applied without regard to clauses (i) and (ii) of subsection (f)(2)(A)), except that in prescribing such tables— (i) subsection (f)(3) shall be applied by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof, (ii) subsection (f)(7)(B) shall apply to any unmarried individual other than a surviving spouse or head of household, and (iii) subsection (f)(8) shall not apply. (4) Special rules for certain children with unearned income (A) In general In the case of a child to whom subsection (g) applies for the taxable year, the rules of subparagraphs (B) and (C) shall apply in lieu of the rule under subsection (g)(1). (B) Modifications to applicable rate brackets In determining the amount of tax imposed by this section for the taxable year on a child described in subparagraph (A), the income tax table otherwise applicable under this subsection to the child shall be applied with the following modifications: (i) 24-percent bracket The maximum taxable income which is taxed at a rate below 24 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 24-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (ii) 35-percent bracket The maximum taxable income which is taxed at a rate below 35 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 35-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (iii) 37-percent bracket The maximum taxable income which is taxed at a rate below 37 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 37-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (C) Coordination with capital gains rates For purposes of applying section 1(h) (after the modifications under paragraph (5)(A))— (i) the maximum zero rate amount shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the amount in effect under paragraph (5)(B)(i)(IV) for the taxable year, and (ii) the maximum 15-percent rate amount shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the amount in effect under paragraph (5)(B)(ii)(IV) for the taxable year. (D) Earned taxable income For purposes of this paragraph, the term earned taxable income means, with respect to any child for any taxable year, the taxable income of such child reduced (but not below zero) by the net unearned income (as defined in subsection (g)(4)) of such child. (5) Application of current income tax brackets to capital gains brackets (A) In general Section 1(h)(1) shall be applied— (i) by substituting below the maximum zero rate amount for which would (without regard to this paragraph) be taxed at a rate below 25 percent in subparagraph (B)(i), and (ii) by substituting below the maximum 15-percent rate amount for which would (without regard to this paragraph) be taxed at a rate below 39.6 percent in subparagraph (C)(ii)(I). (B) Maximum amounts defined For purposes of applying section 1(h) with the modifications described in subparagraph (A)— (i) Maximum zero rate amount The maximum zero rate amount shall be— (I) in the case of a joint return or surviving spouse, $77,200, (II) in the case of an individual who is a head of 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 subclause (I), and (IV) in the case of an estate or trust, $2,600. (ii) Maximum 15-percent rate amount The maximum 15-percent rate amount 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 clauses (i) and (ii) of subparagraph (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under subsection (f)(3) 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. If any increase under this subparagraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50. (6) Section 15 not to apply Section 15 shall not apply to any change in a rate of tax by reason of this subsection. . (b) Due diligence tax preparer requirement with respect to head of household filing status Subsection (g) of section 6695 is amended to read as follows: (g) Failure to be diligent in determining eligibility for certain tax benefits Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining— (1) eligibility to file as a head of household (as defined in section 2(b)) on the return, or (2) eligibility for, or the amount of, the credit allowable by section 24, 25A(a)(1), or 32, shall pay a penalty of $500 for each such failure. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11002. Inflation adjustments based on chained CPI (a) In general Subsection (f) of section 1 is amended by striking paragraph (3) and by inserting after paragraph (2) the following new paragraph: (3) 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 CPI for calendar year 2016, multiplied by the amount determined under subparagraph (B). (B) Amount determined The amount determined under this clause is the amount obtained by dividing— (i) the C-CPI-U for calendar year 2016, by (ii) the CPI for calendar year 2016. (C) Special rule for adjustments with a base year after 2016 For purposes of any provision of this title which provides for the substitution of a year after 2016 for 2016 in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting the C-CPI-U for calendar year 2016 for the CPI for calendar year 2016 and all that follows in clause (ii) thereof. . (b) C-CPI-U Subsection (f) of section 1 is amended by striking paragraph (7), by redesignating paragraph (6) as paragraph (7), and by inserting after paragraph (5) the following new paragraph: (6) 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. . (c) Application to permanent tax tables (1) In general Section 1(f)(2)(A) is amended to read as follows: (A) except as provided in paragraph (8), by increasing the minimum and maximum dollar amounts for each bracket for which a tax is imposed under such table by the cost-of-living adjustment for such calendar year, determined— (i) except as provided in clause (ii), by substituting 1992 for 2016 in paragraph (3)(A)(ii), and (ii) in the case of adjustments to the dollar amounts at which the 36 percent rate bracket begins or at which the 39.6 percent rate bracket begins, by substituting 1993 for 2016 in paragraph (3)(A)(ii), . (2) Conforming amendments Section 1(i) is amended— (A) by striking for 1992 in subparagraph (B) in paragraph (1)(C) and inserting for 2016 in subparagraph (A)(ii) , and (B) by striking subsection (f)(3)(B) shall be applied by substituting 2012 for 1992 in paragraph (3)(C) and inserting subsection (f)(3)(A)(ii) shall be applied by substituting 2012 for 2016 . (d) Application to other Internal Revenue Code of 1986 provisions (1) The following sections are each amended by striking for calendar year 1992 in subparagraph (B) and inserting for calendar year 2016 in subparagraph (A)(ii) : (A) Section 23(h)(2). (B) Paragraphs (1)(A)(ii) and (2)(A)(ii) of section 25A(h). (C) Section 25B(b)(3)(B). (D) Subsection (b)(2)(B)(ii)(II), and clauses (i) and (ii) of subsection (j)(1)(B), of section 32. (E) Section 36B(f)(2)(B)(ii)(II). (F) Section 41(e)(5)(C)(i). (G) Subsections (e)(3)(D)(ii) and (h)(3)(H)(i)(II) of section 42. (H) Section 45R(d)(3)(B)(ii). (I) Section 55(d)(4)(A)(ii). (J) Section 62(d)(3)(B). (K) Section 63(c)(4)(B). (L) Section 125(i)(2)(B). (M) Section 135(b)(2)(B)(ii). (N) Section 137(f)(2). (O) Section 146(d)(2)(B). (P) Section 147(c)(2)(H)(ii). (Q) Section 151(d)(4)(B). (R) Section 179(b)(6)(A)(ii). (S) Subsections (b)(5)(C)(i)(II) and (g)(8)(B) of section 219. (T) Section 220(g)(2). (U) Section 221(f)(1)(B). (V) Section 223(g)(1)(B). (W) Section 408A(c)(3)(D)(ii). (X) Section 430(c)(7)(D)(vii)(II). (Y) Section 512(d)(2)(B). (Z) Section 513(h)(2)(C)(ii). (AA) Section 831(b)(2)(D)(ii). (BB) Section 877A(a)(3)(B)(i)(II). (CC) Section 2010(c)(3)(B)(ii). (DD) Section 2032A(a)(3)(B). (EE) Section 2503(b)(2)(B). (FF) Section 4261(e)(4)(A)(ii). (GG) Section 5000A(c)(3)(D)(ii). (HH) Section 6323(i)(4)(B). (II) Section 6334(g)(1)(B). (JJ) Section 6601(j)(3)(B). (KK) Section 6651(i)(1). (LL) Section 6652(c)(7)(A). (MM) Section 6695(h)(1). (NN) Section 6698(e)(1). (OO) Section 6699(e)(1). (PP) Section 6721(f)(1). (QQ) Section 6722(f)(1). (RR) Section 7345(f)(2). (SS) Section 7430(c)(1). (TT) Section 9831(d)(2)(D)(ii)(II). (2) Sections 41(e)(5)(C)(ii) and 68(b)(2)(B) are each amended— (A) by striking 1(f)(3)(B) and inserting 1(f)(3)(A)(ii) , and (B) by striking 1992 and inserting 2016 . (3) Section 42(h)(6)(G) is amended— (A) by striking for calendar year 1987 in clause (i)(II) and inserting for calendar year 2016 in subparagraph (A)(ii) thereof , and (B) by striking if the CPI for any calendar year and all that follows in clause (ii) and inserting if the C-CPI-U for any calendar year (as defined in section 1(f)(6)) exceeds the C-CPI-U for the preceding calendar year by more than 5 percent, the C-CPI-U for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i). In the case of a base calendar year before 2017, the C-CPI-U for such year shall be determined by multiplying the CPI for such year by the amount determined under section 1(f)(3)(B). . (4) Section 59(j)(2)(B) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (5) Section 132(f)(6)(A)(ii) is amended by striking for calendar year 1992 and inserting for calendar year 2016 in subparagraph (A)(ii) thereof . (6) Section 162(o)(3) is amended by striking adjusted for changes in the Consumer Price Index (as defined in section 1(f)(5)) since 1991 and inserting “adjusted by increasing any such amount under the 1991 agreement by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1990 for calendar year 2016 in subparagraph (A)(ii) thereof . (7) So much of clause (ii) of section 213(d)(10)(B) as precedes the last sentence is amended to read as follows: (ii) Medical care cost adjustment For purposes of clause (i), the medical care cost adjustment for any calendar year is the percentage (if any) by which— (I) the medical care component of the C-CPI-U (as defined in section 1(f)(6)) for August of the preceding calendar year, exceeds (II) such component of the CPI (as defined in section 1(f)(4)) for August of 1996, multiplied by the amount determined under section 1(f)(3)(B). . (8) Subparagraph (B) of section 280F(d)(7) is amended to read as follows: (B) Automobile price inflation adjustment For purposes of this paragraph— (i) In general The automobile price inflation adjustment for any calendar year is the percentage (if any) by which— (I) the C-CPI-U automobile component for October of the preceding calendar year, exceeds (II) the automobile component of the CPI (as defined in section 1(f)(4)) for October of 1987, multiplied by the amount determined under 1(f)(3)(B). (ii) C-CPI-U automobile component The term C-CPI-U automobile component means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)). . (9) Section 911(b)(2)(D)(ii)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (10) Paragraph (2) of section 1274A(d) is amended to read as follows: (2) Adjustment for inflation In the case of any debt instrument arising out of a sale or exchange during any calendar year after 1989, each dollar amount contained in the preceding provisions of this section shall be increased by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1988 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). . (11) Section 4161(b)(2)(C)(i)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (12) Section 4980I(b)(3)(C)(v)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (13) Section 6039F(d) is amended by striking subparagraph (B) thereof shall be applied by substituting 1995 for 1992 and inserting subparagraph (A)(ii) thereof shall be applied by substituting 1995 for 2016 . (14) Section 7872(g)(5) is amended to read as follows: (5) Adjustment of limit for inflation In the case of any loan made during any calendar year after 1986, the dollar amount in paragraph (2) shall be increased by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1985 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. II Deduction for qualified business income of pass-thru entities 11011. Deduction for qualified business income (a) In general Part VI of subchapter B of chapter 1 is amended by adding at the end the following new section: 199A. Qualified business income (a) In general In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the sum of— (1) the lesser of— (A) the combined qualified business income amount of the taxpayer, or (B) an amount equal to 20 percent of the excess (if any) of— (i) the taxable income of the taxpayer for the taxable year, over (ii) the sum of any net capital gain (as defined in section 1(h)), plus the aggregate amount of the qualified cooperative dividends, of the taxpayer for the taxable year, plus (2) the lesser of— (A) 20 percent of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year, or (B) taxable income (reduced by the net capital gain (as so defined)) of the taxpayer for the taxable year. The amount determined under the preceding sentence shall not exceed the taxable income (reduced by the net capital gain (as so defined)) of the taxpayer for the taxable year. (b) Combined qualified business income amount For purposes of this section— (1) In general The term combined qualified business income amount means, with respect to any taxable year, an amount equal to— (A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus (B) 20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year. (2) Determination of deductible amount for each trade or business The amount determined under this paragraph with respect to any qualified trade or business is the lesser of— (A) 20 percent of the taxpayer's qualified business income with respect to the qualified trade or business, or (B) the greater of— (i) 50 percent of the W–2 wages with respect to the qualified trade or business, or (ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property. (3) Modifications to limit based on taxable income (A) Exception from limit In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph (2) shall be applied without regard to subparagraph (B). (B) Phase-in of limit for certain taxpayers (i) In general If— (I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and (II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business, then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii). (ii) Amount of reduction The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as— (I) the amount by which the taxpayer's taxable income for the taxable year exceeds the threshold amount, bears to (II) $50,000 ($100,000 in the case of a joint return). (iii) Excess amount For purposes of clause (ii), the excess amount is the excess of— (I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over (II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph). (4) Wages, etc (A) In general The term W–2 wages means, with respect to any person for any taxable year of such person, the amounts described in paragraphs (3) and (8) of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. (B) Limitation to wages attributable to qualified business income Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1). (C) Return requirement Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return. (5) Acquisitions, dispositions, and short taxable years The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year. (6) Qualified property For purposes of this section: (A) In general The term qualified property means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167— (i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year, (ii) which is used at any point during the taxable year in the production of qualified business income, and (iii) the depreciable period for which has not ended before the close of the taxable year. (B) Depreciable period The term depreciable period means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of— (i) the date that is 10 years after such date, or (ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to subsection (g) thereof). (c) Qualified business income For purposes of this section— (1) In general The term qualified business income means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends, qualified cooperative dividends, or qualified publicly traded partnership income. (2) Carryover of losses If the net amount of qualified income, gain, deduction, and loss with respect to qualified trades or businesses of the taxpayer for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year. (3) Qualified items of income, gain, deduction, and loss For purposes of this subsection— (A) In general The term qualified items of income, gain, deduction, and loss means items of income, gain, deduction, and loss to the extent such items are— (i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting qualified trade or business (within the meaning of section 199A) for nonresident alien individual or a foreign corporation or for a foreign corporation each place it appears), and (ii) included or allowed in determining taxable income for the taxable year. (B) Exceptions The following investment items shall not be taken into account as a qualified item of income, gain, deduction, or loss: (i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss. (ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). (iii) Any interest income other than interest income which is properly allocable to a trade or business. (iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting qualified trade or business for controlled foreign corporation ). (v) 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)). (vi) Any amount received from an annuity which is not received in connection with the trade or business. (vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses. (4) Treatment of reasonable compensation and guaranteed payments Qualified business income shall not include— (A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business, (B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and (C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business. (d) Qualified trade or business For purposes of this section— (1) In general The term qualified trade or business means any trade or business other than— (A) a specified service trade or business, or (B) the trade or business of performing services as an employee. (2) Specified service trade or business The term specified service trade or business means any trade or business— (A) which is described in section 1202(e)(3)(A) (applied without regard to the words engineering, architecture, ) or which would be so described if the term employees or owners were substituted for employees therein, or (B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). (3) Exception for specified service businesses based on taxpayer's income (A) In general If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then— (i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but (ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section. (B) Applicable percentage For purposes of subparagraph (A), the term applicable percentage means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of— (i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to (ii) $50,000 ($100,000 in the case of a joint return). (e) Other definitions For purposes of this section— (1) Taxable income Taxable income shall be computed without regard to the deduction allowable under this section. (2) Threshold amount (A) In general The term threshold amount means $157,500 (200 percent of such amount in the case of a joint return). (B) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amount in subparagraph (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(f)(3) 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. The amount of any increase under the preceding sentence shall be rounded as provided in section 1(f)(7). (3) Qualified REIT dividend The term qualified REIT dividend means any dividend from a real estate investment trust received during the taxable year which— (A) is not a capital gain dividend, as defined in section 857(b)(3), and (B) is not qualified dividend income, as defined in section 1(h)(11). (4) Qualified cooperative dividend The term qualified cooperative dividend means any patronage dividend (as defined in section 1388(a)), any per-unit retain allocation (as defined in section 1388(f)), and any qualified written notice of allocation (as defined in section 1388(c)), or any similar amount received from an organization described in subparagraph (B)(ii), which— (A) is includible in gross income, and (B) is received from— (i) an organization or corporation described in section 501(c)(12) or 1381(a), or (ii) an organization which is governed under this title by the rules applicable to cooperatives under this title before the enactment of subchapter T. (5) Qualified publicly traded partnership income The term qualified publicly traded partnership income means, with respect to any qualified trade or business of a taxpayer, the sum of— (A) the net amount of such taxpayer's allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) which is not treated as a corporation under section 7704(c), plus (B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a). (f) Special rules (1) Application to partnerships and S corporations (A) In general In the case of a partnership or S corporation— (i) this section shall be applied at the partner or shareholder level, (ii) each partner or shareholder shall take into account such person's allocable share of each qualified item of income, gain, deduction, and loss, and (iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages and unadjusted basis immediately after acquisition of qualified property for the taxable year in an amount equal to such person's allocable share of the W–2 wages and the unadjusted basis immediately after acquisition of qualified property of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary). For purposes of clause (iii), a partner's or shareholder's allocable share of W–2 wages shall be determined in the same manner as the partner's or shareholder's allocable share of wage expenses. For purposes of such clause, partner's or shareholder's allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner’s or shareholder’s allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder's pro rata share of an item. (B) Application to trusts and estates Rules similar to the rules under section 199(d)(1)(B)(i) (as in effect on December 1, 2017) for the apportionment of W–2 wages shall apply to the apportionment of W–2 wages and the apportionment of unadjusted basis immediately after acquisition of qualified property under this section. (C) Treatment of trades or business in Puerto Rico (i) In general In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term United States shall include the Commonwealth of Puerto Rico. (ii) Special rule for applying limit In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico. (2) Coordination with minimum tax For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59. (3) Deduction limited to income taxes The deduction under subsection (a) shall only be allowed for purposes of this chapter. (4) Regulations The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations— (A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and (B) for the application of this section in the case of tiered entities. (g) Deduction allowed to specified agricultural or horticultural cooperatives (1) In general In the case of any taxable year of a specified agricultural or horticultural cooperative beginning after December 31, 2017, there shall be allowed a deduction in an amount equal to the lesser of— (A) 20 percent of the excess (if any) of— (i) the gross income of a specified agricultural or horticultural cooperative, over (ii) the qualified cooperative dividends (as defined in subsection (e)(4)) paid during the taxable year for the taxable year, or (B) the greater of— (i) 50 percent of the W–2 wages of the cooperative with respect to its trade or business, or (ii) the sum of 25 percent of the W–2 wages of the cooperative with respect to its trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property of the cooperative. (2) Limitation The amount determined under paragraph (1) shall not exceed the taxable income of the specified agricultural or horticultural for the taxable year. (3) Specified agricultural or horticultural cooperative For purposes of this subsection, the term specified agricultural or horticultural cooperative means an organization to which part I of subchapter T applies which is engaged in— (A) the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, (B) the marketing of agricultural or horticultural products which its patrons have so manufactured, produced, grown, or extracted, or (C) the provision of supplies, equipment, or services to farmers or to organizations described in subparagraph (A) or (B). (h) Anti-abuse rules The Secretary shall— (1) apply rules similar to the rules under section 179(d)(2) in order to prevent the manipulation of the depreciable period of qualified property using transactions between related parties, and (2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges or involuntary conversions. (i) Termination This section shall not apply to taxable years beginning after December 31, 2025. . (b) Treatment of deduction in computing adjusted gross and taxable income (1) Deduction not allowed in computing adjusted gross income Section 62(a) is amended by adding at the end the following new sentence: The deduction allowed by section 199A shall not be treated as a deduction described in any of the preceding paragraphs of this subsection. . (2) Deduction allowed to nonitemizers Section 63(b) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and , and by adding at the end the following new paragraph: (3) the deduction provided in section 199A. . (3) Deduction allowed to itemizers without limits on itemized deductions Section 63(d) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and , and by adding at the end the following new paragraph: (3) the deduction provided in section 199A. . (4) Conforming amendment Section 3402(m)(1) is amended by inserting and the estimated deduction allowed under section 199A after chapter 1 . (c) Accuracy-related penalty on determination of applicable percentage Section 6662(d)(1) is amended by inserting at the end the following new subparagraph: (C) Special rule for taxpayers claiming section 199A deduction In the case of any taxpayer who claims the deduction allowed under section 199A for the taxable year, subparagraph (A) shall be applied by substituting 5 percent for 10 percent . . (d) Conforming amendments (1) Section 172(d) is amended by adding at the end the following new paragraph: (8) Qualified business income deduction The deduction under section 199A shall not be allowed. . (2) Section 246(b)(1) is amended by inserting 199A, before 243(a)(1) . (3) Section 613(a) is amended by inserting and without the deduction under section 199A after and without the deduction under section 199 . (4) Section 613A(d)(1) is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B), the following new subparagraph: (C) any deduction allowable under section 199A, . (5) Section 170(b)(2)(D) is amended by striking and in clause (iv), by striking the period at the end of clause (v), and by adding at the end the following new clause: (vi) section 199A(g). . (6) The table of sections for part VI of subchapter B of chapter 1 is amended by inserting at the end the following new item: Sec. 199A. Qualified business income. . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11012. Limitation on losses for taxpayers other than corporations (a) In general Section 461 is amended by adding at the end the following new subsection: (l) Limitation on excess business losses of noncorporate taxpayers (1) Limitation In the case of taxable year of a taxpayer other than a corporation beginning after December 31, 2017, and before January 1, 2026— (A) subsection (j) (relating to limitation on excess farm losses of certain taxpayers) shall not apply, and (B) any excess business loss of the taxpayer for the taxable year shall not be allowed. (2) Disallowed loss carryover Any loss which is disallowed under paragraph (1) shall be treated as a net operating loss carryover to the following taxable year under section 172. (3) Excess business loss For purposes of this subsection— (A) In general The term excess business loss means the excess (if any) of— (i) the aggregate deductions of the taxpayer for the taxable year which are attributable to trades or businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1)), over (ii) the sum of— (I) the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such trades or businesses, plus (II) $250,000 (200 percent of such amount in the case of a joint return). (B) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $250,000 amount in subparagraph (A)(ii)(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(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. (4) Application of subsection in case of partnerships and s corporations In the case of a partnership or S corporation— (A) this subsection shall be applied at the partner or shareholder level, and (B) each partner's or shareholder's allocable share of the items of income, gain, deduction, or loss of the partnership or S corporation for any taxable year from trades or businesses attributable to the partnership or S corporation shall be taken into account by the partner or shareholder in applying this subsection to the taxable year of such partner or shareholder with or within which the taxable year of the partnership or S corporation ends. For purposes of this paragraph, in the case of an S corporation, an allocable share shall be the shareholder’s pro rata share of an item. (5) Additional reporting The Secretary shall prescribe such additional reporting requirements as the Secretary determines necessary to carry out the purposes of this subsection. (6) Coordination with section 469 This subsection shall be applied after the application of section 469. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. III Tax benefits for families and individuals 11021. Increase in standard deduction (a) In general Subsection (c) of section 63 is amended by adding at the end the following new paragraph: (7) Special rules for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Increase in standard deduction Paragraph (2) shall be applied— (i) by substituting $18,000 for $4,400 in subparagraph (B), and (ii) by substituting $12,000 for $3,000 in subparagraph (C). (B) Adjustment for inflation (i) In general Paragraph (4) shall not apply to the dollar amounts contained in paragraphs (2)(B) and (2)(C). (ii) Adjustment of increased amounts In the case of a taxable year beginning after 2018, the $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any increase under this clause is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11022. Increase in and modification of child tax credit (a) In general Section 24 is amended by adding at the end the following new subsection: (h) Special rules for taxable years 2018 through 2025 (1) In general In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, this section shall be applied as provided in paragraphs (2) through (7). (2) Credit amount Subsection (a) shall be applied by substituting $2,000 for $1,000 . (3) Limitation In lieu of the amount determined under subsection (b)(2), the threshold amount shall be $400,000 in the case of a joint return ($200,000 in any other case). (4) Partial credit allowed for certain other dependents (A) In general The credit determined under subsection (a) (after the application of paragraph (2)) shall be increased by $500 for each dependent of the taxpayer (as defined in section 152) other than a qualifying child described in subsection (c). (B) Exception for certain noncitizens Subparagraph (A) shall not apply with respect to any individual who would not be a dependent if subparagraph (A) of section 152(b)(3) were applied without regard to all that follows resident of the United States . (C) Certain qualifying children In the case of any qualifying child with respect to whom a credit is not allowed under this section by reason of paragraph (7), such child shall be treated as a dependent to whom subparagraph (A) applies. (5) Maximum amount of refundable credit (A) In general The amount determined under subsection (d)(1)(A) with respect to any qualifying child shall not exceed $1,400, and such subsection shall be applied without regard to paragraph (4) of this subsection. (B) Adjustment for inflation In the case of a taxable year beginning after 2018, the $1,400 amount in subparagraph (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(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any increase under this clause is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. (6) Earned income threshold for refundable credit Subsection (d)(1)(B)(i) shall be applied by substituting $2,500 for $3,000 . (7) Social security number required No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the social security number of such child on the return of tax for the taxable year. For purposes of the preceding sentence, 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— (A) 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, and (B) before the due date for such return. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11023. Increased limitation for certain charitable contributions (a) 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 beginning after December 31, 2017, and before January 1, 2026, 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) for any taxable year described in such clause, 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 For each taxable year described in clause (i), and each taxable year to which any contribution under this subparagraph is carried over under clause (ii), subparagraph (A) shall be applied by reducing (but not below zero) the contribution limitation allowed for the taxable year under such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year, and subparagraph (B) shall be applied by treating any reference to subparagraph (A) as a reference to both subparagraph (A) and this subparagraph. . (b) Effective date The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2017. 11024. Increased contributions to ABLE accounts (a) Increase in limitation for contributions from compensation of individuals with disabilities (1) In general Section 529A(b)(2)(B) is amended to read as follows: (B) except in the case of contributions under subsection (c)(1)(C), if such contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the sum of— (i) the amount in effect under section 2503(b) for the calendar year in which the taxable year begins, plus (ii) in the case of any contribution by a designated beneficiary described in paragraph (7) before January 1, 2026, the lesser of— (I) compensation (as defined by section 219(f)(1)) includible in the designated beneficiary's gross income for the taxable year, or (II) an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins. . (2) Responsibility for contribution limitation Paragraph (2) of section 529A(b) is amended by adding at the end the following: A designated beneficiary (or a person acting on behalf of such beneficiary) shall maintain adequate records for purposes of ensuring, and shall be responsible for ensuring, that the requirements of subparagraph (B)(ii) are met. (3) Eligible designated beneficiary Section 529A(b) is amended by adding at the end the following: (7) Special rules related to contribution limit For purposes of paragraph (2)(B)(ii)— (A) Designated beneficiary A designated beneficiary described in this paragraph is an employee (including an employee within the meaning of section 401(c)) with respect to whom— (i) no contribution is made for the taxable year to a defined contribution plan (within the meaning of section 414(i)) with respect to which the requirements of section 401(a) or 403(a) are met, (ii) no contribution is made for the taxable year to an annuity contract described in section 403(b), and (iii) no contribution is made for the taxable year to an eligible deferred compensation plan described in section 457(b). (B) Poverty line The term poverty line has the meaning given such term by section 673 of the Community Services Block Grant Act ( 42 U.S.C. 9902 ). . (b) Allowance of saver’s credit for ABLE contributions by account holder Section 25B(d)(1) is amended by striking and at the end of subparagraph (B)(ii), by striking the period at the end of subparagraph (C) and inserting , and , and by inserting at the end the following: (D) the amount of contributions made before January 1, 2026, by such individual to the ABLE account (within the meaning of section 529A) of which such individual is the designated beneficiary. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 11025. Rollovers to ABLE programs from 529 programs (a) In general Clause (i) of section 529(c)(3)(C) is amended by striking or at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or , and by adding at the end the following: (III) before January 1, 2026, to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B)(i). . (b) Effective date The amendments made by this section shall apply to distributions after the date of the enactment of this Act. 11026. Treatment of certain individuals performing services in the Sinai Peninsula of Egypt (a) In general For purposes of the following provisions of the Internal Revenue Code of 1986, with respect to the applicable period, a qualified hazardous duty area shall be treated in the same manner as if it were a combat zone (as determined under section 112 of such Code): (1) Section 2(a)(3) (relating to special rule where deceased spouse was in missing status). (2) Section 112 (relating to the exclusion of certain combat pay of members of the Armed Forces). (3) Section 692 (relating to income taxes of members of Armed Forces on death). (4) Section 2201 (relating to members of the Armed Forces dying in combat zone or by reason of combat-zone-incurred wounds, etc.). (5) Section 3401(a)(1) (defining wages relating to combat pay for members of the Armed Forces). (6) Section 4253(d) (relating to the taxation of phone service originating from a combat zone from members of the Armed Forces). (7) Section 6013(f)(1) (relating to joint return where individual is in missing status). (8) Section 7508 (relating to time for performing certain acts postponed by reason of service in combat zone). (b) Qualified hazardous duty area For purposes of this section, the term qualified hazardous duty area means the Sinai Peninsula of Egypt, if as of the date of the enactment of this section any member of the Armed Forces of the United States is entitled to special pay under section 310 of title 37, United States Code (relating to special pay; duty subject to hostile fire or imminent danger), for services performed in such location. Such term includes such location only during the period such entitlement is in effect. (c) Applicable period (1) In general Except as provided in paragraph (2), the applicable period is— (A) the portion of the first taxable year ending after June 9, 2015, which begins on such date, and (B) any subsequent taxable year beginning before January 1, 2026. (2) Withholding In the case of subsection (a)(5), the applicable period is— (A) the portion of the first taxable year ending after the date of the enactment of this Act which begins on such date, and (B) any subsequent taxable year beginning before January 1, 2026. (d) Effective date (1) In general Except as provided in paragraph (2), the provisions of this section shall take effect on June 9, 2015. (2) Withholding Subsection (a)(5) shall apply to remuneration paid after the date of the enactment of this Act. 11027. Temporary reduction in medical expense deduction floor (a) In general Subsection (f) of section 213 is amended to read as follows: (f) Special rules for 2013 through 2018 In the case of any taxable year— (1) beginning after December 31, 2012, and ending before January 1, 2017, in the case of a taxpayer if such taxpayer or such taxpayer's spouse has attained age 65 before the close of such taxable year, and (2) beginning after December 31, 2016, and ending before January 1, 2019, in the case of any taxpayer, subsection (a) shall be applied with respect to a taxpayer by substituting 7.5 percent for 10 percent . . (b) Minimum tax preference not to apply Section 56(b)(1)(B) is amended by adding at the end the following new sentence: This subparagraph shall not apply to taxable years beginning after December 31, 2016, and ending before January 1, 2019 . (c) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 11028. Relief for 2016 disaster areas (a) In general For purposes of this section, the term 2016 disaster area means any area with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. (b) Special rules for use of retirement funds with respect to areas damaged by 2016 disasters (1) Tax-Favored Withdrawals From Retirement Plans (A) In general Section 72(t) of the Internal Revenue Code of 1986 shall not apply to any qualified 2016 disaster distribution. (B) Aggregate dollar limitation (i) In general For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified 2016 disaster distributions for any taxable year shall not exceed the excess (if any) of— (I) $100,000, over (II) the aggregate amounts treated as qualified 2016 disaster distributions received by such individual for all prior taxable years. (ii) Treatment of plan distributions If a distribution to an individual would (without regard to clause (i)) be a qualified 2016 disaster distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified 2016 disaster distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $100,000. (iii) Controlled group For purposes of clause (ii), the term controlled group means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986. (C) Amount distributed may be repaid (i) In general Any individual who receives a qualified 2016 disaster distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) of the Internal Revenue Code of 1986, as the case may be. (ii) Treatment of repayments of distributions from eligible retirement plans other than iras For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified 2016 disaster distribution in an eligible rollover distribution (as defined in section 402(c)(4) of the Internal Revenue Code of 1986) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (iii) Treatment of repayments for distributions from iras For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an individual retirement plan (as defined by section 7701(a)(37) of the Internal Revenue Code of 1986), then, to the extent of the amount of the contribution, the qualified 2016 disaster distribution shall be treated as a distribution described in section 408(d)(3) of such Code and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (D) Definitions For purposes of this paragraph— (i) Qualified 2016 disaster distribution Except as provided in subparagraph (B), the term qualified 2016 disaster distribution means any distribution from an eligible retirement plan made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was located in a disaster area described in subsection (a) and who has sustained an economic loss by reason of the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area. (ii) Eligible retirement plan The term eligible retirement plan shall have the meaning given such term by section 402(c)(8)(B) of the Internal Revenue Code of 1986. (E) Income inclusion spread over 3-year period (i) In general In the case of any qualified 2016 disaster distribution, unless the taxpayer elects not to have this subparagraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable-year period beginning with such taxable year. (ii) Special rule For purposes of clause (i), rules similar to the rules of subparagraph (E) of section 408A(d)(3) of the Internal Revenue Code of 1986 shall apply. (F) Special rules (i) Exemption of distributions from trustee to trustee transfer and withholding rules For purposes of sections 401(a)(31), 402(f), and 3405 of the Internal Revenue Code of 1986, qualified 2016 disaster distribution shall not be treated as eligible rollover distributions. (ii) Qualified 2016 disaster distributions treated as meeting plan distribution requirements For purposes of the Internal Revenue Code of 1986, a qualified 2016 disaster distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A) of the Internal Revenue Code of 1986. (2) Provisions Relating to Plan Amendments (A) In general If this paragraph applies to any amendment to any plan or annuity contract, such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii)(I). (B) Amendments to which subsection applies (i) In general This paragraph shall apply to any amendment to any plan or annuity contract which is made— (I) pursuant to any provision of this section, or pursuant to any regulation under any provision of this section, and (II) on or before the last day of the first plan year beginning on or after January 1, 2018, or such later date as the Secretary prescribes. In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), subclause (II) shall be applied by substituting the date which is 2 years after the date otherwise applied under subclause (II). (ii) Conditions This paragraph shall not apply to any amendment to a plan or contract unless such amendment applies retroactively for such period, and shall not apply to any such amendment unless the plan or contract is operated as if such amendment were in effect during the period— (I) beginning on the date that this section or the regulation described in clause (i)(I) takes effect (or in the case of a plan or contract amendment not required by this section or such regulation, the effective date specified by the plan), and (II) ending on the date described in clause (i)(II) (or, if earlier, the date the plan or contract amendment is adopted). (c) Special rules for personal casualty losses related to 2016 major disaster (1) In general If an individual has a net disaster loss for any taxable year beginning after December 31, 2015, and before January 1, 2018— (A) the amount determined under section 165(h)(2)(A)(ii) of the Internal Revenue Code of 1986 shall be equal to the sum of— (i) such net disaster loss, and (ii) so much of the excess referred to in the matter preceding clause (i) of section 165(h)(2)(A) of such Code (reduced by the amount in clause (i) of this subparagraph) as exceeds 10 percent of the adjusted gross income of the individual, (B) section 165(h)(1) of such Code shall be applied by substituting $500 for $500 ($100 for taxable years beginning after December 31, 2009) , (C) the standard deduction determined under section 63(c) of such Code shall be increased by the net disaster loss, and (D) section 56(b)(1)(E) of such Code shall not apply to so much of the standard deduction as is attributable to the increase under subparagraph (C) of this paragraph. (2) Net disaster loss For purposes of this subsection, the term net disaster loss means the excess of qualified disaster-related personal casualty losses over personal casualty gains (as defined in section 165(h)(3)(A) of the Internal Revenue Code of 1986). (3) Qualified disaster-related personal casualty losses For purposes of this paragraph, the term qualified disaster-related personal casualty losses means losses described in section 165(c)(3) of the Internal Revenue Code of 1986 which arise in a disaster area described in subsection (a) on or after January 1, 2016, and which are attributable to the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area. IV Education 11031. Treatment of student loans discharged on account of death or disability (a) In general 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 for such taxable year by reasons of the discharge (in whole or in part) of any loan described in subparagraph (B) after December 31, 2017, and before January 1, 2026, 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) Effective date The amendment made by this section shall apply to discharges of indebtedness after December 31, 2017. 11032. 529 account funding for elementary and secondary education (a) In general (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 or attendance at an elementary or secondary public, private, or religious 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 described in subsection (c)(7) incurred during the taxable year. . (b) Effective date The amendments made by this section shall apply to distributions made after December 31, 2017. V Deductions and exclusions 11041. Suspension of deduction for personal exemptions (a) In general Subsection (d) of section 151 is amended— (1) by striking In the case of in paragraph (4) and inserting Except as provided in paragraph (5), in the case of , and (2) by adding at the end the following new paragraph: (5) Special rules for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Exemption amount The term exemption amount means zero. (B) References For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section. . (b) Application to estates and trusts Section 642(b)(2)(C) is amended by adding at the end the following new clause: (iii) Years when personal exemption amount is zero (I) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, clause (i) shall be applied by substituting $4,150 for the exemption amount under section 151(d) . (II) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2018, the $4,150 amount in subparagraph (A) shall be increased in the same manner as provided in section 6334(d)(4)(C). . (c) Modification of wage withholding rules (1) In general Section 3402(a)(2) is amended by striking means the amount and all that follows and inserting means the amount by which the wages exceed the taxpayer's withholding allowance, prorated to the payroll period. . (2) Conforming amendments (A) Section 3401 is amended by striking subsection (e). (B) Paragraphs (1) and (2) of section 3402(f) are amended to read as follows: (1) In general Under rules determined by the Secretary, an employee receiving wages shall on any day be entitled to a withholding allowance determined based on— (A) whether the employee is an individual for whom a deduction is allowable with respect to another taxpayer under section 151; (B) if the employee is married, whether the employee's spouse is entitled to an allowance, or would be so entitled if such spouse were an employee receiving wages, under subparagraph (A) or (D), but only if such spouse does not have in effect a withholding allowance certificate claiming such allowance; (C) the number of individuals with respect to whom, on the basis of facts existing at the beginning of such day, there may reasonably be expected to be allowable a credit under section 24(a) for the taxable year under subtitle A in respect of which amounts deducted and withheld under this chapter in the calendar year in which such day falls are allowed as a credit; (D) any additional amounts to which the employee elects to take into account under subsection (m), but only if the employee's spouse does not have in effect a withholding allowance certificate making such an election; (E) the standard deduction allowable to such employee (one-half of such standard deduction in the case of an employee who is married (as determined under section 7703) and whose spouse is an employee receiving wages subject to withholding); and (F) whether the employee has withholding allowance certificates in effect with respect to more than 1 employer. (2) Allowance certificates (A) On commencement of employment On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding allowance certificate relating to the withholding allowance claimed by the employee, which shall in no event exceed the amount to which the employee is entitled. (B) Change of status If, on any day during the calendar year, an employee’s withholding allowance is in excess of the withholding allowance to which the employee would be entitled had the employee submitted a true and accurate withholding allowance certificate to the employer on that day, the employee shall within 10 days thereafter furnish the employer with a new withholding allowance certificate. If, on any day during the calendar year, an employee’s withholding allowance is greater than the withholding allowance claimed, the employee may furnish the employer with a new withholding allowance certificate relating to the withholding allowance to which the employee is so entitled, which shall in no event exceed the amount to which the employee is entitled on such day. (C) Change of status which affects next calendar year If on any day during the calendar year the withholding allowance to which the employee will be, or may reasonably be expected to be, entitled at the beginning of the employee's next taxable year under subtitle A is different from the allowance to which the employee is entitled on such day, the employee shall, in such cases and at such times as the Secretary shall by regulations prescribe, furnish the employer with a withholding allowance certificate relating to the withholding allowance which the employee claims with respect to such next taxable year, which shall in no event exceed the withholding allowance to which the employee will be, or may reasonably be expected to be, so entitled. . (C) Subsections (b)(1), (b)(2), (f)(3), (f)(4), (f)(5), (f)(7) (including the heading thereof), (g)(4), (l)(1), (l)(2), and (n) of section 3402 are each amended by striking exemption each place it appears and inserting allowance . (D) The heading of section 3402(f) is amended by striking exemptions and inserting allowance . (E) Section 3402(m) is amended by striking additional withholding allowances or additional reductions in withholding under this subsection. In determining the number of additional withholding allowances and inserting an additional withholding allowance or additional reductions in withholding under this subsection. In determining the additional withholding allowance . (F) Paragraphs (3) and (4) of section 3405(a) (and the heading for such paragraph (4)) are each amended by striking exemption each place it appears and inserting allowance . (G) Section 3405(a)(4) is amended by striking shall be determined and all that follows through 3 withholding exemptions and inserting shall be determined under rules prescribed by the Secretary . (d) Exception for determining property exempt from levy Section 6334(d) is amended by adding at the end the following new paragraph: (4) Years when personal exemption amount is zero (A) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, paragraph (2) shall not apply and for purposes of paragraph (1) the term exempt amount means an amount equal to— (i) the sum of the amount determined under subparagraph (B) and the standard deduction, divided by (ii) 52. (B) Amount determined For purposes of subparagraph (A), the amount determined under this subparagraph is $4,150 multiplied by the number of the taxpayer’s dependents for the taxable year in which the levy occurs. (C) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2018, the $4,150 amount in subparagraph (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(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. (D) 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. . (e) Persons required to make returns of income Section 6012 is amended by adding at the end the following new subsection: (f) Special rule for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, subsection (a)(1) shall not apply, and every individual who has gross income for the taxable year shall be required to make returns with respect to income taxes under subtitle A, except that a return shall not be required of— (1) 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 (2) an individual entitled to make a joint return if— (A) 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, (B) such individual and such individual’s spouse have the same household as their home at the close of the taxable year, (C) such individual’s spouse does not make a separate return, and (D) neither such individual nor such individual’s spouse is an individual described in section 63(c)(5) who has income (other than earned income) in excess of the amount in effect under section 63(c)(5)(A). . (f) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Wage withholding The Secretary of the Treasury may administer section 3402 for taxable years beginning before January 1, 2019, without regard to the amendments made by subsections (a) and (c). 11042. Limitation on deduction for State and local, etc. taxes (a) In general Subsection (b) of section 164 is amended by adding at the end the following new paragraph: (6) Limitation on individual deductions for taxable years 2018 through 2025 In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) foreign real property taxes shall not be taken into account under subsection (a)(1), and (B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return). The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 11043. Limitation on deduction for qualified residence interest (a) In general Section 163(h)(3) is amended by adding at the end the following new subparagraph: (F) Special rules for taxable years 2018 through 2025 (i) In general In the case of taxable years beginning after December 31, 2017, and before January 1, 2026— (I) Disallowance of home equity indebtedness interest Subparagraph (A)(ii) shall not apply. (II) Limitation on acquisition indebtedness Subparagraph (B)(ii) shall be applied by substituting $750,000 ($375,000 for $1,000,000 ($500,000 . (III) Treatment of indebtedness incurred on or before December 15, 2017 Subclause (II) shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year. (IV) Binding contract exception In the case of a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subclause (III) shall be applied by substituting April 1, 2018 for December 15, 2017 . (ii) Treatment of limitation in taxable years after December 31, 2025 In the case of taxable years beginning after December 31, 2025, the limitation under subparagraph (B)(ii) shall be applied to the aggregate amount of indebtedness of the taxpayer described in subparagraph (B)(i) without regard to the taxable year in which the indebtedness was incurred. (iii) Treatment of refinancings of indebtedness (I) In general In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness. (II) Limitation on period of refinancing Subclause (I) shall not apply to any indebtedness after the expiration of the term of the original indebtedness or, 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) Coordination with exclusion of income from discharge of indebtedness Section 108(h)(2) shall be applied without regard to this subparagraph. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11044. Modification of deduction for personal casualty losses (a) In general Subsection (h) of section 165 is amended by adding at the end the following new paragraph: (5) Limitation for taxable years 2018 through 2025 (A) In general In the case of an individual, except as provided in subparagraph (B), any personal casualty loss which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, and before January 1, 2026, shall be allowed as a deduction under subsection (a) only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)). (B) Exception related to personal casualty gains If a taxpayer has personal casualty gains for any taxable year to which subparagraph (A) applies— (i) subparagraph (A) shall not apply to the portion of the personal casualty loss not attributable to a Federally declared disaster (as so defined) to the extent such loss does not exceed such gains, and (ii) in applying paragraph (2) for purposes of subparagraph (A) to the portion of personal casualty loss which is so attributable to such a disaster, the amount of personal casualty gains taken into account under paragraph (2)(A) shall be reduced by the portion of such gains taken into account under clause (i). . (b) Effective date The amendment made by this section shall apply to losses incurred in taxable years beginning after December 31, 2017. 11045. Suspension of miscellaneous itemized deductions (a) In general Section 67 is amended by adding at the end the following new subsection: (g) Suspension for taxable years 2018 through 2025 Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11046. Suspension of overall limitation on itemized deductions (a) In general Section 68 is amended by adding at the end the following new subsection: (f) Section not to apply This section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11047. Suspension of exclusion for qualified bicycle commuting reimbursement (a) In general Section 132(f) is amended by adding at the end the following new paragraph: (8) Suspension of qualified bicycle commuting reimbursement exclusion Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11048. Suspension of exclusion for qualified moving expense reimbursement (a) In general Section 132(g) is amended— (1) by striking For purposes of this section, the term and inserting “For purposes of this section— (1) In general The term , and (2) by adding at the end the following new paragraph: (2) Suspension for taxable years 2018 through 2025 Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11049. Suspension of deduction for moving expenses (a) In general Section 217 is amended by adding at the end the following new subsection: (k) Suspension of deduction for taxable years 2018 through 2025 Except in the case of an individual to whom subsection (g) applies, this section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11050. 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, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, 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 amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11051. 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 sections for such subpart). (b) Conforming amendments (1) Corresponding repeal of provisions providing for inclusion of alimony in gross income (A) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (B) 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). (C) 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). (2) Related to repeal of section 215 (A) Section 62(a) is amended by striking paragraph (10). (B) Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof) . (C) Section 6724(d)(3) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C). (3) Related to repeal of section 71 (A) 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. . (B) Section 152(d)(5) is amended to read as follows: (5) Special rules for support (A) In general For purposes of this subsection— (i) payments to a spouse of alimony or separate maintenance payments shall not be treated as a payment by the payor spouse for the support of any dependent, and (ii) in the case of the remarriage of a parent, support of a child received from the parent's spouse shall be treated as received from the parent. (B) Alimony or separate maintenance payment For purposes of subparagraph (A), the term alimony or separate maintenance payment means any payment in cash if— (i) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument (as defined in section 121(d)(3)(C)), (ii) in the case of an individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and (iii) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse. . (C) Section 219(f)(1) is amended by striking the third sentence. (D) 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) . (E) 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) . (F) Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C) . (G) 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) . (4) Additional conforming amendments Section 7701(a)(17) is amended— (A) by striking sections 682 and 2516 and inserting section 2516 , and (B) by striking such sections each place it appears and inserting such section . (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, 2018, 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. VI Increase in estate and gift tax exemption 11061. Increase in estate and gift tax exemption (a) In general Section 2010(c)(3) is amended by adding at the end the following new subparagraph: (C) Increase in basic exclusion amount In the case of estates of decedents dying or gifts made after December 31, 2017, and before January 1, 2026, subparagraph (A) shall be applied by substituting $10,000,000 for $5,000,000 . . (b) Conforming amendment Subsection (g) of section 2001 is amended to read as follows: (g) Modifications to tax payable (1) Modifications to gift tax payable to reflect different tax rates For purposes of applying subsection (b)(2) with respect to 1 or more gifts, the rates of tax under subsection (c) in effect at the decedent's death shall, in lieu of the rates of tax in effect at the time of such gifts, be used both to compute— (A) the tax imposed by chapter 12 with respect to such gifts, and (B) the credit allowed against such tax under section 2505, including in computing— (i) the applicable credit amount under section 2505(a)(1), and (ii) the sum of the amounts allowed as a credit for all preceding periods under section 2505(a)(2). (2) Modifications to estate tax payable to reflect different basic exclusion amounts The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this section with respect to any difference between— (A) the basic exclusion amount under section 2010(c)(3) applicable at the time of the decedent's death, and (B) the basic exclusion amount under such section applicable with respect to any gifts made by the decedent. . (c) Effective date The amendments made by this section shall apply to estates of decedents dying and gifts made after December 31, 2017. VII Extension of time limit for contesting IRS levy 11071. Extension of time limit for contesting IRS levy (a) Extension of Time for Return of Property Subject to Levy Subsection (b) of section 6343 is amended by striking 9 months and inserting 2 years . (b) Period of Limitation on Suits Subsection (c) of section 6532 is amended— (1) by striking 9 months in paragraph (1) and inserting 2 years , and (2) by striking 9-month in paragraph (2) and inserting 2-year . (c) Effective Date The amendments made by this section shall apply to— (1) levies made after the date of the enactment of this Act, and (2) levies made on or before such date if the 9-month period has not expired under section 6343(b) of the Internal Revenue Code of 1986 (without regard to this section) as of such date. VIII Individual mandate 11081. Elimination of shared responsibility payment for individuals failing to maintain minimum essential coverage (a) In general Section 5000A(c) is amended— (1) in paragraph (2)(B)(iii), by striking 2.5 percent and inserting Zero percent , and (2) in paragraph (3)— (A) by striking $695 in subparagraph (A) and inserting $0 , and (B) by striking subparagraph (D). (b) Effective date The amendments made by this section shall apply to months beginning after December 31, 2018. B Alternative Minimum Tax 12001. Repeal of tax for corporations (a) In general Section 55(a) is amended by striking There and inserting In the case of a taxpayer other than a corporation, there . (b) Conforming amendments (1) Section 38(c)(6) is amended by adding at the end the following new subparagraph: (E) Corporations In the case of a corporation, this subsection shall be applied by treating the corporation as having a tentative minimum tax of zero. . (2) Section 53(d)(2) is amended by inserting , except that in the case of a corporation, the tentative minimum tax shall be treated as zero before the period at the end. (3) (A) Section 55(b)(1) is amended to read as follows: (1) Amount of tentative tax (A) In general The tentative minimum tax for the taxable year is the sum of— (i) 26 percent of so much of the taxable excess as does not exceed $175,000, plus (ii) 28 percent of so much of the taxable excess as exceeds $175,000. The amount determined under the preceding sentence shall be reduced by the alternative minimum tax foreign tax credit for the taxable year. (B) Taxable excess For purposes of this subsection, the term taxable excess means so much of the alternative minimum taxable income for the taxable year as exceeds the exemption amount. (C) Married individual filing separate return In the case of a married individual filing a separate return, subparagraph (A) shall be applied by substituting 50 percent of the dollar amount otherwise applicable under clause (i) and clause (ii) thereof. For purposes of the preceding sentence, marital status shall be determined under section 7703. . (B) Section 55(b)(3) is amended by striking paragraph (1)(A)(i) and inserting paragraph (1)(A) . (C) Section 59(a) is amended— (i) by striking subparagraph (A)(i) or (B)(i) of section 55(b)(1) (whichever applies) in lieu of the highest rate of tax specified in section 1 or 11 (whichever applies) in paragraph (1)(C) and inserting section 55(b)(1) in lieu of the highest rate of tax specified in section 1 , and (ii) in paragraph (2), by striking means and all that follows and inserting means the amount determined under the first sentence of section 55(b)(1)(A). . (D) Section 897(a)(2)(A) is amended by striking section 55(b)(1)(A) and inserting section 55(b)(1) . (E) Section 911(f) is amended— (i) in paragraph (1)(B)— (I) by striking section 55(b)(1)(A)(ii) and inserting section 55(b)(1)(B) , and (II) by striking section 55(b)(1)(A)(i) and inserting section 55(b)(1)(A) , and (ii) in paragraph (2)(B), by striking section 55(b)(1)(A)(ii) each place it appears and inserting section 55(b)(1)(B) . (4) Section 55(c)(1) is amended by striking , the section 936 credit allowable under section 27(b), and the Puerto Rico economic activity credit under section 30A . (5) Section 55(d), as amended by section 11002, is amended— (A) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, (B) in paragraph (2) (as so redesignated), by inserting and at the end of subparagraph (B), by striking , and at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D), and (C) in paragraph (3) (as so redesignated)— (i) by striking (b)(1)(A)(i) in subparagraph (B)(i) and inserting (b)(1)(A) , and (ii) by striking paragraph (3) in subparagraph (B)(iii) and inserting paragraph (2) . (6) Section 55 is amended by striking subsection (e). (7) Section 56(b)(2) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C). (8) (A) Section 56 is amended by striking subsections (c) and (g). (B) Section 847 is amended by striking the last sentence of paragraph (9). (C) Section 848 is amended by striking subsection (i). (9) Section 58(a) is amended by striking paragraph (3) and redesignating paragraph (4) as paragraph (3). (10) Section 59 is amended by striking subsections (b) and (f). (11) Section 11(d) is amended by striking the taxes imposed by subsection (a) and section 55 and inserting the tax imposed by subsection (a) . (12) Section 12 is amended by striking paragraph (7). (13) Section 168(k) is amended by striking paragraph (4). (14) Section 882(a)(1) is amended by striking , 55, . (15) Section 962(a)(1) is amended by striking sections 11 and 55 and inserting section 11 . (16) 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. (17) Section 6425(c)(1)(A) is amended to read as follows: (A) the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever is applicable, over . (18) Section 6655(e)(2) is amended by striking and alternative minimum taxable income each place it appears in subparagraphs (A) and (B)(i). (19) Section 6655(g)(1)(A) is amended by inserting plus at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 12002. Credit for prior year minimum tax liability of corporations (a) 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 of a corporation beginning in 2018, 2019, 2020, or 2021, 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 2021) 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. . (b) Treatment of references Section 53(d) is amended by adding at the end the following new paragraph: (3) AMT term references In the case of a corporation, any references in this subsection to section 55, 56, or 57 shall be treated as a reference to such section as in effect before the amendments made by Tax Cuts and Jobs Act . . (c) Conforming amendment Section 1374(b)(3)(B) is amended by striking the last sentence thereof. (d) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Conforming amendment The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2021. 12003. Increased exemption for individuals (a) In general Section 55(d), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: (4) Special rule for taxable years beginning after 2017 and before 2026 (A) In general In the case of any taxable year beginning after December 31, 2017, and before January 1, 2026— (i) paragraph (1) shall be applied— (I) by substituting $109,400 for $78,750 in subparagraph (A), and (II) by substituting $70,300 for $50,600 in subparagraph (B), and (ii) paragraph (2) shall be applied— (I) by substituting $1,000,000 for $150,000 in subparagraph (A), (II) by substituting 50 percent of the dollar amount applicable under subparagraph (A) for $112,500 in subparagraph (B), and (III) in the case of a taxpayer described in paragraph (1)(D), without regard to the substitution under subclause (I). (B) Inflation adjustment (i) In general In the case of any taxable year beginning in a calendar year after 2018, the amounts described in clause (ii) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof. (ii) Amounts described The amounts described in this clause are the $109,400 amount in subparagraph (A)(i)(I), the $70,300 amount in subparagraph (A)(i)(II), and the $1,000,000 amount in subparagraph (A)(ii)(I). (iii) Rounding Any increased amount determined under clause (i) shall be rounded to the nearest multiple of $100. (iv) Coordination with current adjustments In the case of any taxable year to which subparagraph (A) applies, no adjustment shall be made under paragraph (3) to any of the numbers which are substituted under subparagraph (A) and adjusted under this subparagraph. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. C Business-related provisions I Corporate provisions 13001. 21-percent corporate tax rate (a) In general Subsection (b) of section 11 is amended to read as follows: (b) Amount of tax The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income. . (b) Conforming amendments (1) The following sections are each amended by striking section 11(b)(1) and inserting section 11(b) : (A) Section 280C(c)(3)(B)(ii)(II). (B) Paragraphs (2)(B) and (6)(A)(ii) of section 860E(e). (C) Section 7874(e)(1)(B). (2) (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 paragraphs (4) and (6), and by redesignating paragraph (5) as paragraph (4). (C) Section 453A(c)(3) is amended by striking or 1201 (whichever is appropriate) . (D) 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 . (E) Sections 594(a) is amended by striking taxes imposed by section 11 or 1201(a) and inserting tax imposed by section 11 . (F) Section 691(c)(4) is amended by striking 1201, . (G) 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 . (H) Section 831(e) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (I) Sections 832(c)(5) and 834(b)(1)(D) are each amended by striking sec. 1201 and following, . (J) Section 852(b)(3)(A) is amended by striking section 1201(a) and inserting section 11(b) . (K) 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. . (L) Section 882(a)(1), as amended by section 12001, is further amended by striking or 1201(a) . (M) Section 904(b) is amended— (i) by striking or 1201(a) in paragraph (2)(C), (ii) by striking paragraph (3)(D) and inserting the following: (D) Capital gain rate differential There is a capital gain rate differential for any year if subsection (h) of section 1 applies to such taxable year. , and (iii) by striking paragraph (3)(E) and inserting the following: (E) Rate differential portion The rate differential portion of foreign source net capital gain, net capital gain, or the excess of net capital gain from sources within the United States over net capital gain, as the case may be, is the same proportion of such amount as— (i) the excess of— (I) the highest rate of tax set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies), over (II) the alternative rate of tax determined under section 1(h), bears to (ii) that rate referred to in subclause (I). . (N) Section 1374(b) is amended by striking paragraph (4). (O) Section 1381(b) is amended by striking taxes imposed by section 11 or 1201 and inserting tax imposed by section 11 . (P) Sections 6425(c)(1)(A), as amended by section 12001, and 6655(g)(1)(A)(i) are each amended by striking or 1201(a), . (Q) Section 7518(g)(6)(A) is amended by striking or 1201(a) . (3) (A) Section 1445(e)(1) is amended— (i) by striking 35 percent and inserting the highest rate of tax in effect for the taxable year under section 11(b) , and (ii) by striking of the gain and inserting multiplied by the gain . (B) Section 1445(e)(2) is amended by striking 35 percent of the amount and inserting the highest rate of tax in effect for the taxable year under section 11(b) multiplied by the amount . (C) Section 1445(e)(6) is amended— (i) by striking 35 percent and inserting the highest rate of tax in effect for the taxable year under section 11(b) , and (ii) by striking of the amount and inserting multiplied by the amount . (D) Section 1446(b)(2)(B) is amended by striking section 11(b)(1) and inserting section 11(b) . (4) Section 852(b)(1) is amended by striking the last sentence. (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 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 section 12001, 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 subsections (a) and (b) shall apply to taxable years beginning after December 31, 2017. (2) Withholding The amendments made by subsection (b)(3) shall apply to distributions made after December 31, 2017. (3) Certain transfers The amendments made by subsection (b)(6) shall apply to transfers made 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 of the day before the corporate rate reductions provided in the amendments made by this section take effect, 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, during the time period in which the 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 for the corporate rate reductions provided in the amendments made by this section— (A) 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, and (B) such taxpayer shall not be treated as using a normalization method of accounting for purposes of subsections (f)(2) and (i)(9)(C) of section 168 of the Internal Revenue Code of 1986. 13002. Reduction in dividend received deductions to reflect lower corporate income tax rates (a) Dividends received by corporations (1) In general Section 243(a)(1) is amended by striking 70 percent and inserting 50 percent . (2) Dividends from 20-percent owned corporations Section 243(c)(1) is amended— (A) by striking 80 percent and inserting 65 percent , and (B) by striking 70 percent and inserting 50 percent . (3) Conforming amendment The heading for section 243(c) is amended by striking Retention of 80-percent Dividend Received Deduction and inserting Increased Percentage . (b) Dividends received from FSC Section 245(c)(1)(B) is amended— (1) by striking 70 percent and inserting 50 percent , and (2) by striking 80 percent and inserting 65 percent . (c) Limitation on aggregate amount of deductions Section 246(b)(3) is amended— (1) by striking 80 percent in subparagraph (A) and inserting 65 percent , and (2) by striking 70 percent in subparagraph (B) and inserting 50 percent . (d) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) is amended— (1) by striking 70 percent and inserting 50 percent , and (2) by striking 80 percent and inserting 65 percent . (e) Income from sources within the united states Section 861(a)(2) is amended— (1) by striking 100/70th and inserting 100/50th in subparagraph (B), and (2) in the flush sentence at the end— (A) by striking 100/80th and inserting 100/65th , and (B) by striking 100/70th and inserting 100/50th . (f) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. II Small business reforms 13101. Modifications of rules for expensing depreciable business assets (a) Increase in limitation (1) Dollar limitation Section 179(b)(1) is amended by striking $500,000 and inserting $1,000,000 . (2) Reduction in limitation Section 179(b)(2) is amended by striking $2,000,000 and inserting $2,500,000 . (3) Inflation adjustments (A) In general Subparagraph (A) of section 179(b)(6), as amended by section 11002(d), is amended— (i) by striking 2015 and inserting 2018 , and (ii) in clause (ii), by striking calendar year 2014 and inserting calendar year 2017 . (B) Sport utility vehicles Section 179(b)(6) is amended— (i) in subparagraph (A), by striking paragraphs (1) and (2) and inserting paragraphs (1), (2), and (5)(A) , and (ii) in subparagraph (B), by inserting ($100 in the case of any increase in the amount under paragraph (5)(A)) after $10,000 . (b) Section 179 Property To Include Qualified Real Property.— (1) In general Subparagraph (B) of section 179(d)(1) is amended to read as follows: (B) which is— (i) section 1245 property (as defined in section 1245(a)(3)), or (ii) at the election of the taxpayer, qualified real property (as defined in subsection (f)), and . (2) Qualified real property defined Subsection (f) of section 179 is amended to read as follows: (f) Qualified real property For purposes of this section, the term qualified real property means— (1) any qualified improvement property described in section 168(e)(6), and (2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: (A) Roofs. (B) Heating, ventilation, and air-conditioning property. (C) Fire protection and alarm systems. (D) Security systems. . (c) Repeal of exclusion for certain property The last sentence of section 179(d)(1) is amended by inserting (other than paragraph (2) thereof) after section 50(b) . (d) Effective date The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2017. 13102. 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(f)(3) 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 has the meaning given the term in section 451(b)(3). (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. III Cost recovery and accounting methods A Cost recovery 13201. Temporary 100-percent expensing for certain business assets (a) Increased expensing (1) In general Section 168(k) is amended— (A) in paragraph (1)(A), by striking 50 percent and inserting the applicable percentage , and (B) in paragraph (5)(A)(i), by striking 50 percent and inserting the applicable percentage . (2) Applicable percentage Paragraph (6) of section 168(k) is amended to read as follows: (6) Applicable percentage For purposes of this subsection— (A) In general Except as otherwise provided in this paragraph, the term applicable percentage means— (i) in the case of property placed in service after September 27, 2017, and before January 1, 2023, 100 percent, (ii) in the case of property placed in service after December 31, 2022, and before January 1, 2024, 80 percent, (iii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 60 percent, (iv) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 40 percent, and (v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent. (B) Rule for property with longer production periods In the case of property described in subparagraph (B) or (C) of paragraph (2), the term applicable percentage means— (i) in the case of property placed in service after September 27, 2017, and before January 1, 2024, 100 percent, (ii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 80 percent, (iii) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 60 percent, (iv) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 40 percent, and (v) in the case of property placed in service after December 31, 2026, and before January 1, 2028, 20 percent. (C) Rule for plants bearing fruits and nuts In the case of a specified plant described in paragraph (5), the term applicable percentage means— (i) in the case of a plant which is planted or grafted after September 27, 2017, and before January 1, 2023, 100 percent, (ii) in the case of a plant which is planted or grafted after December 31, 2022, and before January 1, 2024, 80 percent, (iii) in the case of a plant which is planted or grafted after December 31, 2023, and before January 1, 2025, 60 percent, (iv) in the case of a plant which is planted or grafted after December 31, 2024, and before January 1, 2026, 40 percent, and (v) in the case of a plant which is planted or grafted after December 31, 2025, and before January 1, 2027, 20 percent. . (3) Conforming amendment (A) Paragraph (5) of section 168(k) is amended by striking subparagraph (F). (B) Section 168(k) is amended by adding at the end the following new paragraph: (8) 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 (6) shall be applied by substituting for each percentage therein— (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, (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, and (D) 0 percent in the case of— (i) property placed in service after 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 after 2020. . (b) Extension (1) In general Section 168(k) is amended— (A) in paragraph (2)— (i) in subparagraph (A)(iii), clauses (i)(III) and (ii) of subparagraph (B), and subparagraph (E)(i), by striking January 1, 2020 each place it appears and inserting January 1, 2027 , and (ii) in subparagraph (B)— (I) in clause (i)(II), by striking January 1, 2021 and inserting January 1, 2028 , and (II) in the heading of clause (ii), by striking pre-January 1, 2020 and inserting pre-January 1, 2027 , and (B) in paragraph (5)(A), by striking January 1, 2020 and inserting January 1, 2027 . (2) Conforming amendments (A) Clause (ii) of section 460(c)(6)(B) is amended by striking January 1, 2020 (January 1, 2021 and inserting January 1, 2027 (January 1, 2028 . (B) The heading of section 168(k) is amended by striking acquired after December 31, 2007, and before January 1, 2020 . (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 property Section 168(k), as amended by this section, is amended by adding at the end the following new paragraph: (9) Exception for certain property The term qualified property shall not include— (A) any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A), or (B) any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (e) Special rule Section 168(k), as amended by this section, is amended by adding at the end the following new paragraph: (10) Special rule for property placed in service during certain periods (A) In general In the case of qualified property placed in service by the taxpayer during the first taxable year ending after September 27, 2017, if the taxpayer elects to have this paragraph apply for such taxable year, paragraphs (1)(A) and (5)(A)(i) shall be applied by substituting ‘50 percent’ for ‘the applicable percentage’. (B) Form of election Any election under this paragraph shall be made at such time and in such form and manner as the Secretary may prescribe. . (f) Coordination with section 280F Clause (iii) of section 168(k)(2)(F) is amended 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 . (g) Qualified film and television and live theatrical productions (1) In general Clause (i) of section 168(k)(2)(A), as amended by section 13204, is amended— (A) in subclause (II), by striking or , (B) in subclause (III), by adding or after the comma, and (C) by adding at the end the following: (IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, or (V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, . (2) Production placed in service Paragraph (2) of section 168(k) is amended by adding at the end the following: (H) Production placed in service For purposes of subparagraph (A)— (i) a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast, and (ii) a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance. . (h) Effective date (1) In general Except as 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 this section shall apply to specified plants planted or grafted after September 27, 2017. 13202. Modifications to depreciation limitations on luxury automobiles and personal use property (a) Luxury automobiles (1) In general 280F(a)(1)(A) is amended— (A) in clause (i), by striking $2,560 and inserting $10,000 , (B) in clause (ii), by striking $4,100 and inserting $16,000 , (C) in clause (iii), by striking $2,450 and inserting $9,600 , and (D) in clause (iv), by striking $1,475 and inserting $5,760 . (2) Conforming amendments (A) Clause (ii) of section 280F(a)(1)(B) is amended by striking $1,475 in the text and heading and inserting $5,760 . (B) Paragraph (7) of section 280F(d) is amended— (i) in subparagraph (A), by striking 1988 and inserting 2018 , and (ii) in subparagraph (B)(i)(II), by striking 1987 and inserting 2017 . (b) Removal of computer equipment from listed property (1) In general Section 280F(d)(4)(A) is amended— (A) by inserting and at the end of clause (iii), (B) by striking clause (iv), and (C) by redesignating clause (v) as clause (iv). (2) Conforming amendment Section 280F(d)(4) is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B). (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 13203. Modifications of treatment of certain farm property (a) Treatment of certain farm property as 5-Year property Clause (vii) of section 168(e)(3)(B) is amended by striking after December 31, 2008, and which is placed in service before January 1, 2010 and inserting after December 31, 2017 . (b) Repeal of required use of 150-Percent declining balance method Section 168(b)(2) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 13204. Applicable recovery period for real property (a) Improvements to real property (1) Elimination of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property Subsection (e) of section 168 is amended— (A) in subparagraph (E) of paragraph (3)— (i) by striking clauses (iv), (v), and (ix), (ii) in clause (vii), by inserting and at the end, (iii) in clause (viii), by striking , and and inserting a period, and (iv) by redesignating clauses (vi), (vii), and (viii), as so amended, as clauses (iv), (v), and (vi), respectively, and (B) by striking paragraphs (6), (7), and (8). (2) Application of straight line method to qualified improvement property Paragraph (3) of section 168(b) is amended— (A) by striking subparagraphs (G), (H), and (I), and (B) by inserting after subparagraph (F) the following new subparagraph: (G) Qualified improvement property described in subsection (e)(6). . (3) Alternative Depreciation System (A) Electing real property trade or business Subsection (g) of section 168 is amended— (i) in paragraph (1)— (I) in subparagraph (D), by striking and at the end, (II) in subparagraph (E), by inserting and at the end, and (III) by inserting after subparagraph (E) the following new subparagraph: (F) any property described in paragraph (8), , and (ii) by adding at the end the following new paragraph: (8) Electing real property trade or business The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)). . (B) Qualified improvement property The table contained in subparagraph (B) of section 168(g)(3) is amended— (i) by inserting after the item relating to subparagraph (D)(ii) the following new item: (D)(v) 20 , and (ii) by striking the item relating to subparagraph (E)(iv) and all that follows through the item relating to subparagraph (E)(ix) and inserting the following: (E)(iv) 20 (E)(v) 30 (E)(vi) 35 . (C) Applicable recovery period for residential rental property The table contained in subparagraph (C) of section 168(g)(2) is amended by striking clauses (iii) and (iv) and inserting the following: (iii) Residential rental property 30 years (iv) Nonresidential real property 40 years (v) Any railroad grading or tunnel bore or water utility property 50 years . (4) Conforming amendments (A) Clause (i) of section 168(k)(2)(A) is amended— (i) in subclause (II), by inserting or after the comma, (ii) in subclause (III), by striking or at the end, and (iii) by striking subclause (IV). (B) Section 168 is amended— (i) in subsection (e), as amended by paragraph (1)(B), by adding at the end the following: (6) Qualified improvement property (A) In general The term qualified improvement property means any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. (B) Certain improvements not included Such term shall not include any improvement for which the expenditure is attributable to— (i) the enlargement of the building, (ii) any elevator or escalator, or (iii) the internal structural framework of the building. , and (ii) in subsection (k), by striking paragraph (3). (b) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 2017. (2) Amendments related to electing real property trade or business The amendments made by subsection (a)(3)(A) shall apply to taxable years beginning after December 31, 2017. 13205. Use of alternative depreciation system for electing farming businesses (a) In general Section 168(g)(1), as amended by section 13204, is amended by striking and at the end of subparagraph (E), by inserting and at the end of subparagraph (F), and by inserting after subparagraph (F) the following new subparagraph: (G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)), . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13206. Amortization of research and experimental expenditures (a) In general Section 174 is amended to read as follows: 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business. (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Change in method of accounting The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and— (1) such change shall be treated as initiated by the taxpayer, (2) such change shall be treated as made with the consent of the Secretary, and (3) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and no adjustments under section 481(a) shall be made. (c) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: Sec. 174. Amortization of research and experimental expenditures. . (d) Conforming amendments (1) Section 41(d)(1)(A) is amended by striking expenses under section 174 and inserting specified research or experimental expenditures under section 174 . (2) Subsection (c) of section 280C is amended— (A) by striking paragraph (1) and inserting the following: (1) In general If— (A) the amount of the credit determined for the taxable year under section 41(a)(1), exceeds (B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses, the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess. , (B) by striking paragraph (2), (C) by redesignating paragraphs (3) (as amended by this Act) and (4) as paragraphs (2) and (3), respectively, and (D) in paragraph (2), as redesignated by subparagraph (C), by striking paragraphs (1) and (2) and inserting paragraph (1) . (e) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2021. 13207. Expensing of certain costs of replanting citrus plants lost by reason of casualty (a) In general Section 263A(d)(2) is amended by adding at the end the following new subparagraph: (C) Special temporary rule for citrus plants lost by reason of casualty (i) In general In the case of the replanting of citrus plants, subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if— (I) the taxpayer described in subparagraph (A) has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which such amounts were paid or incurred and such other person holds any part of the remaining equity interest, or (II) such other person acquired the entirety of such taxpayer’s equity interest in the land on which the lost or damaged citrus plants were located at the time of such loss or damage, and the replanting is on such land. (ii) Termination Clause (i) shall not apply to any cost paid or incurred after the date which is 10 years after the date of the enactment of the Tax Cuts and Jobs Act . . (b) Effective date The amendment made by this section shall apply to costs paid or incurred after the date of the enactment of this Act. B Accounting methods 13221. Certain special rules for taxable year of inclusion (a) Inclusion not later than for financial accounting purposes Section 451 is amended by redesignating subsections (b) through (i) as subsections (c) through (j), respectively, and by inserting after subsection (a) the following new subsection: (b) Inclusion not later than for financial accounting purposes (1) Income taken into account in financial statement (A) In general In the case of a taxpayer the taxable income of which is computed under an accrual method of accounting, the all events test with respect to any item of gross income (or portion thereof) shall not be treated as met any later than when such item (or portion thereof) is taken into account as revenue in— (i) an applicable financial statement of the taxpayer, or (ii) such other financial statement as the Secretary may specify for purposes of this subsection. (B) Exception This paragraph shall not apply to— (i) a taxpayer which does not have a financial statement described in clause (i) or (ii) of subparagraph (A) for a taxable year, or (ii) any item of gross income in connection with a mortgage servicing contract. (C) All events test For purposes of this section, the all events test is met with respect to any item of gross income if all the events have occurred which fix the right to receive such income and the amount of such income can be determined with reasonable accuracy. (2) Coordination with special methods of accounting Paragraph (1) shall not apply with respect to any item of gross income for which the taxpayer uses a special method of accounting provided under any other provision of this chapter, other than any provision of part V of subchapter P (except as provided in clause (ii) of paragraph (1)(B)). (3) 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 agency for purposes other than Federal tax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), (B) a financial statement which is made on the basis of international financial reporting standards and is filed by the taxpayer with an agency of a foreign government which is equivalent to the United States Securities and Exchange Commission and which has reporting standards not less stringent than the standards required by such Commission, but only if there is no statement of the taxpayer described in subparagraph (A), or (C) a financial statement filed by the taxpayer with any other regulatory or governmental body specified by the Secretary, but only if there is no statement of the taxpayer described in subparagraph (A) or (B). (4) Allocation of transaction price For purposes of this subsection, in the case of a contract which contains multiple performance obligations, the allocation of the transaction price to each performance obligation shall be equal to the amount allocated to each performance obligation for purposes of including such item in revenue in the applicable financial statement of the taxpayer. (5) Group of entities For purposes of paragraph (1), if the financial results of a taxpayer are reported on the applicable financial statement (as defined in paragraph (3)) for a group of entities, such statement shall be treated as the applicable financial statement of the taxpayer. . (b) Treatment of advance payments Section 451 , as amended by subsection (a), is amended by redesignating subsections (c) through (j) as subsections (d) through (k), respectively, and by inserting after subsection (b) the following new subsection: (c) Treatment of advance payments (1) In general A taxpayer which computes taxable income under the accrual method of accounting, and receives any advance payment during the taxable year, shall— (A) except as provided in subparagraph (B), include such advance payment in gross income for such taxable year, or (B) if the taxpayer elects the application of this subparagraph with respect to the category of advance payments to which such advance payment belongs, the taxpayer shall— (i) to the extent that any portion of such advance payment is required under subsection (b) to be included in gross income in the taxable year in which such payment is received, so include such portion, and (ii) include the remaining portion of such advance payment in gross income in the taxable year following the taxable year in which such payment is received. (2) Election (A) In general Except as otherwise provided in this paragraph, the election under paragraph (1)(B) shall be made at such time, in such form and manner, and with respect to such categories of advance payments, as the Secretary may provide. (B) Period to which election applies An election under paragraph (1)(B) shall be effective for the taxable year with respect to which it is first made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to revoke such election. For purposes of this title, the computation of taxable income under an election made under paragraph (1)(B) shall be treated as a method of accounting. (3) Taxpayers ceasing to exist Except as otherwise provided by the Secretary, the election under paragraph (1)(B) shall not apply with respect to advance payments received by the taxpayer during a taxable year if such taxpayer ceases to exist during (or with the close of) such taxable year. (4) Advance payment For purposes of this subsection— (A) In general The term advance payment means any payment— (i) the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting under this section (determined without regard to this subsection), (ii) any portion of which is included in revenue by the taxpayer in a financial statement described in clause (i) or (ii) of subsection (b)(1)(A) for a subsequent taxable year, and (iii) which is for goods, services, or such other items as may be identified by the Secretary for purposes of this clause. (B) Exclusions Except as otherwise provided by the Secretary, such term shall not include— (i) rent, (ii) insurance premiums governed by subchapter L, (iii) payments with respect to financial instruments, (iv) payments with respect to warranty or guarantee contracts under which a third party is the primary obligor, (v) payments subject to section 871(a), 881, 1441, or 1442, (vi) payments in property to which section 83 applies, and (vii) any other payment identified by the Secretary for purposes of this subparagraph. (C) Receipt For purposes of this subsection, an item of gross income is received by the taxpayer if it is actually or constructively received, or if it is due and payable to the taxpayer. (D) Allocation of transaction price For purposes of this subsection, rules similar to subsection (b)(4) shall apply. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (d) Coordination with section 481 (1) In general In the case of any qualified change in method of accounting for the taxpayer's first taxable year beginning after December 31, 2017— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as made with the consent of the Secretary of the Treasury. (2) Qualified change in method of accounting For purposes of this subsection, the term qualified change in method of accounting means any change in method of accounting which— (A) is required by the amendments made by this section, or (B) was prohibited under the Internal Revenue Code of 1986 prior to such amendments and is permitted under such Code after such amendments. (e) Special rules for original issue discount Notwithstanding subsection (c), in the case of income from a debt instrument having original issue discount— (1) the amendments made by this section shall apply to taxable years beginning after December 31, 2018, and (2) the period for taking into account any adjustments under section 481 by reason of a qualified change in method of accounting (as defined in subsection (d)) shall be 6 years. IV Business-related exclusions and deductions 13301. Limitation on deduction for interest (a) In general Section 163(j) is amended to read as follows: (j) Limitation on business interest (1) In general The amount allowed as a deduction under this chapter for any taxable year for business interest shall not exceed the sum of— (A) the business interest income of such taxpayer for such taxable year, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest of such taxpayer for such taxable year. The amount determined under subparagraph (B) shall not be less than zero. (2) Carryforward of disallowed business interest The amount of any business interest not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as business interest paid or accrued in the succeeding taxable year. (3) 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. (4) 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, and (ii) the adjusted taxable income of each partner of such partnership— (I) shall be determined without regard to such partner's distributive share of any items of income, gain, deduction, or loss of such partnership, and (II) shall be increased by such partner's distributive share of such partnership's excess taxable income. For purposes of clause (ii)(II), a partner's distributive share of partnership excess taxable income shall be determined in the same manner as the partner's distributive share of nonseparately stated taxable income or loss of the partnership. (B) Special rules for carryforwards (i) In general The amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year— (I) shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and (II) shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership. (ii) Treatment of excess business interest allocated to partners If a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year— (I) such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and (II) any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years. For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii). (iii) Basis adjustments (I) In general The adjusted basis of a partner in a partnership interest shall be reduced (but not below zero) by the amount of excess business interest allocated to the partner under clause (i)(II). (II) Special rule for dispositions If a partner disposes of a partnership interest, the adjusted basis of the partner in the partnership interest shall be increased immediately before the disposition by the amount of the excess (if any) of the amount of the basis reduction under subclause (I) over the portion of any excess business interest allocated to the partner under clause (i)(II) which has previously been treated under clause (ii) as business interest paid or accrued by the partner. The preceding sentence shall also apply to transfers of the partnership interest (including by reason of death) in a transaction in which gain is not recognized in whole or in part. No deduction shall be allowed to the transferor or transferee under this chapter for any excess business interest resulting in a basis increase under this subclause. (C) Excess taxable income The term excess taxable income means, with respect to any partnership, the amount which bears the same ratio to the partnership's adjusted taxable income as— (i) the excess (if any) of— (I) the amount determined for the partnership under paragraph (1)(B), over (II) the amount (if any) by which the business interest of the partnership, reduced by the floor plan financing interest, exceeds the business interest income of the partnership, bears to (ii) the amount determined for the partnership under paragraph (1)(B). (D) Application to s corporations Rules similar to the rules of subparagraphs (A) and (C) shall apply with respect to any S corporation and its shareholders. (5) 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)). (6) 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)). (7) Trade or business For purposes of this subsection— (A) In general The term trade or business shall not include— (i) the trade or business of performing services as an employee, (ii) any electing real property trade or business, (iii) any electing farming business, or (iv) 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, 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, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative. (B) Electing real property trade or business For purposes of this paragraph, the term electing real property trade or business means any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable. (C) Electing farming business For purposes of this paragraph, the term electing farming business means— (i) a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or (ii) any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2)) with respect to which the cooperative makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable. (8) 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, (iv) the amount of any deduction allowed under section 199A, and (v) in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion, and (B) computed with such other adjustments as provided by the Secretary. (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. (B) Floor plan financing indebtedness The term floor plan financing indebtedness means indebtedness— (i) used to finance the acquisition of motor vehicles held for sale or lease, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle means a motor vehicle that is any of the following: (i) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road. (ii) A boat. (iii) Farm machinery or equipment. (10) Cross references (A) For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F). (B) For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G). . (b) 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 business interest The carryover of disallowed business interest described in section 163(j)(2) 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(j)(2) 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). . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13302. Modification of net operating loss deduction (a) Limitation on deduction (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) 80 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 . . (b) Repeal of net operating loss carryback; indefinite carryforward (1) In general Section 172(b)(1)(A) is amended— (A) by striking shall be a net operating loss carryback to each of the 2 taxable years in clause (i) and inserting except as otherwise provided in this paragraph, shall not be a net operating loss carryback to any taxable year , and (B) by striking to each of the 20 taxable years in clause (ii) and inserting to each taxable year . (2) Conforming amendment Section 172(b)(1) is amended by striking subparagraphs (B) through (F). (c) Treatment of farming losses (1) Allowance of carrybacks Section 172(b)(1), as amended by subsection (b)(2), is amended by adding at the end the following new subparagraph: (B) Farming losses (i) In general In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss. (ii) Farming loss For purposes of this section, the term farming loss means the lesser of— (I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or (II) the amount of the net operating loss for such taxable year. (iii) Coordination with paragraph (2) For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year. (iv) Election Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year. . (2) Conforming amendments (A) Section 172 is amended by striking subsections (f), (g), and (h), and by redesignating subsection (i) as subsection (f). (B) Section 537(b)(4) is amended by inserting (as in effect before the date of enactment of the Tax Cuts and Jobs Act) after as defined in section 172(f) . (d) Treatment of certain insurance losses (1) Treatment of carryforwards and carrybacks Section 172(b)(1), as amended by subsections (b)(2) and (c)(1), is amended by adding at the end the following new subparagraph: (C) Insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year— (i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and (ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss. . (2) Exemption from limitation Section 172 , as amended by subsection (c)(2)(A), is amended by redesignating subsection (f) as subsection (g) and inserting after subsection (e) the following new subsection: (f) Special rule for insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company— (1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and (2) subparagraph (C) of subsection (b)(2) shall not apply. . (e) Effective date (1) Net operating loss limitation The amendments made by subsections (a) and (d)(2) shall apply to losses arising in taxable years beginning after December 31, 2017. (2) Carryforwards and carrybacks The amendments made by subsections (b), (c), and (d)(1) shall apply to net operating losses arising in taxable years ending after December 31, 2017. 13303. 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) (A) 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. . (B) Section 1031 is amended by striking subsection (i). (2) Section 1031 is amended by striking subsection (e). (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. 13304. Limitation on deduction by employers of expenses for fringe benefits (a) No deduction allowed for entertainment expenses (1) In general Section 274(a) is amended— (A) in paragraph (1)(A), by striking unless and all that follows through trade or business, , (B) by striking the flush sentence at the end of paragraph (1), and (C) by striking paragraph (2)(C). (2) Conforming amendments (A) Section 274(d) is amended— (i) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and (ii) in the flush text following paragraph (3) (as so redesignated)— (I) by striking , entertainment, amusement, recreation, or use of the facility or property, 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 , (B) Section 274 is amended by striking subsection (l). (C) Section 274(n) is amended by striking and entertainment in the heading. (D) Section 274(n)(1) is amended to read as follows: (1) In general The amount allowable as a deduction under this chapter for any expense for food or beverages shall not exceed 50 percent of the amount of such expense which would (but for this paragraph) be allowable as a deduction under this chapter. . (E) Section 274(n)(2) is amended— (i) in subparagraph (B), by striking in the case of an expense for food or beverages, , (ii) by striking subparagraph (C) and redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively, (iii) by striking of subparagraph (E) the last sentence and inserting of subparagraph (D) , and (iv) by striking in subparagraph (D) in the last sentence and inserting in subparagraph (C) . (F) Clause (iv) of section 7701(b)(5)(A) is amended to read as follows: (iv) a professional athlete who is temporarily in the United States to compete in a sports event— (I) which is organized for the primary purpose of benefiting an organization which is described in section 501(c)(3) and exempt from tax under section 501(a), (II) all of the net proceeds of which are contributed to such organization, and, (III) which utilizes volunteers for substantially all of the work performed in carrying out such event. . (b) Only 50 percent of expenses for meals provided on or near business premises allowed as deduction Paragraph (2) of section 274(n), as amended by subsection (a), is amended— (1) by striking subparagraph (B), (2) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, (3) by striking of subparagraph (D) in the last sentence and inserting of subparagraph (C) , and (4) by striking in subparagraph (C) in the last sentence and inserting in subparagraph (B) . (c) Treatment of transportation benefits Section 274 , as amended by subsection (a), is amended— (1) in subsection (a)— (A) in the heading, by striking or recreation and inserting recreation, or qualified transportation fringes , and (B) by adding at the end the following new paragraph: (4) Qualified transportation fringes No deduction shall be allowed under this chapter for the expense of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer. , and (2) by inserting after subsection (k) the following new subsection: (l) Transportation and commuting benefits (1) In general No deduction shall be allowed under this chapter for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. (2) Exception In the case of any qualified bicycle commuting reimbursement (as described in section 132(f)(5)(F)), this subsection shall not apply for any amounts paid or incurred after December 31, 2017, and before January 1, 2026. . (d) Elimination of deduction for meals provided at convenience of employer Section 274 , as amended by subsection (c), is amended— (1) by redesignating subsection (o) as subsection (p), and (2) by inserting after subsection (n) the following new subsection: (o) Meals provided at convenience of employer No deduction shall be allowed under this chapter for— (1) any expense for the operation of a facility described in section 132(e)(2), and any expense for food or beverages, including under section 132(e)(1), associated with such facility, or (2) any expense for meals described in section 119(a). . (e) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to amounts incurred or paid after December 31, 2017. (2) Effective date for elimination of deduction for meals provided at convenience of employer The amendments made by subsection (d) shall apply to amounts incurred or paid after December 31, 2025. 13305. 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), 135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 221(b)(2)(C), 222(b)(2)(C), 246(b)(1), and 469(i)(3)(F)(iii) are each amended by striking 199, . (2) Section 170(b)(2)(D), as amended by subtitle A, is amended by striking clause (iv), and by redesignating clauses (v) and (vi) as clauses (iv) and (v). (3) Section 172(d) is amended by striking paragraph (7). (4) Section 613(a), as amended by section 11011, is amended by striking and without the deduction under section 199 . (5) Section 613A(d)(1), as amended by section 11011, is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), (E), and (F) as subparagraphs (B), (C), (D), and (E), respectively. (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13306. Denial of deduction for certain fines, penalties, and other amounts (a) Denial of deduction (1) In general Subsection (f) of section 162 is amended to read as follows: (f) Fines, penalties, and other amounts (1) In general Except as provided in the following paragraphs of this subsection, no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. (2) Exception for amounts constituting restitution or paid to come into compliance with law (A) In general Paragraph (1) shall not apply to any amount that— (i) the taxpayer establishes— (I) constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation of any law or the potential violation of any law, or (II) is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry described in paragraph (1), (ii) is identified as restitution or as an amount paid to come into compliance with such law, as the case may be, in the court order or settlement agreement, and (iii) in the case of any amount of restitution for failure to pay any tax imposed under this title in the same manner as if such amount were such tax, would have been allowed as a deduction under this chapter if it had been timely paid. The identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i). (B) Limitation Subparagraph (A) shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation. (3) Exception for amounts paid or incurred as the result of certain court orders Paragraph (1) shall not apply to any amount paid or incurred by reason of any order of a court in a suit in which no government or governmental entity is a party. (4) Exception for taxes due Paragraph (1) shall not apply to any amount paid or incurred as taxes due. (5) Treatment of certain nongovernmental regulatory entities For purposes of this subsection, the following nongovernmental entities shall be treated as governmental entities: (A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)). (B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function. . (2) Effective date The amendment made by this subsection shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. (b) Reporting of deductible amounts (1) In general Subpart B of part III of subchapter A of chapter 61 is amended by inserting after section 6050W the following new section: 6050X. Information with respect to certain fines, penalties, and other amounts (a) Requirement of reporting (1) In general The appropriate official of any government or any entity described in section 162(f)(5) which is involved in a suit or agreement described in paragraph (2) shall make a return in such form as determined by the Secretary setting forth— (A) the amount required to be paid as a result of the suit or agreement to which paragraph (1) of section 162(f) applies, (B) any amount required to be paid as a result of the suit or agreement which constitutes restitution or remediation of property, and (C) any amount required to be paid as a result of the suit or agreement for the purpose of coming into compliance with any law which was violated or involved in the investigation or inquiry. (2) Suit or agreement described (A) In general A suit or agreement is described in this paragraph if— (i) it is— (I) a suit with respect to a violation of any law over which the government or entity has authority and with respect to which there has been a court order, or (II) an agreement which is entered into with respect to a violation of any law over which the government or entity has authority, or with respect to an investigation or inquiry by the government or entity into the potential violation of any law over which such government or entity has authority, and (ii) the aggregate amount involved in all court orders and agreements with respect to the violation, investigation, or inquiry is $600 or more. (B) Adjustment of reporting threshold The Secretary shall adjust the $600 amount in subparagraph (A)(ii) as necessary in order to ensure the efficient administration of the internal revenue laws. (3) Time of filing The return required under this subsection shall be filed at the time the agreement is entered into, as determined by the Secretary. (b) Statements to be furnished to individuals involved in the settlement Every person required to make a return under subsection (a) shall furnish to each person who is a party to the suit or agreement a written statement showing— (1) the name of the government or entity, and (2) the information supplied to the Secretary under subsection (a)(1). The written statement required under the preceding sentence shall be furnished to the person at the same time the government or entity provides the Secretary with the information required under subsection (a). (c) Appropriate official defined For purposes of this section, the term appropriate official means the officer or employee having control of the suit, investigation, or inquiry or the person appropriately designated for purposes of this section. . (2) Conforming amendment The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6050W the following new item: Sec. 6050X. Information with respect to certain fines, penalties, and other amounts. . (3) Effective date The amendments made by this subsection shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. 13307. Denial of deduction for settlements subject to nondisclosure agreements paid in connection with sexual harassment or sexual abuse (a) Denial of deduction Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: (q) Payments related to sexual harassment and sexual abuse No deduction shall be allowed under this chapter for— (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. . (b) Effective date The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act. 13308. 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 on or after the date of the enactment of this Act. 13309. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 is amended— (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer's net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer's net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years for 1 year , shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b). (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership's proportionate interest in any of the foregoing. (4) Exceptions The term applicable partnership interest shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer's long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer's family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items: Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13310. Prohibition on cash, gift cards, and other non-tangible personal property as employee achievement awards (a) In general Subparagraph (A) of section 274(j)(3) is amended— (1) by striking The term and inserting the following: (i) In general The term . (2) by redesignating clauses (i), (ii), and (iii) as subclauses (I), (II), and (III), respectively, and conforming the margins accordingly, and (3) by adding at the end the following new clause: (ii) Tangible personal property For purposes of clause (i), the term tangible personal property shall not include— (I) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or (II) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. . (b) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 13311. Elimination of deduction for living expenses incurred by members of congress (a) In general Subsection (a) of section 162 is amended in the matter following paragraph (3) by striking in excess of $3,000 . (b) Effective date The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 13312. Certain contributions by governmental entities not treated as contributions to capital (a) In general Section 118 is amended— (1) by striking subsections (b), (c), and (d), (2) by redesignating subsection (e) as subsection (d), and (3) by inserting after subsection (a) the following new subsections: (b) Exceptions For purposes of subsection (a), the term contribution to the capital of the taxpayer does not include— (1) any contribution in aid of construction or any other contribution as a customer or potential customer, and (2) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such). (c) Regulations The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations or other guidance for determining whether any contribution constitutes a contribution in aid of construction. . (b) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to contributions made after the date of enactment of this Act. (2) Exception The amendments made by this section shall not apply to any contribution, made after the date of enactment of this Act by a governmental entity, which is made pursuant to a master development plan that has been approved prior to such date by a governmental entity. 13313. 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. 13314. 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) Conforming amendment 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 . (c) Effective date The amendments made by this section shall apply to dispositions after December 31, 2017. V Business credits 13401. Modification of orphan drug credit (a) Credit rate Subsection (a) of section 45C is amended by striking 50 percent and inserting 25 percent . (b) Election of reduced credit Subsection (b) of section 280C is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Election of reduced credit (A) In general In the case of any taxable year for which an election is made under this paragraph— (i) paragraphs (1) and (2) shall not apply, and (ii) the amount of the credit under section 45C(a) shall be the amount determined under subparagraph (B). (B) Amount of reduced credit The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of— (i) the amount of credit determined under section 45C(a) without regard to this paragraph, over (ii) the product of— (I) the amount described in clause (i), and (II) the maximum rate of tax under section 11(b). (C) Election An election under this paragraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary shall prescribe. Such an election, once made, shall be irrevocable. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13402. Rehabilitation credit limited to certified historic structures (a) In general Subsection (a) of section 47 is amended to read as follows: (a) General rule (1) In general For purposes of section 46, for any taxable year during the 5-year period beginning in the taxable year in which a qualified rehabilitated building is placed in service, the rehabilitation credit for such year is an amount equal to the ratable share for such year. (2) Ratable share For purposes of paragraph (1), the ratable share for any taxable year during the period described in such paragraph is the amount equal to 20 percent of the qualified rehabilitation expenditures with respect to the qualified rehabilitated building, as allocated ratably to each year during such period. . (b) Conforming amendments (1) Section 47(c) is amended— (A) in paragraph (1)— (i) in subparagraph (A), by amending clause (iii) to read as follows: (iii) such building is a certified historic structure, and , (ii) by striking subparagraph (B), and (iii) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, and (B) in paragraph (2)(B), by amending clause (iv) to read as follows: (iv) Certified historic structure Any expenditure attributable to the rehabilitation of a qualified rehabilitated building unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)). . (2) Paragraph (4) of section 145(d) is amended— (A) by striking of section 47(c)(1)(C) each place it appears and inserting of section 47(c)(1)(B) , and (B) by striking section 47(c)(1)(C)(i) and inserting section 47(c)(1)(B)(i) . (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 with respect to any building— (A) owned or leased by the taxpayer during the entirety of the period after December 31, 2017, and (B) with respect to which the 24-month period selected by the taxpayer under clause (i) of section 47(c)(1)(B) of the Internal Revenue Code (as amended by subsection (b)), or the 60-month period applicable under clause (ii) of such section, begins not later than 180 days after 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, or the 60-month period, referred to in subparagraph (B) ends. 13403. Employer credit for paid family and medical leave (a) In general (1) Allowance of credit Subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section: 45S. Employer credit for paid family and medical leave (a) Establishment of credit (1) In general For purposes of section 38, in the case of an eligible employer, the paid family and medical leave credit is an amount equal to the applicable percentage of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave. (2) Applicable percentage For purposes of paragraph (1), the term applicable percentage means 12.5 percent increased (but not above 25 percent) by 0.25 percentage points for each percentage point by which the rate of payment (as described under subsection (c)(1)(B)) exceeds 50 percent. (b) Limitation (1) In general The credit allowed under subsection (a) with respect to any employee for any taxable year shall not exceed an amount equal to the product of the normal hourly wage rate of such employee for each hour (or fraction thereof) of actual services performed for the employer and the number of hours (or fraction thereof) for which family and medical leave is taken. (2) Non-hourly wage rate For purposes of paragraph (1), in the case of any employee who is not paid on an hourly wage rate, the wages of such employee shall be prorated to an hourly wage rate under regulations established by the Secretary. (3) Maximum amount of leave subject to credit The amount of family and medical leave that may be taken into account with respect to any employee under subsection (a) for any taxable year shall not exceed 12 weeks. (c) Eligible employer For purposes of this section— (1) In general The term eligible employer means any employer who has in place a written policy that meets the following requirements: (A) The policy provides— (i) in the case of a qualifying employee who is not a part-time employee (as defined in section 4980E(d)(4)(B)), not less than 2 weeks of annual paid family and medical leave, and (ii) in the case of a qualifying employee who is a part-time employee, an amount of annual paid family and medical leave that is not less than an amount which bears the same ratio to the amount of annual paid family and medical leave that is provided to a qualifying employee described in clause (i) as— (I) the number of hours the employee is expected to work during any week, bears to (II) the number of hours an equivalent qualifying employee described in clause (i) is expected to work during the week. (B) The policy requires that the rate of payment under the program is not less than 50 percent of the wages normally paid to such employee for services performed for the employer. (2) Special rule for certain employers (A) In general An added employer shall not be treated as an eligible employer unless such employer provides paid family and medical leave in compliance with a written policy which ensures that the employer— (i) will not interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under the policy, and (ii) will not discharge or in any other manner discriminate against any individual for opposing any practice prohibited by the policy. (B) Added employer; added employee For purposes of this paragraph— (i) Added employee The term added employee means a qualifying employee who is not covered by title I of the Family and Medical Leave Act of 1993, as amended. (ii) Added employer The term added employer means an eligible employer (determined without regard to this paragraph), whether or not covered by that title I, who offers paid family and medical leave to added employees. (3) Aggregation rule All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer. (4) Treatment of benefits mandated or paid for by state or local governments For purposes of this section, any leave which is paid by a State or local government or required by State or local law shall not be taken into account in determining the amount of paid family and medical leave provided by the employer. (5) No inference Nothing in this subsection shall be construed as subjecting an employer to any penalty, liability, or other consequence (other than ineligibility for the credit allowed by reason of subsection (a) or recapturing the benefit of such credit) for failure to comply with the requirements of this subsection. (d) Qualifying employees For purposes of this section, the term qualifying employee means any employee (as defined in section 3(e) of the Fair Labor Standards Act of 1938, as amended) who— (1) has been employed by the employer for 1 year or more, and (2) for the preceding year, had compensation not in excess of an amount equal to 60 percent of the amount applicable for such year under clause (i) of section 414(q)(1)(B). (e) Family and medical leave (1) In general Except as provided in paragraph (2), for purposes of this section, the term family and medical leave means leave for any 1 or more of the purposes described under subparagraph (A), (B), (C), (D), or (E) of paragraph (1), or paragraph (3), of section 102(a) of the Family and Medical Leave Act of 1993, as amended, whether the leave is provided under that Act or by a policy of the employer. (2) Exclusion If an employer provides paid leave as vacation leave, personal leave, or medical or sick leave (other than leave specifically for 1 or more of the purposes referred to in paragraph (1)), that paid leave shall not be considered to be family and medical leave under paragraph (1). (3) Definitions In this subsection, the terms vacation leave , personal leave , and medical or sick leave mean those 3 types of leave, within the meaning of section 102(d)(2) of that Act. (f) Determinations made by secretary of treasury For purposes of this section, any determination as to whether an employer or an employee satisfies the applicable requirements for an eligible employer (as described in subsection (c)) or qualifying employee (as described in subsection (d)), respectively, shall be made by the Secretary based on such information, to be provided by the employer, as the Secretary determines to be necessary or appropriate. (g) Wages For purposes of this section, the term wages has the meaning given such term by subsection (b) of section 3306 (determined without regard to any dollar limitation contained in such section). Such term shall not include any amount taken into account for purposes of determining any other credit allowed under this subpart. (h) Election to have credit not apply (1) In general A taxpayer may elect to have this section not apply for any taxable year. (2) Other rules Rules similar to the rules of paragraphs (2) and (3) of section 51(j) shall apply for purposes of this subsection. (i) Termination This section shall not apply to wages paid in taxable years beginning after December 31, 2019. . (b) Credit part of general business credit Section 38(b) is amended by striking plus at the end of paragraph (35), by striking the period at the end of paragraph (36) and inserting , plus , and by adding at the end the following new paragraph: (37) in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a). . (c) Credit allowed against AMT Subparagraph (B) of section 38(c)(4) is amended by redesignating clauses (ix) through (xi) as clauses (x) through (xii), respectively, and by inserting after clause (viii) the following new clause: (ix) the credit determined under section 45S, . (d) Conforming amendments (1) Denial of double benefit Section 280C(a) is amended by inserting 45S(a), after 45P(a), . (2) Election to have credit not apply Section 6501(m) is amended by inserting 45S(h), after 45H(g), . (3) Clerical amendment The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item: Sec. 45S. Employer credit for paid family and medical leave. . (e) Effective date The amendments made by this section shall apply to wages paid in taxable years beginning after December 31, 2017. 13404. 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. VI Provisions related to specific entities and industries A Partnership provisions 13501. Treatment of gain or loss of foreign persons from sale or exchange of interests in partnerships engaged in trade or business within the united states (a) Amount treated as effectively connected (1) In general Section 864(c) is amended by adding at the end the following: (8) Gain or loss of foreign persons from sale or exchange of certain partnership interests (A) In general Notwithstanding any other provision of this subtitle, if a nonresident alien individual or foreign corporation owns, directly or indirectly, an interest in a partnership which is engaged in any trade or business within the United States, gain or loss on the sale or exchange of all (or any portion of) such interest shall be treated as effectively connected with the conduct of such trade or business to the extent such gain or loss does not exceed the amount determined under subparagraph (B). (B) Amount treated as effectively connected The amount determined under this subparagraph with respect to any partnership interest sold or exchanged— (i) in the case of any gain on the sale or exchange of the partnership interest, is— (I) the portion of the partner's distributive share of the amount of gain which would have been effectively connected with the conduct of a trade or business within the United States if the partnership had sold all of its assets at their fair market value as of the date of the sale or exchange of such interest, or (II) zero if no gain on such deemed sale would have been so effectively connected, and (ii) in the case of any loss on the sale or exchange of the partnership interest, is— (I) the portion of the partner's distributive share of the amount of loss on the deemed sale described in clause (i)(I) which would have been so effectively connected, or (II) zero if no loss on such deemed sale would be have been so effectively connected. For purposes of this subparagraph, a partner's distributive share of gain or loss on the deemed sale shall be determined in the same manner as such partner’s distributive share of the non-separately stated taxable income or loss of such partnership. (C) Coordination with United States real property interests If a partnership described in subparagraph (A) holds any United States real property interest (as defined in section 897(c)) at the time of the sale or exchange of the partnership interest, then the gain or loss treated as effectively connected income under subparagraph (A) shall be reduced by the amount so treated with respect to such United States real property interest under section 897. (D) Sale or exchange For purposes of this paragraph, the term sale or exchange means any sale, exchange, or other disposition. (E) Secretarial authority The Secretary shall prescribe such regulations or other guidance as the Secretary determines appropriate for the application of this paragraph, including with respect to exchanges described in section 332, 351, 354, 355, 356, or 361. . (2) Conforming amendments Section 864(c)(1) is amended— (A) by striking and (7) in subparagraph (A), and inserting (7), and (8) , and (B) by striking or (7) in subparagraph (B), and inserting (7), or (8) . (b) Withholding requirements Section 1446 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following: (f) Special rules for withholding on dispositions of partnership interests (1) In general Except as provided in this subsection, if any portion of the gain (if any) on any disposition of an interest in a partnership would be treated under section 864(c)(8) as effectively connected with the conduct of a trade or business within the United States, the transferee shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition. (2) Exception if nonforeign affidavit furnished (A) In general No person shall be required to deduct and withhold any amount under paragraph (1) with respect to any disposition if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's United States taxpayer identification number and that the transferor is not a foreign person. (B) False affidavit Subparagraph (A) shall not apply to any disposition if— (i) the transferee has actual knowledge that the affidavit is false, or the transferee receives a notice (as described in section 1445(d)) from a transferor's agent or transferee's agent that such affidavit or statement is false, or (ii) the Secretary by regulations requires the transferee to furnish a copy of such affidavit or statement to the Secretary and the transferee fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as required by such regulations. (C) Rules for agents The rules of section 1445(d) shall apply to a transferor's agent or transferee's agent with respect to any affidavit described in subparagraph (A) in the same manner as such rules apply with respect to the disposition of a United States real property interest under such section. (3) Authority of secretary to prescribe reduced amount At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed under this title with respect to gain treated under section 864(c)(8) as effectively connected with the conduct of a trade or business with in the United States. (4) Partnership to withhold amounts not withheld by the transferee If a transferee fails to withhold any amount required to be withheld under paragraph (1), the partnership shall be required to deduct and withhold from distributions to the transferee a tax in an amount equal to the amount the transferee failed to withhold (plus interest under this title on such amount). (5) Definitions Any term used in this subsection which is also used under section 1445 shall have the same meaning as when used in such section. (6) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from the provisions of this subsection. . (c) Effective dates (1) Subsection (a) The amendments made by subsection (a) shall apply to sales, exchanges, and dispositions on or after November 27, 2017. (2) Subsection (b) The amendment made by subsection (b) shall apply to sales, exchanges, and dispositions after December 31, 2017. 13502. Modify definition of substantial built-in loss in the case of transfer of partnership interest (a) In general Paragraph (1) of section 743(d) is to read as follows: (1) In general For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in the partnership if— (A) the partnership's adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of such property, or (B) the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. . (b) Effective date The amendments made by this section shall apply to transfers of partnership interests after December 31, 2017. 13503. Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner's share of loss (a) In general Subsection (d) of section 704 is amended— (1) by striking A partner's distributive share and inserting the following: (1) In general A partner's distributive share , (2) by striking Any excess of such loss and inserting the following: (2) Carryover Any excess of such loss , and (3) by adding at the end the following new paragraph: (3) Special rules (A) In general In determining the amount of any loss under paragraph (1), there shall be taken into account the partner's distributive share of amounts described in paragraphs (4) and (6) of section 702(a). (B) Exception In the case of a charitable contribution of property whose fair market value exceeds its adjusted basis, subparagraph (A) shall not apply to the extent of the partner's distributive share of such excess. . (b) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. 13504. 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) Conforming amendment (1) Section 168(i)(7)(B) is amended by striking the second sentence. (2) Section 743(e) is amended by striking paragraph (4) and redesignating paragraphs (5), (6), and (7) as paragraphs (4), (5), and (6). (c) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. B Insurance reforms 13511. 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) (A) 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). (B) Section 831(b)(3) is amended by striking except as provided in section 844, (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 805(b)(2)(A)(iv) is amended to read as follows: (iv) any net operating loss carryback to the taxable year under section 172, and . (7) 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. . (8) Section 1351(i)(3) is amended by striking or the operations loss deduction under section 810, . (c) Effective date The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2017. 13512. 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 this Act, 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), as amended by this Act, 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 13511, 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. 13513. 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. 13514. 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. 13515. Modification of proration rules for property and casualty insurance companies (a) In general Section 832(b)(5)(B) is amended— (1) by striking 15 percent and inserting the applicable percentage , and (2) by inserting at the end the following new sentence: For purposes of this subparagraph, the applicable percentage is 5.25 percent divided by the highest rate in effect under section 11(b). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13516. 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. 13517. Computation of life insurance tax reserves (a) In general (1) Appropriate rate of interest The second sentence of section 807(c) is amended to read as follows: For purposes of paragraph (3), the appropriate rate of interest is the highest rate or rates permitted to be used to discount the obligations by the National Association of Insurance Commissioners as of the date the reserve is determined. . (2) Method of computing reserves Section 807(d) is amended— (A) by striking paragraphs (1), (2), (4), and (5), (B) by redesignating paragraph (6) as paragraph (4), (C) by inserting before paragraph (3) the following new paragraphs: (1) Determination of reserve (A) In general For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract (other than a contract to which subparagraph (B) applies) shall be the greater of— (i) the net surrender value of such contract, or (ii) 92.81 percent of the reserve determined under paragraph (2). (B) Variable contracts For purposes of this part (other than section 816), the amount of the life insurance reserves for a variable contract shall be equal to the sum of— (i) the greater of— (I) the net surrender value of such contract, or (II) the portion of the reserve that is separately accounted for under section 817, plus (ii) 92.81 percent of the excess (if any) of the reserve determined under paragraph (2) over the amount in clause (i). (C) Statutory cap In no event shall the reserves determined under subparagraphs (A) or (B) for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in paragraph (4)). (D) No double counting In no event shall any amount or item be taken into account more than once in determining any reserve under this subchapter. (2) Amount of reserve The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using the tax reserve method applicable to such contract. . (D) by striking (other than a qualified long-term care insurance contract, as defined in section 7702B(b)), a 2-year full preliminary term method in paragraph (3)(A)(iii) and inserting , the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined , (E) by striking (as of the date of issuance) in paragraph (3)(A)(iv)(I) and inserting (as of the date the reserve is determined) , (F) by striking as of the date of the issuance of in paragraph (3)(A)(iv)(II) and inserting as of the date the reserve is determined for , (G) by striking in effect on the date of the issuance of the contract in paragraph (3)(B)(i) and inserting applicable to the contract and in effect as of the date the reserve is determined , and (H) by striking in effect on the date of the issuance of the contract in paragraph (3)(B)(ii) and inserting applicable to the contract and in effect as of the date the reserve is determined . (3) Special rules Section 807(e) is amended— (A) by striking paragraphs (2) and (5), (B) by redesignating paragraphs (3), (4), (6), and (7) as paragraphs (2), (3), (4), and (5), respectively, (C) by amending paragraph (2) (as so redesignated) to read as follows: (2) Qualified supplemental benefits (A) Qualified supplemental benefits treated separately For purposes of this part, the amount of the life insurance reserve for any qualified supplemental benefit shall be computed separately as though such benefit were under a separate contract. (B) Qualified supplemental benefit For purposes of this paragraph, the term qualified supplemental benefit means any supplemental benefit described in subparagraph (C) if— (i) there is a separately identified premium or charge for such benefit, and (ii) any net surrender value under the contract attributable to any other benefit is not available to fund such benefit. (C) Supplemental benefits For purposes of this paragraph, the supplemental benefits described in this subparagraph are any— (i) guaranteed insurability, (ii) accidental death or disability benefit, (iii) convertibility, (iv) disability waiver benefit, or (v) other benefit prescribed by regulations, which is supplemental to a contract for which there is a reserve described in subsection (c). , and (D) by adding at the end the following new paragraph: (6) 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. . (4) Definition of life insurance contract Section 7702 is amended— (A) by striking clause (i) of subsection (c)(3)(B) and inserting the following: (i) reasonable mortality charges which meet the requirements prescribed in regulations to be promulgated by the Secretary or that do not exceed the mortality charges specified in the prevailing commissioners' standard tables as defined in subsection (f)(10), and (B) by adding at the end of subsection (f) the following new paragraph: (10) Prevailing commissioners' standard tables For purposes of subsection (c)(3)(B)(i), the term prevailing commissioners standard tables' means the most recent commissioners' standard tables prescribed by the National Association of Insurance Commissioners which are permitted to be used in computing reserves for that type of contract under the insurance laws of at least 26 States when the contract was issued. If the prevailing commissioners' standard tables as of the beginning of any calendar year (hereinafter in this paragraph referred to as the year of change ) are different from the prevailing commissioners' standard tables as of the beginning of the preceding calendar year, the issuer may use the prevailing commissioners' standard tables as of the beginning of the preceding calendar year with respect to any contract issued after the change and before the close of the 3-year period beginning on the first day of the year of change. . (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) Section 848(e)(1)(B)(iii) is amended by striking 807(e)(4) and inserting 807(e)(3) . (5) Subparagraph (B) of section 954(i)(5) is amended by striking shall be substituted for the prevailing State assumed interest rate, and inserting shall apply, . (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) 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) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) 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) or 832(c)(4) of such Code, as applicable. (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) or 832(b)(1)(C) of such Code, as applicable. 13518. 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, 70 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, 30 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. 13519. Capitalization of certain policy acquisition expenses (a) In general (1) Section 848(a)(2) is amended by striking 120-month and inserting 180-month . (2) Section 848(c)(1) is amended by striking 1.75 percent and inserting 2.09 percent . (3) Section 848(c)(2) is amended by striking 2.05 percent and inserting 2.45 percent . (4) Section 848(c)(3) is amended by striking 7.7 percent and inserting 9.2 percent . (b) Conforming amendments Section 848(b)(1) is amended by striking 120-month and inserting 180-month . (c) Effective date (1) In general The amendments made by this section shall apply to net premiums for taxable years beginning after December 31, 2017. (2) Transition rule Specified policy acquisition expenses first required to be capitalized in a taxable year beginning before January 1, 2018, will continue to be allowed as a deduction ratably over the 120-month period beginning with the first month in the second half of such taxable year. 13520. Tax reporting for life settlement transactions (a) In general Subpart B of part III of subchapter A of chapter 61, as amended by section 13306, is amended by adding at the end the following new section: 6050Y. Returns relating to certain life insurance contract transactions (a) Requirement of reporting of certain payments (1) In general Every person who acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of such person, (B) the name, address, and TIN of each recipient of payment in the reportable policy sale, (C) the date of such sale, (D) the name of the issuer of the life insurance contract sold and the policy number of such contract, and (E) the amount of each payment. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to such person, except that in the case of an issuer of a life insurance contract, such statement is not required to include the information specified in paragraph (1)(E). (b) Requirement of reporting of seller's basis in life insurance contracts (1) In general Upon receipt of the statement required under subsection (a)(2) or upon notice of a transfer of a life insurance contract to a foreign person, each issuer of a life insurance contract shall make a return (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of the seller who transfers any interest in such contract in such sale, (B) the investment in the contract (as defined in section 72(e)(6)) with respect to such seller, and (C) the policy number of such contract. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to each seller whose name is required to be set forth in such return. (c) Requirement of reporting with respect to reportable death benefits (1) In general Every person who makes a payment of reportable death benefits during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of the person making such payment, (B) the name, address, and TIN of each recipient of such payment, (C) the date of each such payment, (D) the gross amount of each such payment, and (E) such person's estimate of the investment in the contract (as defined in section 72(e)(6)) with respect to the buyer. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to each recipient of payment whose name is required to be set forth in such return. (d) Definitions For purposes of this section: (1) Payment The term payment means, with respect to any reportable policy sale, the amount of cash and the fair market value of any consideration transferred in the sale. (2) Reportable policy sale The term reportable policy sale has the meaning given such term in section 101(a)(3)(B). (3) Issuer The term issuer means any life insurance company that bears the risk with respect to a life insurance contract on the date any return or statement is required to be made under this section. (4) Reportable death benefits The term reportable death benefits means amounts paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale. . (b) Clerical amendment The table of sections for subpart B of part III of subchapter A of chapter 61, as amended by section 13306, is amended by inserting after the item relating to section 6050X the following new item: Sec. 6050Y. Returns relating to certain life insurance contract transactions. . (c) Conforming amendments (1) Subsection (d) of section 6724 is amended— (A) by striking or at the end of clause (xxiv) of paragraph (1)(B), by striking and at the end of clause (xxv) of such paragraph and inserting or , and by inserting after such clause (xxv) the following new clause: (xxvi) section 6050Y (relating to returns relating to certain life insurance contract transactions), and , and (B) by striking or at the end of subparagraph (HH) of paragraph (2), by striking the period at the end of subparagraph (II) of such paragraph and inserting , or , and by inserting after such subparagraph (II) the following new subparagraph: (JJ) subsection (a)(2), (b)(2), or (c)(2) of section 6050Y (relating to returns relating to certain life insurance contract transactions). . (2) Section 6047 is amended— (A) by redesignating subsection (g) as subsection (h), (B) by inserting after subsection (f) the following new subsection: (g) Information relating to life insurance contract transactions This section shall not apply to any information which is required to be reported under section 6050Y. , and (C) by adding at the end of subsection (h), as so redesignated, the following new paragraph: (4) For provisions requiring reporting of information relating to certain life insurance contract transactions, see section 6050Y. . (d) Effective date The amendments made by this section shall apply to— (1) reportable policy sales (as defined in section 6050Y(d)(2) of the Internal Revenue Code of 1986 (as added by subsection (a)) after December 31, 2017, and (2) reportable death benefits (as defined in section 6050Y(d)(4) of such Code (as added by subsection (a)) paid after December 31, 2017. 13521. Clarification of tax basis of life insurance contracts (a) Clarification with respect to adjustments Paragraph (1) of section 1016(a) is amended by striking subparagraph (A) and all that follows and inserting the following: (A) for— (i) taxes or other carrying charges described in section 266; or (ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or (B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; . (b) Effective date The amendment made by this section shall apply to transactions entered into after August 25, 2009. 13522. Exception to transfer for valuable consideration rules (a) In general Subsection (a) of section 101 is amended by inserting after paragraph (2) the following new paragraph: (3) Exception to valuable consideration rules for commercial transfers (A) In general The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale. (B) Reportable policy sale For purposes of this paragraph, the term reportable policy sale means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term indirectly applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract. . (b) Conforming amendment Paragraph (1) of section 101(a) is amended by striking paragraph (2) and inserting paragraphs (2) and (3) . (c) Effective date The amendments made by this section shall apply to transfers after December 31, 2017. 13523. 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), determined by substituting 60-month period for 24-month period therein). . (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 subparagraph: (B) Treatment of certain losses (i) 3-year loss payment pattern In the case of any line of business not described in subparagraph (A)(ii), losses paid after the 1st year following the accident year shall be treated as paid equally in the 2nd and 3rd year following the accident 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 24th year after the accident year, they shall be treated as paid in such 24th year. . (c) Repeal of historical payment pattern election Section 846 , as amended by this Act, 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. C Banks and financial instruments 13531. Limitation on deduction for FDIC premiums (a) In general Section 162 , as amended by sections 13307, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: (r) 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 (i) In general 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). (ii) Control of non-corporate entities 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 clause). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13532. 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. D S corporations 13541. Expansion of qualifying beneficiaries of an electing small business trust (a) No look-through for eligibility purposes Section 1361(c)(2)(B)(v) is amended by adding at the end the following new sentence: This clause shall not apply for purposes of subsection (b)(1)(C). . (b) Effective date The amendment made by this section shall take effect on January 1, 2018. 13542. Charitable contribution deduction for electing small business trusts (a) In general Section 641(c)(2) is amended by inserting after subparagraph (D) the following new subparagraph: (E) (i) Section 642(c) shall not apply. (ii) For purposes of section 170(b)(1)(G), adjusted gross income shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 13543. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from S corporation to C corporation Section 481 is amended by adding at the end the following new subsection: (d) Adjustments attributable to conversion from S corporation to C corporation (1) In general In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation means any C corporation— (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act , and (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (b) Cash distributions following post-termination transition period from S corporation status Section 1371 is amended by adding at the end the following new subsection: (f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. . VII Employment A Compensation 13601. 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 Paragraph (4) of section 162(m) 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) Modification of definition of covered employees Paragraph (3) of section 162(m) 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 any individual described in subparagraph (A)) , 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. . (c) Expansion of applicable employer (1) In general 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) ). . (2) Conforming amendment Section 162(m)(3), as amended by subsection (b), is amended by adding at the end the following flush sentence: 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 Paragraph (4) of section 162(m), 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 (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Exception for binding contracts The amendments made by this section shall not apply to remuneration which is provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. 13602. 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 the product of the rate of tax under section 11 and 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. For purposes of the preceding sentence, remuneration shall be treated as paid when there is no substantial risk of forfeiture (within the meaning of section 457(f)(3)(B)) of the rights to such remuneration. (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 which 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: (A) In general 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)) and shall include amounts required to be included in gross income under section 457(f). (B) Exception for remuneration for medical services The term remuneration shall not include the portion of any remuneration paid to a licensed medical professional (including a veterinarian) which is for the performance of medical or veterinary services by such professional. (4) Remuneration from related organizations (A) In general Remuneration of a covered employee 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 which control the organization, (iii) is a supported organization (as defined in section 509(f)(3)) 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 which is a voluntary employees' beneficiary association described in section 501(c)(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 of 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. (C) Exception Such term does not include any payment— (i) described in section 280G(b)(6) (relating to exemption for payments under qualified plans), (ii) made under or to an annuity contract described in section 403(b) or a plan described in section 457(b), (iii) to a licensed medical professional (including a veterinarian) to the extent that such payment is for the performance of medical or veterinary services by such professional, or (iv) to an individual who is not a highly compensated employee as defined in section 414(q). (D) Base amount Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount. (E) 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 tax under this section, including regulations to prevent avoidance of such tax through the performance of services other than as an employee or by providing compensation through a pass-through or other entity to avoid such tax. . (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 tax-exempt organization executive compensation. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13603. Treatment of qualified equity grants (a) In general Section 83 is amended by adding at the end the following new subsection: (i) Qualified equity grants (1) In general For purposes of this subtitle— (A) Timing of inclusion If qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection, subsection (a) shall be applied by including the amount determined under such subsection with respect to such stock in income of the employee in the taxable year determined under subparagraph (B) in lieu of the taxable year described in subsection (a). (B) Taxable year determined The taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including, solely for purposes of this clause, becoming transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary provides) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was granted by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or are granted restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be made in a similar manner as under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as are determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee means, with respect to any corporation, any individual— (i) who is a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the calendar year or who was such a 1 percent owner at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who is one of the 4 highest compensated officers of such corporation for the taxable year, or was one of the 4 highest compensated officers of such corporation for any of the 10 preceding taxable years, determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of subparagraph (B)(iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation's outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary requires for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all persons treated as a single employer under section 414(b) shall be treated as 1 corporation. (6) Notice requirement Any corporation which transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may be eligible to elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (b) Withholding (1) Time of withholding Section 3401 is amended by adding at the end the following new subsection: (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 is amended by adding at the end the following new subsection: (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)(2)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. . (B) Employee stock purchase plans Section 423 is amended— (i) in subsection (b)(5), by striking and before the plan and by inserting , and the rules of section 83(i) shall apply in determining which employees have a right to make an election under such section before the semicolon at the end, and (ii) by adding at the end the following new subsection: (d) Coordination with qualified equity grants An option for which an election is made under section 83(i) with respect to the stock received in connection with its exercise shall not be considered as granted pursuant an employee stock purchase plan. . (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A is amended by adding at the end the following new paragraph: (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan with respect to such employee solely because of such employee's election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) is amended by striking and at the end of paragraph (14)(B), by striking the period at the end of paragraph (15) and inserting a comma, and by inserting after paragraph (15) the following new paragraphs: (16) the amount includible in gross income under subparagraph (A) of section 83(i)(1) with respect to an event described in subparagraph (B) of such section which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer to provide notice of tax consequences Section 6652 is amended by adding at the end the following new subsection: (p) Failure to provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary's delegate) issues regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements. 13604. Increase in excise tax rate for stock compensation of insiders in expatriated corporations (a) In general Section 4985(a)(1) is amended by striking section 1(h)(1)(C) and inserting section 1(h)(1)(D) . (b) Effective date The amendment made by this section shall apply to corporations first becoming expatriated corporations (as defined in section 4985 of the Internal Revenue Code of 1986) after the date of enactment of this Act. B Retirement plans 13611. Repeal of special rule permitting recharacterization of Roth conversions (a) In general Section 408A(d)(6)(B) is amended by adding at the end the following new clause: (iii) Conversions Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13612. Modification of rules applicable to length of service award plans (a) Maximum deferral amount Clause (ii) of section 457(e)(11)(B) is amended by striking $3,000 and inserting $6,000 . (b) Cost of living adjustment Subparagraph (B) of section 457(e)(11) is amended by adding at the end the following: (iii) Cost of living adjustment In the case of taxable years beginning after December 31, 2017, the Secretary shall adjust the $6,000 amount under clause (ii) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2016, and any increase under this paragraph that is not a multiple of $500 shall be rounded to the next lowest multiple of $500. . (c) Application of limitation on accruals Subparagraph (B) of section 457(e)(11), as amended by subsection (b), is amended by adding at the end the following: (iv) Special rule for application of limitation on accruals for certain plans In the case of a plan described in subparagraph (A)(ii) which is a defined benefit plan (as defined in section 414(j)), the limitation under clause (ii) shall apply to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Such actuarial present value with respect to any year shall be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant's age at the time of the calculation. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13613. Extended rollover period for plan loan offset amounts (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 severance from employment of the participant. (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 amendments Section 402(c)(3) is amended— (1) by striking Transfer must be made within 60 days of receipt in the heading and inserting Time limit on transfers , and (2) by striking subparagraph (B) in subparagraph (A) and inserting subparagraphs (B) and (C) . (c) Effective date The amendments made by this section shall apply to plan loan offset amounts which are treated as distributed in taxable years beginning after December 31, 2017. VIII Exempt organizations 13701. 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. 4968. Excise tax based on investment income of private colleges and universities. 4968. 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(f)(2))— (A) which had at least 500 students during the preceding taxable year, (B) more than 50 percent of the students of which are located in the United States, (C) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities), and (D) 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 $500,000 per student of the institution. (2) Students For purposes of paragraph (1), the number of students of an institution (including for purposes of determining the number of students at a particular location) 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). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that— (A) no such amount shall be taken into account with respect to more than 1 educational institution, and (B) unless such organization is controlled by such institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account. (2) Related organization For purposes of this subsection, the term related organization means, with respect to an educational institution, any organization which— (A) controls, or is controlled by, such institution, (B) is controlled by 1 or more persons which also control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (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. 13702. Unrelated business taxable income separately computed for each trade or business activity (a) In general Subsection (a) of section 512 is amended by adding at the end the following new paragraph: (6) Special rule for organization with more than 1 unrelated trade or business In the case of any organization with more than 1 unrelated trade or business— (A) unrelated business taxable income, including for purposes of determining any net operating loss deduction, shall be computed separately with respect to each such trade or business and without regard to subsection (b)(12), (B) the unrelated business taxable income of such organization shall be the sum of the unrelated business taxable income so computed with respect to each such trade or business, less a specific deduction under subsection (b)(12), and (C) for purposes of subparagraph (B), unrelated business taxable income with respect to any such trade or business shall not be less than zero. . (b) Effective date (1) In general Except to the extent provided in paragraph (2), the amendment made by this section shall apply to taxable years beginning after December 31, 2017. (2) Carryovers of net operating losses If any net operating loss arising in a taxable year beginning before January 1, 2018, is carried over to a taxable year beginning on or after such date— (A) subparagraph (A) of section 512(a)(6) of the Internal Revenue Code of 1986, as added by this Act, shall not apply to such net operating loss, and (B) the unrelated business taxable income of the organization, after the application of subparagraph (B) of such section, shall be reduced by the amount of such net operating loss. 13703. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed (a) In general Section 512(a), as amended by this Act, is further amended by adding at the end the following new paragraph: (7) 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 shall 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. 13704. Repeal of deduction for amounts paid in exchange for college athletic event seating rights (a) In general Section 170(l) is amended— (1) by striking paragraph (1) and inserting the following: (1) In general No deduction shall be allowed under this section for any amount described in paragraph (2). , and (2) in paragraph (2)(B), by striking such amount would be allowable as a deduction under this section but for the fact that . (b) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2017. 13705. Repeal of substantiation exception in case of contributions reported by donee (a) In general Section 170(f)(8) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D). (b) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2016. IX Other provisions A Craft beverage modernization and tax reform 13801. Production period for beer, wine, and distilled spirits (a) In general Section 263A(f) is amended— (1) by redesignating paragraph (4) as paragraph (5), and (2) by inserting after paragraph (3) the following new paragraph: (4) Exemption for aging process of beer, wine, and distilled spirits (A) In general For purposes of this subsection, the production period shall not include the aging period for— (i) beer (as defined in section 5052(a)), (ii) wine (as described in section 5041(a)), or (iii) distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes. (B) Termination This paragraph shall not apply to interest costs paid or accrued after December 31, 2019. . (b) Conforming amendment Paragraph (5)(B)(ii) of section 263A(f), as redesignated by this section, is amended by inserting except as provided in paragraph (4), before ending on the date . (c) Effective date The amendments made by this section shall apply to interest costs paid or accrued in calendar years beginning after December 31, 2017. 13802. Reduced rate of excise tax on beer (a) In general Paragraph (1) of section 5051(a) is amended to read as follows: (1) In general (A) Imposition of tax A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. Except as provided in paragraph (2), the rate of such tax shall be the amount determined under this paragraph. (B) Rate Except as provided in subparagraph (C), the rate of tax shall be $18 for per barrel. (C) Special rule In the case of beer removed after December 31, 2017, and before January 1, 2020, the rate of tax shall be— (i) $16 on the first 6,000,000 barrels of beer— (I) brewed by the brewer and removed during the calendar year for consumption or sale, or (II) imported by the importer into the United States during the calendar year, and (ii) $18 on any barrels of beer to which clause (i) does not apply. (D) Barrel For purposes of this section, a barrel shall contain not more than 31 gallons of beer, and any tax imposed under this section shall be applied at a like rate for any other quantity or for fractional parts of a barrel. . (b) Reduced rate for certain domestic production Subparagraph (A) of section 5051(a)(2) is amended— (1) in the heading, by striking $7 a barrel , and (2) by inserting ($3.50 in the case of beer removed after December 31, 2017, and before January 1, 2020) after $7 . (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (a) of section 5051 is amended— (1) in subparagraph (C)(i)(II) of paragraph (1), as amended by subsection (a), by inserting but only if the importer is an electing importer under paragraph (4) and the barrels have been assigned to the importer pursuant to such paragraph after during the calendar year , and (2) by adding at the end the following new paragraph: (4) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any barrels of beer which have been brewed or produced outside of the United States and imported into the United States, the rate of tax applicable under clause (i) of paragraph (1)(C) (referred to in this paragraph as the reduced tax rate ) may be assigned by the brewer (provided that the brewer makes an election described in subparagraph (B)(ii)) to any electing importer of such barrels pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of barrels of beer for which the reduced tax rate has been assigned by a brewer— (I) to any importer does not exceed the number of barrels of beer brewed or produced by such brewer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 6,000,000 barrels to which the reduced tax rate applies, (ii) procedures that allow the election of a brewer to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the brewer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the brewer and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the brewer, as described under paragraph (5). . (d) Controlled group and single taxpayer rules Subsection (a) of section 5051 , as amended by this section, is amended— (1) in paragraph (2)— (A) by striking subparagraph (B), and (B) by redesignating subparagraph (C) as subparagraph (B), and (2) by adding at the end the following new paragraph: (5) Controlled group and single taxpayer rules (A) In general Except as provided in subparagraph (B), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 2,000,000 barrel quantity specified in paragraph (2)(A) shall be applied to the controlled group, and the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 60,000 barrel quantity specified in paragraph (2)(A) shall be apportioned among the brewers who are members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning assigned to it by subsection (a) of section 1563, except that for such purposes the phrase more than 50 percent shall be substituted for the phrase at least 80 percent in each place it appears in such subsection. Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation. (B) Foreign manufacturers and importers For purposes of paragraph (4), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) shall be applied to the controlled group and apportioned among the members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning given such term under subparagraph (A). Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation. (C) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce beer marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. . (e) Effective date The amendments made by this section shall apply to beer removed after December 31, 2017. 13803. Transfer of beer between bonded facilities (a) In general Section 5414 is amended— (1) by striking Beer may be removed and inserting (a) In general —Beer may be removed , and (2) by adding at the end the following: (b) Transfer of beer between bonded facilities (1) In general Beer may be removed from one bonded brewery to another bonded brewery, without payment of tax, and may be mingled with beer at the receiving brewery, subject to such conditions, including payment of the tax, and in such containers, as the Secretary by regulations shall prescribe, which shall include— (A) any removal from one brewery to another brewery belonging to the same brewer, (B) any removal from a brewery owned by one corporation to a brewery owned by another corporation when— (i) one such corporation owns the controlling interest in the other such corporation, or (ii) the controlling interest in each such corporation is owned by the same person or persons, and (C) any removal from one brewery to another brewery when— (i) the proprietors of transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and (ii) the transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax. (2) Transfer of liability for tax For purposes of paragraph (1)(C), such relief from liability shall be effective from the time of removal from the transferor's bonded premises, or from the time of divestment of interest, whichever is later. (3) Termination This subsection shall not apply to any calendar quarter beginning after December 31, 2019. . (b) Removal from brewery by pipeline Section 5412 is amended by inserting pursuant to section 5414 or before by pipeline . (c) Effective date The amendments made by this section shall apply to any calendar quarters beginning after December 31, 2017. 13804. Reduced rate of excise tax on certain wine (a) In general Section 5041(c) is amended by adding at the end the following new paragraph: (8) Special rule for 2018 and 2019 (A) In general In the case of wine removed after December 31, 2017, and before January 1, 2020, paragraphs (1) and (2) shall not apply and there shall be allowed as a credit against any tax imposed by this title (other than chapters 2, 21, and 22) an amount equal to the sum of— (i) $1 per wine gallon on the first 30,000 wine gallons of wine, plus (ii) 90 cents per wine gallon on the first 100,000 wine gallons of wine to which clause (i) does not apply, plus (iii) 53.5 cents per wine gallon on the first 620,000 wine gallons of wine to which clauses (i) and (ii) do not apply, which are produced by the producer and removed during the calendar year for consumption or sale, or which are imported by the importer into the United States during the calendar year. (B) Adjustment of credit for hard cider In the case of wine described in subsection (b)(6), subparagraph (A) of this paragraph shall be applied— (i) in clause (i) of such subparagraph, by substituting 6.2 cents for $1 , (ii) in clause (ii) of such subparagraph, by substituting 5.6 cents for 90 cents , and (iii) in clause (iii) of such subparagraph, by substituting 3.3 cents for 53.5 cents . , (b) Controlled group and single taxpayer rules Paragraph (4) of section 5041(c) is amended by striking section 5051(a)(2)(B) and inserting section 5051(a)(5) . (c) Allowance of credit for foreign manufacturers and importers Subsection (c) of section 5041 , as amended by subsection (a), is amended— (1) in subparagraph (A) of paragraph (8), by inserting but only if the importer is an electing importer under paragraph (9) and the wine gallons of wine have been assigned to the importer pursuant to such paragraph after into the United States during the calendar year , and (2) by adding at the end the following new paragraph: (9) Allowance of credit for foreign manufacturers and importers (A) In general In the case of any wine gallons of wine which have been produced outside of the United States and imported into the United States, the credit allowable under paragraph (8) (referred to in this paragraph as the tax credit ) may be assigned by the person who produced such wine (referred to in this paragraph as the foreign producer ), provided that such person makes an election described in subparagraph (B)(ii), to any electing importer of such wine gallons pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the tax credit provided under this paragraph, which shall include— (i) a limitation to ensure that the number of wine gallons of wine for which the tax credit has been assigned by a foreign producer— (I) to any importer does not exceed the number of wine gallons of wine produced by such foreign producer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 750,000 wine gallons of wine to which the tax credit applies, (ii) procedures that allow the election of a foreign producer to assign and an importer to receive the tax credit provided under this paragraph, (iii) requirements that the foreign producer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the foreign producer and the importer for the tax credit provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such credit. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the foreign producer, as described under paragraph (4). . (d) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13805. Adjustment of alcohol content level for application of excise tax rates (a) In general Paragraphs (1) and (2) of section 5041(b) are each amended by inserting (16 percent in the case of wine removed after December 31, 2017, and before January 1, 2020 after 14 percent . (b) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13806. Definition of mead and low alcohol by volume wine (a) In general Section 5041 is amended— (1) in subsection (a), by striking Still wines and inserting Subject to subsection (h), still wines , and (2) by adding at the end the following new subsection: (h) Mead and low alcohol by volume wine (1) In general For purposes of subsections (a) and (b)(1), mead and low alcohol by volume wine shall be deemed to be still wines containing not more than 16 percent of alcohol by volume. (2) Definitions (A) Mead For purposes of this section, the term mead means a wine— (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived solely from honey and water, (iii) which contains no fruit product or fruit flavoring, and (iv) which contains less than 8.5 percent alcohol by volume. (B) Low alcohol by volume wine For purposes of this section, the term low alcohol by volume wine means a wine— (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived— (I) primarily from grapes, or (II) from grape juice concentrate and water, (iii) which contains no fruit product or fruit flavoring other than grape, and (iv) which contains less than 8.5 percent alcohol by volume. (3) Termination This subsection shall not apply to wine removed after December 31, 2019. . (b) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13807. Reduced rate of excise tax on certain distilled spirits (a) In general Section 5001 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Reduced rate for 2018 and 2019 (1) In general In the case of a distilled spirits operation, the otherwise applicable tax rate under subsection (a)(1) shall be— (A) $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and (B) $13.34 per proof gallon on the first 22,130,000 of proof gallons of distilled spirits to which subparagraph (A) does not apply, which have been distilled or processed by such operation and removed during the calendar year for consumption or sale, or which have been imported by the importer into the United States during the calendar year. (2) Controlled groups (A) In general In the case of a controlled group, the proof gallon quantities specified under subparagraphs (A) and (B) of paragraph (1) shall be applied to such group and apportioned among the members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. (B) Definition For purposes of subparagraph (A), the term controlled group shall have the meaning given such term by subsection (a) of section 1563, except that more than 50 percent shall be substituted for at least 80 percent each place it appears in such subsection. (C) Rules for non-corporations Under regulations prescribed by the Secretary, principles similar to the principles of subparagraphs (A) and (B) shall be applied to a group under common control where one or more of the persons is not a corporation. (D) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce distilled spirits marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. (3) Termination This subsection shall not apply to distilled spirits removed after December 31, 2019. . (b) Conforming amendment Section 7652(f)(2) is amended by striking section 5001(a)(1) and inserting subsection (a)(1) of section 5001, determined as if subsection (c)(1) of such section did not apply . (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (c) of section 5001 , as added by subsection (a), is amended— (1) in paragraph (1), by inserting but only if the importer is an electing importer under paragraph (3) and the proof gallons of distilled spirits have been assigned to the importer pursuant to such paragraph after into the United States during the calendar year , and (2) by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any proof gallons of distilled spirits which have been produced outside of the United States and imported into the United States, the rate of tax applicable under paragraph (1) (referred to in this paragraph as the reduced tax rate ) may be assigned by the distilled spirits operation (provided that such operation makes an election described in subparagraph (B)(ii)) to any electing importer of such proof gallons pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of proof gallons of distilled spirits for which the reduced tax rate has been assigned by a distilled spirits operation— (I) to any importer does not exceed the number of proof gallons produced by such operation during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 22,230,000 proof gallons of distilled spirits to which the reduced tax rate applies, (ii) procedures that allow the election of a distilled spirits operation to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the distilled spirits operation provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the distilled spirits operation and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group (i) In general For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the distilled spirits operation, as described under paragraph (2). (ii) Apportionment For purposes of this paragraph, in the case of a controlled group, rules similar to section 5051(a)(5)(B) shall apply. . (d) Effective date The amendments made by this section shall apply to distilled spirits removed after December 31, 2017. 13808. Bulk distilled spirits (a) In general Section 5212 is amended by adding at the end the following sentence: In the case of distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020, this section shall be applied without regard to whether distilled spirits are bulk distilled spirits. . (b) Effective date The amendments made by this section shall apply distilled spirits transferred in bond after December 31, 2017. B Miscellaneous provisions 13821. Modification of tax treatment of alaska native corporations and settlement trusts (a) Exclusion for ANCSA payments assigned to alaska native settlement trusts (1) In general Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section: 139G. Assignments to alaska native settlement trusts (a) In general In the case of a Native Corporation, gross income shall not include the value of any payments that would otherwise be made, or treated as being made, to such Native Corporation pursuant to, or as required by, any provision of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1601 et seq.), including any payment that would otherwise be made to a Village Corporation pursuant to section 7(j) of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1606(j) ), provided that any such payments— (1) are assigned in writing to a Settlement Trust, and (2) were not received by such Native Corporation prior to the assignment described in paragraph (1). (b) Inclusion in gross income In the case of a Settlement Trust which has been assigned payments described in subsection (a), gross income shall include such payments when received by such Settlement Trust pursuant to the assignment and shall have the same character as if such payments were received by the Native Corporation. (c) Amount and scope of assignment The amount and scope of any assignment under subsection (a) shall be described with reasonable particularity and may either be in a percentage of one or more such payments or in a fixed dollar amount. (d) Duration of assignment; revocability Any assignment under subsection (a) shall specify— (1) a duration either in perpetuity or for a period of time, and (2) whether such assignment is revocable. (e) Prohibition on deduction Notwithstanding section 247, no deduction shall be allowed to a Native Corporation for purposes of any amounts described in subsection (a). (f) Definitions For purposes of this section, the terms Native Corporation and Settlement Trust have the same meaning given such terms under section 646(h). . (2) Conforming amendment The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item: Sec. 139G. Assignments to Alaska Native Settlement Trusts. . (3) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016. (b) Deduction of contributions to alaska native settlement trusts (1) In general Part VIII of subchapter B of chapter 1 is amended by inserting before section 248 the following new section: 247. Contributions to alaska native settlement trusts (a) In general In the case of a Native Corporation, there shall be allowed a deduction for any contributions made by such Native Corporation to a Settlement Trust (regardless of whether an election under section 646 is in effect for such Settlement Trust) for which the Native Corporation has made an annual election under subsection (e). (b) Amount of deduction The amount of the deduction under subsection (a) shall be equal to— (1) in the case of a cash contribution (regardless of the method of payment, including currency, coins, money order, or check), the amount of such contribution, or (2) in the case of a contribution not described in paragraph (1), the lesser of— (A) the Native Corporation's adjusted basis in the property contributed, or (B) the fair market value of the property contributed. (c) Limitation and carryover (1) In general Subject to paragraph (2), the deduction allowed under subsection (a) for any taxable year shall not exceed the taxable income (as determined without regard to such deduction) of the Native Corporation for the taxable year in which the contribution was made. (2) Carryover If the aggregate amount of contributions described in subsection (a) for any taxable year exceeds the limitation under paragraph (1), such excess shall be treated as a contribution described in subsection (a) in each of the 15 succeeding years in order of time. (d) Definitions For purposes of this section, the terms Native Corporation and Settlement Trust have the same meaning given such terms under section 646(h). (e) Manner of making election (1) In general For each taxable year, a Native Corporation may elect to have this section apply for such taxable year on the income tax return or an amendment or supplement to the return of the Native Corporation, with such election to have effect solely for such taxable year. (2) Revocation Any election made by a Native Corporation pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Native Corporation. (f) Additional rules (1) Earnings and profits Notwithstanding section 646(d)(2), in the case of a Native Corporation which claims a deduction under this section for any taxable year, the earnings and profits of such Native Corporation for such taxable year shall be reduced by the amount of such deduction. (2) Gain or loss No gain or loss shall be recognized by the Native Corporation with respect to a contribution of property for which a deduction is allowed under this section. (3) Income Subject to subsection (g), a Settlement Trust shall include in income the amount of any deduction allowed under this section in the taxable year in which the Settlement Trust actually receives such contribution. (4) Period The holding period under section 1223 of the Settlement Trust shall include the period the property was held by the Native Corporation. (5) Basis The basis that a Settlement Trust has for which a deduction is allowed under this section shall be equal to the lesser of— (A) the adjusted basis of the Native Corporation in such property immediately before such contribution, or (B) the fair market value of the property immediately before such contribution. (6) Prohibition No deduction shall be allowed under this section with respect to any contributions made to a Settlement Trust which are in violation of subsection (a)(2) or (c)(2) of section 39 of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1629e ). (g) Election by settlement trust to defer income recognition (1) In general In the case of a contribution which consists of property other than cash, a Settlement Trust may elect to defer recognition of any income related to such property until the sale or exchange of such property, in whole or in part, by the Settlement Trust. (2) Treatment In the case of property described in paragraph (1), any income or gain realized on the sale or exchange of such property shall be treated as— (A) for such amount of the income or gain as is equal to or less than the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, ordinary income, and (B) for any amounts of the income or gain which are in excess of the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, having the same character as if this subsection did not apply. (3) Election (A) In general For each taxable year, a Settlement Trust may elect to apply this subsection for any property described in paragraph (1) which was contributed during such year. Any property to which the election applies shall be identified and described with reasonable particularity on the income tax return or an amendment or supplement to the return of the Settlement Trust, with such election to have effect solely for such taxable year. (B) Revocation Any election made by a Settlement Trust pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Settlement Trust. (C) Certain dispositions (i) In general In the case of any property for which an election is in effect under this subsection and which is disposed of within the first taxable year subsequent to the taxable year in which such property was contributed to the Settlement Trust— (I) this section shall be applied as if the election under this subsection had not been made, (II) any income or gain which would have been included in the year of contribution under subsection (f)(3) but for the taxpayer's election under this subsection shall be included in income for the taxable year of such contribution, and (III) the Settlement Trust shall pay any increase in tax resulting from such inclusion, including any applicable interest, and increased by 10 percent of the amount of such increase with interest. (ii) Assessment Notwithstanding section 6501(a), any amount described in subclause (III) of clause (i) may be assessed, or a proceeding in court with respect to such amount may be initiated without assessment, within 4 years after the date on which the return making the election under this subsection for such property was filed. . (2) Conforming amendment The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting before the item relating to section 248 the following new item: Sec. 247. Contributions to Alaska Native Settlement Trusts. . (3) Effective date (A) In general The amendments made by this subsection shall apply to taxable years for which the period of limitation on refund or credit under section 6511 of the Internal Revenue Code of 1986 has not expired. (B) One-year waiver of statute of limitations If the period of limitation on a credit or refund resulting from the amendments made by paragraph (1) expires before the end of the 1-year period beginning on the date of the enactment of this Act, refund or credit of such overpayment (to the extent attributable to such amendments) may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period. (c) Information reporting for deductible contributions to alaska native settlement trusts (1) In general Section 6039H is amended— (A) in the heading, by striking sponsoring , and (B) by adding at the end the following new subsection: (e) Deductible contributions by native corporations to alaska native settlement trusts (1) In general Any Native Corporation (as defined in subsection (m) of section 3 of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1602(m) )) which has made a contribution to a Settlement Trust (as defined in subsection (t) of such section) to which an election under subsection (e) of section 247 applies shall provide such Settlement Trust with a statement regarding such election not later than January 31 of the calendar year subsequent to the calendar year in which the contribution was made. (2) Content of statement The statement described in paragraph (1) shall include— (A) the total amount of contributions to which the election under subsection (e) of section 247 applies, (B) for each contribution, whether such contribution was in cash, (C) for each contribution which consists of property other than cash, the date that such property was acquired by the Native Corporation and the adjusted basis and fair market value of such property on the date such property was contributed to the Settlement Trust, (D) the date on which each contribution was made to the Settlement Trust, and (E) such information as the Secretary determines to be necessary or appropriate for the identification of each contribution and the accurate inclusion of income relating to such contributions by the Settlement Trust. . (2) Conforming amendment The item relating to section 6039H in the table of sections for subpart A of part III of subchapter A of chapter 61 is amended to read as follows: Sec. 6039H. Information With Respect to Alaska Native Settlement Trusts and Native Corporations. . (3) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016. 13822. Amounts paid for aircraft management services (a) In general Subsection (e) of section 4261 is amended by adding at the end the following new paragraph: (5) Amounts paid for aircraft management services (A) In general No tax shall be imposed by this section or section 4271 on any amounts paid by an aircraft owner for aircraft management services related to— (i) maintenance and support of the aircraft owner's aircraft, or (ii) flights on the aircraft owner's aircraft. (B) Aircraft management services For purposes of subparagraph (A), the term aircraft management services includes— (i) assisting an aircraft owner with administrative and support services, such as scheduling, flight planning, and weather forecasting, (ii) obtaining insurance, (iii) maintenance, storage and fueling of aircraft, (iv) hiring, training, and provision of pilots and crew, (v) establishing and complying with safety standards, and (vi) such other services as are necessary to support flights operated by an aircraft owner. (C) Lessee treated as aircraft owner (i) In general For purposes of this paragraph, the term aircraft owner includes a person who leases the aircraft other than under a disqualified lease. (ii) Disqualified lease For purposes of clause (i), the term disqualified lease means a lease from a person providing aircraft management services with respect to such aircraft (or a related person (within the meaning of section 465(b)(3)(C)) to the person providing such services), if such lease is for a term of 31 days or less. (D) Pro rata allocation In the case of amounts paid to any person which (but for this subsection) are subject to the tax imposed by subsection (a), a portion of which consists of amounts described in subparagraph (A), this paragraph shall apply on a pro rata basis only to the portion which consists of amounts described in such subparagraph. . (b) Effective date The amendment made by this section shall apply to amounts paid after the date of the enactment of this Act. 13823. Opportunity zones (a) In general Chapter 1 is amended by adding at the end the following: Z Opportunity zones Sec. 1400Z–1. Designation. Sec. 1400Z–2. Special rules for capital gains invested in opportunity zones. 1400Z–1. Designation (a) Qualified opportunity zone defined For the purposes of this subchapter, the term qualified opportunity zone means a population census tract that is a low-income community that is designated as a qualified opportunity zone. (b) Designation (1) In general For purposes of subsection (a), a population census tract that is a low-income community is designated as a qualified opportunity zone if— (A) not later than the end of the determination period, the chief executive officer of the State in which the tract is located— (i) nominates the tract for designation as a qualified opportunity zone, and (ii) notifies the Secretary in writing of such nomination, and (B) the Secretary certifies such nomination and designates such tract as a qualified opportunity zone before the end of the consideration period. (2) Extension of periods A chief executive officer of a State may request that the Secretary extend either the determination or consideration period, or both (determined without regard to this subparagraph), for an additional 30 days. (c) Other definitions For purposes of this subsection— (1) Low-income communities The term low-income community has the same meaning as when used in section 45D(e). (2) Definition of periods (A) Consideration period The term consideration period means the 30-day period beginning on the date on which the Secretary receives notice under subsection (b)(1)(A)(ii), as extended under subsection (b)(2). (B) Determination period The term determination period means the 90-day period beginning on the date of the enactment of the Tax Cuts and Jobs Act, as extended under subsection (b)(2). (3) State For purposes of this section, the term State includes any possession of the United States. (d) Number of designations (1) In general Except as provided by paragraph (2), the number of population census tracts in a State that may be designated as qualified opportunity zones under this section may not exceed 25 percent of the number of low-income communities in the State. (2) Exception If the number of low-income communities in a State is less than 100, then a total of 25 of such tracts may be designated as qualified opportunity zones. (e) Designation of tracts contiguous with low-income communities (1) In general A population census tract that is not a low-income community may be designated as a qualified opportunity zone under this section if— (A) the tract is contiguous with the low-income community that is designated as a qualified opportunity zone, and (B) the median family income of the tract does not exceed 125 percent of the median family income of the low-income community with which the tract is contiguous. (2) Limitation Not more than 5 percent of the population census tracts designated in a State as a qualified opportunity zone may be designated under paragraph (1). (f) Period for which designation is in effect A designation as a qualified opportunity zone shall remain in effect for the period beginning on the date of the designation and ending at the close of the 10th calendar year beginning on or after such date of designation. 1400Z–2. Special rules for capital gains invested in opportunity zones (a) In general (1) Treatment of gains In the case of gain from the sale to, or exchange with, an unrelated person of any property held by the taxpayer, at the election of the taxpayer— (A) gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified opportunity fund during the 180-day period beginning on the date of such sale or exchange, (B) the amount of gain excluded by subparagraph (A) shall be included in gross income as provided by subsection (b), and (C) subsection (c) shall apply. (2) Election No election may be made under paragraph (1)— (A) with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect, or (B) with respect to any sale or exchange after December 31, 2026. (b) Deferral of gain invested in opportunity zone property (1) Year of inclusion Gain to which subsection (a)(1)(B) applies shall be included in income in the taxable year which includes the earlier of— (A) the date on which such investment is sold or exchanged, or (B) December 31, 2026. (2) Amount includible (A) In general The amount of gain included in gross income under subsection (a)(1)(A) shall be the excess of— (i) the lesser of the amount of gain excluded under paragraph (1) or the fair market value of the investment as determined as of the date described in paragraph (1), over (ii) the taxpayer's basis in the investment. (B) Determination of basis (i) In general Except as otherwise provided in this clause or subsection (c), the taxpayer's basis in the investment shall be zero. (ii) Increase for gain recognized under subsection (a)(1)(B) The basis in the investment shall be increased by the amount of gain recognized by reason of subsection (a)(1)(B) with respect to such property. (iii) Investments held for 5 years In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (iv) Investments held for 7 years In the case of any investment held by the taxpayer for at least 7 years, in addition to any adjustment made under clause (iii), the basis of such property shall be increased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (c) Special rule for investments held for at least 10 years In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged. (d) Qualified opportunity fund For purposes of this section— (1) In general The term qualified opportunity fund means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone property held in the fund as measured— (A) on the last day of the first 6-month period of the taxable year of the fund, and (B) on the last day of the taxable year of the fund. (2) Qualified opportunity zone property (A) In general The term qualified opportunity zone property means property which is— (i) qualified opportunity zone stock, (ii) qualified opportunity zone partnership interest, or (iii) qualified opportunity zone business property. (B) Qualified opportunity zone stock (i) In general Except as provided in clause (ii), the term qualified opportunity zone stock means any stock in a domestic corporation if— (I) such stock is acquired by the qualified opportunity fund after December 31, 2017, at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash, (II) as of the time such stock was issued, such corporation was a qualified opportunity zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a qualified opportunity zone business), and (III) during substantially all of the qualified opportunity fund's holding period for such stock, such corporation qualified as a qualified opportunity zone business. (ii) Redemptions A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (C) Qualified opportunity zone partnership interest The term qualified opportunity zone partnership interest means any capital or profits interest in a domestic partnership if— (i) such interest is acquired by the qualified opportunity fund after December 31, 2017, from the partnership solely in exchange for cash, (ii) as of the time such interest was acquired, such partnership was a qualified opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified opportunity zone business), and (iii) during substantially all of the qualified opportunity fund's holding period for such interest, such partnership qualified as a qualified opportunity zone business. (D) Qualified opportunity zone business property (i) In general The term qualified opportunity zone business property means tangible property used in a trade or business of the qualified opportunity fund if— (I) such property was acquired by the qualified opportunity fund by purchase (as defined in section 179(d)(2)) after December 31, 2017, (II) the original use of such property in the qualified opportunity zone commences with the qualified opportunity fund or the qualified opportunity fund substantially improves the property, and (III) during substantially all of the qualified opportunity fund's holding period for such property, substantially all of the use of such property was in a qualified opportunity zone. (ii) Substantial improvement For purposes of subparagraph (A)(ii), property shall be treated as substantially improved by the qualified opportunity fund only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the qualified opportunity fund. (iii) Related party For purposes of subparagraph (A)(i), the related person rule of section 179(d)(2) shall be applied pursuant to paragraph (8) of this subsection in lieu of the application of such rule in section 179(d)(2)(A). (3) Qualified opportunity zone business (A) In general The term qualified opportunity zone business means a trade or business— (i) in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property (determined by substituting qualified opportunity zone business for qualified opportunity fund each place it appears in paragraph (2)(D)), (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (iii) which is not described in section 144(c)(6)(B). (B) Special rule For purposes of subparagraph (A), tangible property that ceases to be a qualified opportunity zone business property shall continue to be treated as a qualified opportunity zone business property for the lesser of— (i) 5 years after the date on which such tangible property ceases to be so qualified, or (ii) the date on which such tangible property is no longer held by the qualified opportunity zone business. (e) Applicable rules (1) Treatment of investments with mixed funds In the case of any investment in a qualified opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a) is in effect— (A) such investment shall be treated as 2 separate investments, consisting of— (i) one investment that only includes amounts to which the election under subsection (a) applies, and (ii) a separate investment consisting of other amounts, and (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i). (2) Related persons For purposes of this section, persons are related to each other if such persons are described in section 267(b) or 707(b)(1), determined by substituting 20 percent for 50 percent each place it occurs in such sections. (3) Decedents In the case of a decedent, amounts recognized under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691. (4) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including— (A) rules for the certification of qualified opportunity funds for the purposes of this section, (B) rules to ensure a qualified opportunity fund has a reasonable period of time to reinvest the return of capital from investments in qualified opportunity zone stock and qualified opportunity zone partnership interests, and to reinvest proceeds received from the sale or disposition of qualified opportunity zone property, and (C) rules to prevent abuse. (f) Failure of qualified opportunity fund to maintain investment standard (1) In general If a qualified opportunity fund fails to meet the 90-percent requirement of subsection (c)(1), the qualified opportunity fund shall pay a penalty for each month it fails to meet the requirement in an amount equal to the product of— (A) the excess of— (i) the amount equal to 90 percent of its aggregate assets, over (ii) the aggregate amount of qualified opportunity zone property held by the fund, multiplied by (B) the underpayment rate established under section 6621(a)(2) for such month. (2) Special rule for partnerships In the case that the qualified opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account proportionately as part of the distributive share of each partner of the partnership. (3) Reasonable cause exception No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause. . (b) Basis adjustments Section 1016(a) is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and , and by inserting after paragraph (37) the following: (38) to the extent provided in subsections (b)(2) and (c) of section 1400Z–2. . (c) Clerical amendment The table of subchapters for chapter 1 is amended by adding at the end the following new item: Subchapter Z. Opportunity zones . (d) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. D International tax provisions I Outbound transactions A Establishment of participation exemption system for taxation of foreign income 14101. 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— (1) In general The term specified 10-percent owned foreign corporation means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation. (2) Exclusion of passive foreign investment companies Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which 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 from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such dividend as— (A) the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to (B) the total undistributed earnings of such foreign corporation. (2) Undistributed earnings The term 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)— (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) Undistributed foreign earnings The term undistributed foreign earnings means the portion of the 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)). (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) Special rules for hybrid dividends (1) In general Subsection (a) shall not apply to any dividend received by a United States shareholder from a controlled foreign corporation if the dividend is a hybrid dividend. (2) Hybrid dividends of tiered corporations If a controlled foreign corporation with respect to which a domestic corporation is a United States shareholder receives a hybrid dividend from any other controlled foreign corporation with respect to which such domestic corporation is also a United States shareholder, then, notwithstanding any other provision of this title— (A) the hybrid dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the dividend was received, and (B) the United States shareholder shall include in gross income an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the subpart F income described in subparagraph (A). (3) Denial of foreign tax credit, etc The rules of subsection (d) shall apply to any hybrid dividend received by, or any amount included under paragraph (2) in the gross income of, a United States shareholder. (4) Hybrid dividend The term hybrid dividend means an amount received from a controlled foreign corporation— (A) for which a deduction would be allowed under subsection (a) but for this subsection, and (B) for which the controlled foreign corporation received a deduction (or other tax benefit) with respect to any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States. (f) Special rule for purging distributions of passive foreign investment companies Any amount which is treated as a dividend under section 1291(d)(2)(B) shall not be treated as a dividend for purposes of this section. (g) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of United States shareholders owning stock of a specified 10 percent owned foreign corporation through a partnership. . (b) Application of holding period requirement Subsection (c) of section 246 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) 1-year holding period requirement For purposes of section 245A— (i) paragraph (1)(A) shall be applied— (I) by substituting 365 days for 45 days each place it appears, and (II) by substituting 731-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 at all times during such period, and (ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation at all times during such period. . (c) Application of rules generally applicable to deductions for dividends received (1) Treatment of dividends from certain corporations Paragraph (1) of section 246(a) is amended by striking and 245 and inserting 245, and 245A . (2) Coordination with section 1059 Subparagraph (B) of section 1059(b)(2) is amended by striking or 245 and inserting 245, or 245A . (d) Coordination with foreign tax credit limitation Subsection (b) of section 904 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 domestic corporation which is 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 amounts includible under section 951(a)(1) or 951A(a)) 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 amounts includible under section 951(a)(1) or 951A(a). 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) Subsection (b) of section 951 is amended by striking subpart and inserting title . (2) Subsection (a) of section 957 is amended by striking subpart in the matter preceding paragraph (1) and inserting title . (3) The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after the item relating to section 245 the following new item: Sec. 245A. Deduction for foreign source-portion of dividends received by domestic corporations from certain 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. 14102. Special rules relating to sales or transfers involving specified 10-percent owned foreign corporations (a) Sales by united states persons of stock (1) In general Section 1248 is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: (j) Coordination with dividends received deduction In the case of the sale or exchange by a domestic corporation of stock in a foreign corporation held for 1 year or more, any amount received by the domestic corporation which is treated as a dividend by reason of this section shall be treated as a dividend for purposes of applying section 245A. . (2) Effective date The amendments made by this subsection shall apply to sales or exchanges after December 31, 2017. (b) 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. (c) Sale by a CFC of a lower tier CFC (1) In general Section 964(e) is amended by adding at the end the following new paragraph: (4) Coordination with dividends received deduction (A) In general If, for any taxable year of a controlled foreign corporation beginning after December 31, 2017, any amount is treated as a dividend under paragraph (1) by reason of a sale or exchange by the controlled foreign corporation of stock in another foreign corporation held for 1 year or more, then, notwithstanding any other provision of this title— (i) the foreign-source portion of such dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the selling controlled foreign corporation for such taxable year, (ii) a United States shareholder with respect to the selling controlled foreign corporation shall include in gross income for the taxable year of the shareholder with or within which such taxable year of the controlled foreign corporation ends an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the amount treated as subpart F income under clause (i), and (iii) the deduction under section 245A(a) shall be allowable to the United States shareholder with respect to the subpart F income included in gross income under clause (ii) in the same manner as if such subpart F income were a dividend received by the shareholder from the selling controlled foreign corporation. (B) Application of basis or similar adjustment For purposes of this title, in the case of a sale or exchange by a controlled foreign corporation of stock in another foreign corporation in a taxable year of the selling controlled foreign corporation beginning after December 31, 2017, rules similar to the rules of section 961(d) shall apply. (C) Foreign-source portion For purposes of this paragraph, the foreign-source portion of any amount treated as a dividend under paragraph (1) shall be determined in the same manner as under section 245A(c). . (2) Effective date The amendments made by this subsection shall apply to sales or exchanges after December 31, 2017. (d) 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), as in effect before the date of the enactment of the Tax Cuts and Jobs Act) 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 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 (b)(2)(B)). (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 shall 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) 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. . (3) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. (4) Transition rule The amount of gain taken into account under section 91(c) of the Internal Revenue Code of 1986, as added by this subsection, shall be reduced by the amount of gain which would be recognized under section 367(a)(3)(C) (determined without regard to the amendments made by subsection (e)) with respect to losses incurred before January 1, 2018. (e) Repeal of active trade or business exception under section 367 (1) In general Section 367(a) is amended by striking paragraph (3) and redesignating paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), respectively. (2) Conforming amendments Section 367(a)(4), as redesignated by paragraph (1), is amended— (A) by striking Paragraphs (2) and (3) and inserting Paragraph (2) , and (B) by striking Paragraphs (2) and (3) in the heading and inserting Paragraph (2) . (3) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. 14103. 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 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 (i) In general The term aggregate foreign E&P deficit means, with respect to any United States shareholder, the lesser of— (I) 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, or (II) the amount determined under paragraph (2)(B). (ii) Allocation of deficit If the amount described in clause (i)(II) is less than the amount described in clause (i)(I), then the shareholder shall designate, in such form and manner as the Secretary determines— (I) the amount of the specified E&P deficit which is to be taken into account for each E&P deficit corporation with respect to the taxpayer, and (II) in the case of an E&P deficit corporation which has a qualified deficit (as defined in section 952), the portion (if any) of the deficit taken into account under subclause (I) which is attributable to a qualified deficit, including the qualified activities to which such portion is attributable. (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, as of November 2, 2017— (i) such specified foreign corporation has a deficit in post-1986 earnings and profits, (ii) such corporation was a specified foreign corporation, and (iii) 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) Treatment of earnings and profits in future years (A) Reduced earnings and profits treated as previously taxed income when distributed For purposes of applying section 959 in any taxable year beginning with the taxable year described in subsection (a), with respect to any United States shareholder of a deferred foreign income corporation, an amount equal to such shareholder's reduction under paragraph (1) which is allocated to such deferred foreign income corporation under this subsection shall be treated as an amount which was included in the gross income of such United States shareholder under section 951(a). (B) E&P deficits For purposes of this title, with respect to any taxable year beginning with the taxable year described in subsection (a), a United States shareholder's pro rata share of the earnings and profits of any E&P deficit foreign corporation under this subsection shall be increased by the amount of the specified E&P deficit of such corporation taken into account by such shareholder under paragraph (1), and, for purposes of section 952, such increase shall be attributable to the same activity to which the deficit so taken into account was attributable. (5) 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) without regard to clause (i)(II) thereof), 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 8 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 15.5 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) 8 and 15.5 percent rate equivalent percentages For purposes of this subsection— (A) 8 percent rate equivalent percentage The term 8 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 8 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) 15.5 percent rate equivalent percentage The term 15.5 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 15.5 percent rate of tax for 8 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, the greater 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 the close of the last taxable year of such specified foreign corporation which begins before January 1, 2018, or (ii) one half of the sum of— (I) 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, plus (II) 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 subclause (I). (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) Personal property which is of a type that is actively traded and 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 Cash positions of a specified foreign corporation described in clause (ii), (iii)(I), or (iii)(IV) of subparagraph (B) shall not be taken into account by a United States shareholder under subparagraph (A) to the extent that such United States shareholder demonstrates to the satisfaction of the Secretary that such amount is so taken into account by such United States shareholder with respect to another specified foreign corporation. (E) Cash positions of certain non-corporate entities taken into account An entity (other than a 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. (F) Anti-abuse If the Secretary determines that a 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)) 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) in the case of a controlled foreign corporation, 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, and by only taking into account periods when the foreign corporation was a specified foreign corporation) 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, and (B) without diminution by reason of dividends distributed during the taxable year described in subsection (a) other than dividends distributed to another specified foreign corporation. (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. (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) Exclusion of passive foreign investment companies Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which is not a controlled foreign corporation. (f) Determinations of pro rata share (1) In general 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). (2) Special rules The portion which is included in the income of a United States shareholder under section 951(a)(1) by reason of subsection (a) which is equal to the deduction allowed under subsection (c) by reason of such inclusion— (A) shall be treated as income exempt from tax for purposes of sections 705(a)(1)(B) and 1367(a)(1)(A), and (B) shall not be treated as income exempt from tax for purposes of determining whether an adjustment shall be made to an accumulated adjustment account under section 1368(e)(1)(A). (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) 0.771 multiplied by 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) 0.557 multiplied by 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 With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as— (A) the excess of— (i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over (ii) the deduction allowable under subsection (c) with respect to such amounts, bears to (B) such amounts. (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 installments of the following amounts: (A) 8 percent of the net tax liability in the case of each of the first 5 of such installments, (B) 15 percent of the net tax liability in the case of the 6th such installment, (C) 20 percent of the net tax liability in the case of the 7th such installment, and (D) 25 percent of the net tax liability in the case of the 8th such installment. (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 shall 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 or deduction 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 of tax 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) of subparagraph (A) 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 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 shall provide. (j) Reporting by s corporation Each S corporation which is a United States shareholder of a specified foreign 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) Extension of limitation on assessment Notwithstanding section 6501, the limitation on the time period for the assessment of the net tax liability under this section (as defined in subsection (h)(6)) shall not expire before the date that is 6 years after the return for the taxable year described in such subsection was filed. (l) Recapture for expatriated entities (1) In general If a deduction is allowed under subsection (c) to a United States shareholder and such shareholder first becomes an expatriated entity at any time during the 10-year period beginning on the date of the enactment of the Tax Cuts and Jobs Act (with respect to a surrogate foreign corporation which first becomes a surrogate foreign corporation during such period), then— (A) the tax imposed by this chapter shall be increased for the first taxable year in which such taxpayer becomes an expatriated entity by an amount equal to 35 percent of the amount of the deduction allowed under subsection (c), and (B) no credits shall be allowed against the increase in tax under subparagraph (A). (2) Expatriated entity For purposes of this subsection, the term expatriated entity has the same meaning given such term under section 7874(a)(2), except that such term shall not include an entity if the surrogate foreign corporation with respect to the entity is treated as a domestic corporation under section 7874(b). (3) Surrogate foreign corporation For purposes of this subsection, the term surrogate foreign corporation has the meaning given such term in section 7874(a)(2)(B). (m) Special rules for united states shareholders which are real estate investment trusts (1) In general If a real estate investment trust is a United States shareholder in 1 or more deferred foreign income corporations— (A) any amount required to be taken into account under section 951(a)(1) by reason of this section shall not be taken into account as gross income of the real estate investment trust for purposes of applying paragraphs (2) and (3) of section 856(c) to any taxable year for which such amount is taken into account under section 951(a)(1), and (B) if the real estate investment trust elects the application of this subparagraph, notwithstanding subsection (a), any amount required to be taken into account under section 951(a)(1) by reason of this section shall, in lieu of the taxable year in which it would otherwise be included in gross income (for purposes of the computation of real estate investment trust taxable income under section 857(b)), be included in gross income as follows: (i) 8 percent of such amount in the case of each of the taxable years in the 5-taxable year period beginning with the taxable year in which such amount would otherwise be included. (ii) 15 percent of such amount in the case of the 1st taxable year following such period. (iii) 20 percent of such amount in the case of the 2nd taxable year following such period. (iv) 25 percent of such amount in the case of the 3rd taxable year following such period. (2) Rules for trusts electing deferred inclusion (A) Election Any election under paragraph (1)(B) shall be made not later than the due date for the first taxable year in the 5-taxable year period described in clause (i) of paragraph (1)(B) and shall be made in such manner as the Secretary shall provide. (B) Special rules If an election under paragraph (1)(B) is in effect with respect to any real estate investment trust, the following rules shall apply: (i) Application of participation exemption For purposes of subsection (c)(1)— (I) the aggregate amount to which subparagraph (A) or (B) of subsection (c)(1) applies shall be determined without regard to the election, (II) each such aggregate amount shall be allocated to each taxable year described in paragraph (1)(B) in the same proportion as the amount included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section is allocated to each such taxable year. (III) No installment payments The real estate investment trust may not make an election under subsection (g) for any taxable year described in paragraph (1)(B). (ii) Acceleration of inclusion If there is a liquidation or sale of substantially all the assets of the real estate investment trust (including in a title 11 or similar case), a cessation of business by such trust, or any similar circumstance, then any amount not yet included in gross income under paragraph (1)(B) shall be included in gross income as of the day before the date of the event and the unpaid portion of any tax liability with respect to such inclusion 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). (n) Election not to apply net operating loss deduction (1) In general If a United States shareholder of a deferred foreign income corporation elects the application of this subsection for the taxable year described in subsection (a), then the amount described in paragraph (2) shall not be taken into account— (A) in determining the amount of the net operating loss deduction under section 172 of such shareholder for such taxable year, or (B) in determining the amount of taxable income for such taxable year which may be reduced by net operating loss carryovers or carrybacks to such taxable year under section 172. (2) Amount described The amount described in this paragraph is the sum of— (A) the amount required to be taken into account under section 951(a)(1) by reason of this section (determined after the application of subsection (c)), plus (B) in the case of a domestic corporation which chooses to have the benefits of subpart A of part III of subchapter N for the taxable year, the taxes deemed to be paid by such corporation under subsections (a) and (b) of section 960 for such taxable year with respect to the amount described in subparagraph (A) which are treated as a dividends under section 78. (3) Election Any election under this subsection shall be made not later than the due date (including extensions) for filing the return of tax for the taxable year and shall be made in such manner as the Secretary shall prescribe. (o) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including— (1) regulations or other guidance to provide appropriate basis adjustments, and (2) regulations or other guidance to prevent the avoidance of the purposes of this section, including through a reduction in earnings and profits, through changes in entity classification or accounting methods, or otherwise. . (b) Clerical amendment 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 965 and inserting the following: Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation. . B Rules related to passive and mobile income 1 Taxation of foreign-derived intangible income and global intangible low-taxed income 14201. Current year inclusion of global intangible low-taxed income by united states shareholders (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. Global intangible low-taxed income 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 such shareholder's global intangible low-taxed income for such taxable year. (b) Global intangible low-taxed income For purposes of this section— (1) In general The term global intangible low-taxed income 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) such shareholder's net deemed tangible income return for such taxable year. (2) Net deemed tangible income return The term net deemed tangible income return means, with respect to any United States shareholder for any taxable year, the excess of— (A) 10 percent 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 (B) 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 to the extent the interest income attributable to such expense is not taken into account in determining such shareholder’s net CFC tested income. (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 described in section 952(b), (II) any gross income taken into account in determining the subpart F income of such corporation, (III) any gross income excluded from the foreign base company income (as defined in section 954) and the insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4), (IV) any dividend received from a related person (as defined in section 954(d)(3)), and (V) any foreign oil and gas extraction income (as defined in section 907(c)(1)) 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 to which such deductions would be allocable if there were such gross income). (B) Tested loss (i) In general 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). (ii) Coordination with subpart f to deny double benefit of losses Section 952(c)(1)(A) shall be applied by increasing the earnings and profits of the controlled foreign corporation by the tested loss of such corporation. (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, the average of such corporation’s aggregate adjusted bases as of the close of each quarter of 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 167. (2) Specified tangible property (A) In general The term specified tangible property means, except as provided in subparagraph (B), any tangible property used in the production of tested income. (B) Dual use property In the case of property used both in the production of tested income and income which is not tested income, such property shall be treated as specified tangible property in the same proportion that the gross income described in subsection (c)(1)(A) produced with respect to such property bears to the total gross income produced with respect to such property. (3) Determination of adjusted basis For purposes of this subsection, notwithstanding any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section, the adjusted basis in any property shall be determined— (A) by using the alternative depreciation system under section 168(g), and (B) by allocating the depreciation deduction with respect to such property ratably to each day during the period in the taxable year to which such depreciation relates. (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, (B) is of a type with respect to which a deduction is allowable under section 167, and (C) is used in the production of tested income (determined with respect to such controlled foreign corporation’s distributive share of income 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 with respect to such property. (4) 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) Determination of pro rata share, etc For purposes of this section— (1) In general The pro rata shares referred to in subsections (b), (c)(1)(A), and (c)(1)(B), respectively, shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income and shall be taken into account in the taxable year of the United States shareholder in which or with which the taxable year of the controlled foreign corporation ends. (2) Treatment as United States shareholder A person shall be treated as a United States shareholder of a controlled foreign corporation for any taxable year of such person only if such person owns (within the meaning of section 958(a)) stock in such foreign corporation on the last day in the taxable year of such foreign corporation on which such foreign corporation is a controlled foreign corporation. (3) Treatment as controlled foreign corporation A foreign corporation shall be treated as a controlled foreign corporation for any taxable year if such foreign corporation is a controlled foreign corporation at any time during such taxable year. (f) Treatment as subpart f income for certain purposes (1) In general (A) Application Except as provided in subparagraph (B), any global intangible low-taxed income 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, 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). (B) Exception The Secretary shall provide rules for the application of subparagraph (A) to other provisions of this title in any case in which the determination of subpart F income is required to be made at the level of the controlled foreign corporation. (2) Allocation of global intangible low-taxed income 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 global intangible low-taxed income included in gross income of a United States shareholder under subsection (a), the portion of such global intangible low-taxed income which is treated as being with respect to such controlled foreign corporation is— (A) in the case of a controlled foreign corporation with no tested income, zero, and (B) in the case of a controlled foreign corporation with tested income, the portion of such global intangible low-taxed income which bears the same ratio to such global intangible low-taxed income 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 described in subsection (c)(1)(A) with respect to such United States shareholder. . (b) Foreign tax credit (1) Application of deemed paid foreign tax credit Section 960 is amended adding at the end the following new subsection: (d) Deemed paid credit for taxes properly attributable to tested income (1) In general For purposes of subpart A of this part, 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 the product of— (A) such domestic corporation's inclusion percentage, multiplied by (B) the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations. (2) Inclusion percentage For purposes of paragraph (1), the term inclusion percentage means, with respect to any domestic corporation, the ratio (expressed as a percentage) of— (A) such corporation's global intangible low-taxed income (as defined in section 951A(b)), divided by (B) the aggregate amount described in 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 the tested income of such foreign corporation taken into account by such domestic corporation under section 951A. . (2) Application of foreign tax credit limitation (A) Separate basket for global intangible low-taxed income 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 (other than passive category income), . (B) Exclusion from general category income Section 904(d)(2)(A)(ii) is amended by inserting income described in paragraph (1)(A) and before passive category income . (C) No carryover or carryback 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). . (c) Clerical amendment 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. Global intangible low-taxed income 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. 14202. Deduction for foreign-derived intangible income and global intangible low-taxed income (a) In general Part VIII of subchapter B of chapter 1 is amended by adding at the end the following new section: 250. Foreign-derived intangible income and global intangible low-taxed income (a) Allowance of deduction (1) In general In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of— (A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus (B) 50 percent of— (i) the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and (ii) the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in clause (i). (2) Limitation based on taxable income (A) In general If, for any taxable year— (i) the sum of the foreign-derived intangible income and the global intangible low-taxed income amount otherwise taken into account by the domestic corporation under paragraph (1), exceeds (ii) the taxable income of the domestic corporation (determined without regard to this section), then the amount of the foreign-derived intangible income and the global intangible low-taxed income amount so taken into account shall be reduced as provided in subparagraph (B). (B) Reduction For purposes of subparagraph (A)— (i) foreign-derived intangible income shall be reduced by an amount which bears the same ratio to the excess described in subparagraph (A) as such foreign-derived intangible income bears to the sum described in subparagraph (A)(i), and (ii) the global intangible low-taxed income amount shall be reduced by the remainder of such excess. (3) Reduction in deduction for taxable years after 2025 In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied by substituting— (A) 21.875 percent for 37.5 percent in subparagraph (A), and (B) 37.5 percent for 50 percent in subparagraph (B). (b) Foreign-derived intangible income For purposes of this section— (1) In general The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the deemed intangible income of such corporation as— (A) the foreign-derived deduction eligible income of such corporation, bears to (B) the deduction eligible income of such corporation. (2) Deemed intangible income For purposes of this subsection— (A) In general The term deemed intangible income means the excess (if any) of— (i) the deduction eligible income of the domestic corporation, over (ii) the deemed tangible income return of the corporation. (B) Deemed tangible income return The term deemed tangible income return means, with respect to any corporation, an amount equal to 10 percent of the corporation's qualified business asset investment (as defined in section 951A(d), determined by substituting deduction eligible income for tested income in paragraph (2) thereof and without regard to whether the corporation is a controlled foreign corporation). (3) Deduction eligible income (A) In general The term deduction eligible income means, with respect to any domestic corporation, the excess (if any) of— (i) gross income of such corporation determined without regard to— (I) any amount included in the gross income of such corporation under section 951(a)(1), (II) the global intangible low-taxed income included in the gross income of such corporation under section 951A, (III) any financial services income (as defined in section 904(d)(2)(D)) of such corporation, (IV) any dividend received from a corporation which is a controlled foreign corporation of such domestic corporation, (V) any domestic oil and gas extraction income of such corporation, and (VI) any foreign branch income (as defined in section 904(d)(2)(J)), over (ii) the deductions (including taxes) properly allocable to such gross income. (B) Domestic oil and gas extraction income For purposes of subparagraph (A), the term domestic oil and gas extraction income means income described in section 907(c)(1), determined by substituting within the United States for without the United States . (4) Foreign-derived deduction eligible income The term foreign-derived deduction eligible income means, with respect to any taxpayer for any taxable year, any deduction eligible income of such taxpayer which is derived in connection with— (A) property— (i) which is sold by the taxpayer to any person who is not a United States person, and (ii) which the taxpayer establishes to the satisfaction of the Secretary is for a foreign use, or (B) services provided by the taxpayer which the taxpayer establishes to the satisfaction of the Secretary are provided to any person, or with respect to property, not located within the United States. (5) Rules relating to foreign use property or services For purposes of this subsection— (A) Foreign use The term foreign use means any use, consumption, or disposition which is not within the United States. (B) Property or services provided to domestic intermediaries (i) Property If a taxpayer sells property to another person (other than a related party) for further manufacture or other modification within the United States, such property shall not be treated as sold for a foreign use even if such other person subsequently uses such property for a foreign use. (ii) Services If a taxpayer provides services to another person (other than a related party) located within the United States, such services shall not be treated as described in paragraph (4)(B) even if such other person uses such services in providing services which are so described. (C) Special rules with respect to related party transactions (i) Sales to related parties If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless— (I) such property is ultimately sold by a related party, or used by a related party in connection with property which is sold or the provision of services, to another person who is an unrelated party who is not a United States person, and (II) the taxpayer establishes to the satisfaction of the Secretary that such property is for a foreign use. For purposes of this clause, a sale of property shall be treated as a sale of each of the components thereof. (ii) Service provided to related parties If a service is provided to a related party who is not located in the United States, such service shall not be treated described in subparagraph (A)(ii) unless the taxpayer established to the satisfaction of the Secretary that such service is not substantially similar to services provided by such related party to persons located within the United States. (D) Related party For purposes of this paragraph, the term related party means any member of 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). Any person (other than a corporation) shall be treated as a member of such group if such person is controlled by members of such group (including any entity treated as a member of such group by reason of this sentence) or controls any such member. For purposes of the preceding sentence, control shall be determined under the rules of section 954(d)(3). (E) Sold For purposes of this subsection, the terms sold , sells , and sale shall include any lease, license, exchange, or other disposition. (c) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Conforming amendments (1) Section 172(d), as amended by this Act, is amended by adding at the end the following new paragraph: (9) Deduction for foreign-derived intangible income The deduction under section 250 shall not be allowed. . (2) Section 246(b)(1) is amended— (A) by striking and subsection (a) and (b) of section 245 the first place it appears and inserting , subsection (a) and (b) of section 245, and section 250 , (B) by striking and subsection (a) and (b) of section 245 the second place it appears and inserting subsection (a) and (b) of section 245, and 250 . (3) Section 469(i)(3)(F)(iii) is amended by striking and 222 and inserting 222, and 250 . (4) The table of sections for part VIII of subchapter B of chapter 1 is amended by adding at the end the following new item: Sec. 250. Foreign-derived intangible income and global intangible low-taxed income. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 2 Other modifications of subpart f provisions 14211. Elimination of inclusion of foreign base company oil related income (a) Repeal Subsection (a) of section 954 is amended— (1) by inserting and at the end of paragraph (2), (2) by striking the comma at the end of paragraph (3) and inserting a period, and (3) by striking paragraph (5). (b) Conforming amendments (1) Section 952(c)(1)(B)(iii) is amended by striking subclause (I) and redesignating subclauses (II) through (V) as subclauses (I) through (IV), respectively. (2) Section 954(b) is amended— (A) by striking the second sentence of paragraph (4), (B) by striking the foreign base company services income, and the foreign base company oil related income in paragraph (5) and inserting and the foreign base company services income , and (C) by striking paragraph (6). (3) 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 with or within which such taxable years of foreign corporations end. 14212. 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) 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. 14213. 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) Effective date The amendments made by this section shall apply to— (1) the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent taxable year of such foreign corporations, and (2) taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 14214. Modification of definition of united states shareholder (a) In general Section 951(b) is amended by inserting , or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation after such foreign corporation . (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. 14215. 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. 3 Prevention of base erosion 14221. Limitations on income shifting through intangible property transfers (a) Definition of intangible asset Section 936(h)(3)(B) is amended— (1) by striking or at the end of clause (v), (2) by striking clause (vi) and inserting the following: (vi) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment); or (vii) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. , and (3) by striking the flush language after clause (vii), as added by paragraph (2). (b) Clarification of allowable valuation methods (1) Foreign corporations Section 367(d)(2) is amended by adding at the end the following new subparagraph: (D) Regulatory authority For purposes of the last sentence of subparagraph (A), the Secretary shall require— (i) the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or (ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (2) Allocation among taxpayers Section 482 is amended by adding at the end the following: For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (c) Effective date (1) In general The amendments made by this section shall apply to transfers in taxable years beginning after December 31, 2017. (2) No inference Nothing in the amendment made by subsection (a) shall be construed to create any inference with respect to the application of section 936(h)(3) of the Internal Revenue Code of 1986, or the authority of the Secretary of the Treasury to provide regulations for such application, with respect to taxable years beginning before January 1, 2018. 14222. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (a) In general Part IX of subchapter B of chapter 1 is amended by inserting after section 267 the following: 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (a) In general No deduction shall be allowed under this chapter for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. (b) Disqualified related party amount For purposes of this section— (1) Disqualified related party amount The term disqualified related party amount means any interest or royalty paid or accrued to a related party to the extent that— (A) such amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (B) such related party is allowed a deduction with respect to such amount under the tax law of such country. Such term shall not include any payment to the extent such payment is included in the gross income of a United States shareholder under section 951(a). (2) Related party The term related party means a related person as defined in section 954(d)(3), except that such section shall be applied with respect to the person making the payment described in paragraph (1) in lieu of the controlled foreign corporation otherwise referred to in such section. (c) Hybrid transaction For purposes of this section, the term hybrid transaction means any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties for purposes of this chapter and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. (d) Hybrid entity For purposes of this section, the term hybrid entity means any entity which is either— (1) treated as fiscally transparent for purposes of this chapter but not so treated for purposes of the tax law of the foreign country of which the entity is resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this chapter. (e) Regulations The Secretary shall 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 providing for— (1) rules for treating certain conduit arrangements which involve a hybrid transaction or a hybrid entity as subject to subsection (a), (2) rules for the application of this section to branches or domestic entities, (3) rules for treating certain structured transactions as subject to subsection (a), (4) rules for treating a tax preference as an exclusion from income for purposes of applying subsection (b)(1) if such tax preference has the effect of reducing the generally applicable statutory rate by 25 percent or more, (5) rules for treating the entire amount of interest or royalty paid or accrued to a related party as a disqualified related party amount if such amount is subject to a participation exemption system or other system which provides for the exclusion or deduction of a substantial portion of such amount, (6) rules for determining the tax residence of a foreign entity if the entity is otherwise considered a resident of more than one country or of no country, (7) exceptions from subsection (a) with respect to— (A) cases in which the disqualified related party amount is taxed under the laws of a foreign country other than the country of which the related party is a resident for tax purposes, and (B) other cases which the Secretary determines do not present a risk of eroding the Federal tax base, (8) requirements for record keeping and information reporting in addition to any requirements imposed by section 6038A. . (b) Conforming amendment The table of sections for part IX of subchapter B of chapter 1 is amended by inserting after the item relating to section 267 the following new item: Sec. 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14223. Shareholders of surrogate foreign corporations not eligible for reduced rate on dividends (a) In general Section 1(h)(11)(C)(iii) is amended— (1) by striking shall not include any foreign corporation and inserting shall not include— (I) any foreign corporation , (2) by striking the period at the end and inserting , and , and (3) by adding at the end the following new subclause: (II) any corporation which first becomes a surrogate foreign corporation (as defined in section 7874(a)(2)(B)) after the date of the enactment of this subclause, other than a foreign corporation which is treated as a domestic corporation under section 7874(b). . (b) Effective date The amendments made by this section shall apply to dividends received after the date of the enactment of this Act. C Modifications related to foreign tax credit system 14301. 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 , as amended by section 14201, 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 subpart A of this part, 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 subpart A of this part— (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 (d) (as added by section 14201) the following new subsections: (e) 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. (f) Regulations The Secretary shall 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), (b), and (d) of section 960 (determined without regard to the phrase 80 percent of in subsection (d)(1) thereof) for such taxable year shall be treated for purposes of this title (other than sections 245 and 245A) as a dividend received by such domestic corporation from the foreign corporation. . (2) Paragraph (4) of section 245(a) is amended to read as follows: (4) Post-1986 undistributed earnings The term post-1986 undistributed earnings means the amount of 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— (A) as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and (B) without diminution by reason of dividends distributed during such taxable year. . (3) Section 245(a)(10)(C) is amended by striking 902, 907, and 960 and inserting 907 and 960 . (4) Sections 535(b)(1) and 545(b)(1) are each amended by striking section 902(a) or 960(a)(1) and inserting section 960 . (5) 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 . (6) Section 865(h)(1)(B) is amended by striking 902, 907, and inserting 907 . (7) Section 901(a) is amended by striking sections 902 and 960 and inserting section 960 . (8) 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 . (9) Section 901(f) is amended by striking sections 902 and 960 and inserting section 960 . (10) Section 901(j)(1)(A) is amended by striking 902 or . (11) Section 901(j)(1)(B) is amended by striking sections 902 and 960 and inserting section 960 . (12) Section 901(k)(2) is amended by striking , 902, . (13) Section 901(k)(6) is amended by striking 902 or . (14) Section 901(m)(1)(B) is amended to read as follows: (B) in the case of a foreign income tax paid by a foreign corporation, shall not be taken into account for purposes of section 960. . (15) Section 904(d)(2)(E) is amended— (A) by amending clause (i) to read as follows: (i) Noncontrolled 10-percent owned foreign corporation The term noncontrolled 10-percent owned foreign corporation means any foreign corporation which is— (I) a specified 10-percent owned foreign corporation (as defined in section 245A(b)), or (II) a passive foreign investment company (as defined in section 1297(a)) with respect to which the taxpayer meets the stock ownership requirements of section 902(a) (or, for purposes of applying paragraphs (3) and (4), the requirements of section 902(b)). A controlled foreign corporation shall not be treated as a noncontrolled 10-percent owned foreign corporation with respect to any distribution out of its earnings and profits for periods during which it was a controlled foreign corporation. Any reference to section 902 in this clause shall be treated as a reference to such section as in effect before its repeal. , and (B) by striking non-controlled section 902 corporation in clause (ii) and inserting noncontrolled 10-percent owned foreign corporation . (16) Section 904(d)(4) is amended— (A) by striking noncontrolled section 902 corporation each place it appears and inserting noncontrolled 10-percent owned foreign corporation , (B) by striking noncontrolled section 902 corporations in the heading thereof and inserting noncontrolled 10-percent owned foreign corporations . (17) Section 904(d)(6)(A) is amended by striking 902, 907, and inserting 907 . (18) Section 904(h)(10)(A) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (19) Section 904(k) is amended to read as follows: (k) Cross references 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(c). . (20) Section 905(c)(1) is amended by striking the last sentence. (21) 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 . (22) Section 906(a) is amended by striking (or deemed, under section 902, paid or accrued during the taxable year) . (23) Section 906(b) is amended by striking paragraphs (4) and (5). (24) Section 907(b)(2)(B) is amended by striking 902 or . (25) Section 907(c)(3)(A) is amended— (A) by striking subparagraph (A) and inserting the following: (A) interest, to the extent the category of income of such interest is determined under section 904(d)(3), , and (B) by striking section 960(a) in subparagraph (B) and inserting section 960 . (26) Section 907(c)(5) is amended by striking 902 or . (27) Section 907(f)(2)(B)(i) is amended by striking 902 or . (28) Section 908(a) is amended by striking 902 or . (29) Section 909(b) is amended— (A) by striking section 902 corporation in the matter preceding paragraph (1) and inserting specified 10-percent owned foreign corporation (as defined in section 245A(b) without regard to paragraph (2) thereof) , (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 specified 10-percent owned foreign corporation or a domestic corporation which is a United States shareholder with respect to such specified 10-percent owned foreign corporation. , and (D) by striking Section 902 Corporations in the heading thereof and inserting Specified 10-percent Owned Foreign Corporations . (30) Section 909(d) is amended by striking paragraph (5). (31) Section 958(a)(1) is amended by striking 960(a)(1) and inserting 960 . (32) Section 959(d) is amended by striking Except as provided in section 960(a)(3), any and inserting Any . (33) Section 959(e) is amended by striking section 960(b) and inserting section 960(c) . (34) 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 . (35) Section 1293(f) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and , and by adding at the end the following new paragraph: (3) a domestic corporation which owns (or is treated under section 1298(a) as owning) stock of a qualified electing fund shall be treated in the same manner as a United States shareholder of a controlled foreign corporation (and such qualified electing fund shall be treated in the same manner as such controlled foreign corporation) if such domestic corporation meets the stock ownership requirements of subsection (a) or (b) of section 902 (as in effect before its repeal) with respect to such qualified electing fund. . (36) 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 . (37) Section 6038(c)(4) is amended by striking subparagraph (C). (38) 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. (39) 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 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. 14302. Separate foreign tax credit limitation basket for foreign branch income (a) In general Section 904(d)(1), as amended by section 14201, is amended by redesignating subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively, and by inserting after subparagraph (A) the following new subparagraph: (B) foreign branch income, . (b) Foreign branch income (1) In general Section 904(d)(2) is amended by inserting after subparagraph (I) the following new subparagraph: (J) Foreign branch income (i) In general The term foreign branch income means the business profits of such United States person which are attributable to 1 or more qualified business units (as defined in section 989(a)) in 1 or more foreign countries. For purposes of the preceding sentence, the amount of business profits attributable to a qualified business unit shall be determined under rules established by the Secretary. (ii) Exception Such term shall not include any income which is passive category income. . (2) Conforming amendment Section 904(d)(2)(A)(ii), as amended by section 14201, is amended by striking income described in paragraph (1)(A) and and inserting income described in paragraph (1)(A), foreign branch income, and . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14303. 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. 14304. Election to increase percentage of domestic taxable income offset by overall domestic loss treated as foreign source (a) In general Section 904(g) is amended by adding at the end the following new paragraph: (5) Election to increase percentage of taxable income treated as foreign source (A) In general If any pre-2018 unused overall domestic loss is taken into account under paragraph (1) for any applicable taxable year, the taxpayer may elect to have such paragraph applied to such loss by substituting a percentage greater than 50 percent (but not greater than 100 percent) for 50 percent in subparagraph (B) thereof. (B) Pre-2018 unused overall domestic loss For purposes of this paragraph, the term pre-2018 unused overall domestic loss means any overall domestic loss which— (i) arises in a qualified taxable year beginning before January 1, 2018, and (ii) has not been used under paragraph (1) for any taxable year beginning before such date. (C) Applicable taxable year For purposes of this paragraph, the term applicable taxable year means any taxable year of the taxpayer beginning after December 31, 2017, and before January 1, 2028. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. II Inbound transactions 14401. Base erosion and anti-abuse tax (a) Imposition of tax Subchapter A of chapter 1 is amended by adding at the end the following new part: VII Base erosion and anti-abuse tax Sec. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts (a) Imposition of tax There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle. (b) Base erosion minimum tax amount For purposes of this section— (1) In general Except as provided in paragraphs (2) and (3), the term base erosion minimum tax amount means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of— (A) an amount equal to 10 percent (5 percent in the case of taxable years beginning in calendar year 2018) of the modified taxable income of such taxpayer for the taxable year, over (B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of— (i) the credits allowed under this chapter against such regular tax liability, over (ii) the sum of— (I) the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a), plus (II) the portion of the applicable section 38 credits not in excess of 80 percent of the lesser of the amount of such credits or the base erosion minimum tax amount (determined without regard to this subclause). (2) Modifications for taxable years beginning after 2025 In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied— (A) by substituting 12.5 percent for 10 percent in subparagraph (A) thereof, and (B) by reducing (but not below zero) the regular tax liability (as defined in section 26(b)) for purposes of subparagraph (B) thereof by the aggregate amount of the credits allowed under this chapter against such regular tax liability rather than the excess described in such subparagraph. (3) Increased rate for certain banks and securities dealers (A) In general In the case of a taxpayer described in subparagraph (B) who is an applicable taxpayer for any taxable year, the percentage otherwise in effect under paragraphs (1)(A) and (2)(A) shall each be increased by one percentage point. (B) Taxpayer described A taxpayer is described in this subparagraph if such taxpayer is a member of an affiliated group (as defined in section 1504(a)(1)) which includes— (i) a bank (as defined in section 581), or (ii) a registered securities dealer under section 15(a) of the Securities Exchange Act of 1934 . (4) Applicable section 38 credits For purposes of paragraph (1)(B)(ii)(II), the term applicable section 38 credits means the credit allowed under section 38 for the taxable year which is properly allocable to— (A) the low-income housing credit determined under section 42(a), (B) the renewable electricity production credit determined under section 45(a), and (C) the investment credit determined under section 46, but only to the extent properly allocable to the energy credit determined under section 48. (c) Modified taxable income For purposes of this section— (1) In general The term modified taxable income means the taxable income of the taxpayer computed under this chapter for the taxable year, determined without regard to— (A) any base erosion tax benefit with respect to any base erosion payment, or (B) the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year. (2) Base erosion tax benefit (A) In general The term base erosion tax benefit means— (i) any deduction described in subsection (d)(1) which is allowed under this chapter for the taxable year with respect to any base erosion payment, (ii) in the case of a base erosion payment described in subsection (d)(2), any deduction allowed under this chapter for the taxable year for depreciation (or amortization in lieu of depreciation) with respect to the property acquired with such payment, (iii) in the case of a base erosion payment described in subsection (d)(3)— (I) any reduction under section 803(a)(1)(B) in the gross amount of premiums and other consideration on insurance and annuity contracts for premiums and other consideration arising out of indemnity insurance, and (II) any deduction under section 832(b)(4)(A) from the amount of gross premiums written on insurance contracts during the taxable year for premiums paid for reinsurance, and (iv) in the case of a base erosion payment described in subsection (d)(4), any reduction in gross receipts with respect to such payment in computing gross income of the taxpayer for the taxable year for purposes of this chapter. (B) Tax benefits disregarded if tax withheld on base erosion payment (i) In general Except as provided in clause (ii), any base erosion tax benefit attributable to any base erosion payment— (I) on which tax is imposed by section 871 or 881, and (II) with respect to which tax has been deducted and withheld under section 1441 or 1442, shall not be taken into account in computing modified taxable income under paragraph (1)(A) or the base erosion percentage under paragraph (4). (ii) Exception The amount not taken into account in computing modified taxable income by reason of clause (i) shall be reduced under rules similar to the rules under section 163(j)(5)(B) (as in effect before the date of the enactment of the Tax Cuts and Jobs Act). (3) Special rules for determining interest for which deduction allowed For purposes of applying paragraph (1), in the case of a taxpayer to which section 163(j) applies for the taxable year, the reduction in the amount of interest for which a deduction is allowed by reason of such subsection shall be treated as allocable first to interest paid or accrued to persons who are not related parties with respect to the taxpayer and then to such related parties. (4) Base erosion percentage For purposes of paragraph (1)(B)— (A) In general The term base erosion percentage means, for any taxable year, the percentage determined by dividing— (i) the aggregate amount of base erosion tax benefits of the taxpayer for the taxable year, by (ii) the sum of— (I) the aggregate amount of the deductions (including deductions described in clauses (i) and (ii) of paragraph (2)(A)) allowable to the taxpayer under this chapter for the taxable year, plus (II) the base erosion tax benefits described in clauses (iii) and (iv) of paragraph (2)(A) allowable to the taxpayer for the taxable year. (B) Certain items not taken into account The amount under subparagraph (A)(ii) shall be determined by not taking into account— (i) any deduction allowed under section 172, 245A, or 250 for the taxable year, (ii) any deduction for amounts paid or accrued for services to which the exception under subsection (d)(5) applies, and (iii) any deduction for qualified derivative payments which are not treated as a base erosion payment by reason of subsection (h). (d) Base erosion payment For purposes of this section— (1) In general The term base erosion payment means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter. (2) Purchase of depreciable property Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with the acquisition by the taxpayer from such person of property of a character subject to the allowance for depreciation (or amortization in lieu of depreciation). (3) Reinsurance payments Such term shall also include any premium or other consideration paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer for any reinsurance payments which are taken into account under sections 803(a)(1)(B) or 832(b)(4)(A). (4) Certain payments to expatriated entities (A) In general Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer. (B) Person described A person is described in this subparagraph if such person is a— (i) surrogate foreign corporation which is a related party of the taxpayer, but only if such person first became a surrogate foreign corporation after November 9, 2017, or (ii) foreign person which is a member of the same expanded affiliated group as the surrogate foreign corporation. (C) Definitions For purposes of this paragraph— (i) Surrogate foreign corporation The term surrogate foreign corporation has the meaning given such term by section 7874(a)(2)(B) but does not include a foreign corporation treated as a domestic corporation under section 7874(b). (ii) Expanded affiliated group The term expanded affiliated group has the meaning given such term by section 7874(c)(1). (5) Exception for certain amounts with respect to services Paragraph (1) shall not apply to any amount paid or accrued by a taxpayer for services if— (A) such services are services which meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure), and (B) such amount constitutes the total services cost with no markup component. (e) Applicable taxpayer For purposes of this section— (1) In general The term applicable taxpayer means, with respect to any taxable year, a taxpayer— (A) which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation, (B) the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and (C) the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 3 percent (2 percent in the case of a taxpayer described in subsection (b)(3)(B)) or higher. (2) Gross receipts (A) Special rule for foreign persons In the case of a foreign person the gross receipts of which are taken into account for purposes of paragraph (1)(B), only gross receipts which are taken into account in determining income which is effectively connected with the conduct of a trade or business within the United States shall be taken into account. In the case of a taxpayer which is a foreign person, the preceding sentence shall not apply to the gross receipts of any United States person which are aggregated with the taxpayer's gross receipts by reason of paragraph (3). (B) Other rules made applicable Rules similar to the rules of subparagraphs (B), (C), and (D) of section 448(c)(3) shall apply in determining gross receipts for purposes of this section. (3) Aggregation rules All persons treated as a single employer under subsection (a) of section 52 shall be treated as 1 person for purposes of this subsection and subsection (c)(4), except that in applying section 1563 for purposes of section 52, the exception for foreign corporations under section 1563(b)(2)(C) shall be disregarded. (f) Foreign person For purposes of this section, the term foreign person has the meaning given such term by section 6038A(c)(3). (g) Related party For purposes of this section— (1) In general The term related party means, with respect to any applicable taxpayer— (A) any 25-percent owner of the taxpayer, (B) any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer, and (C) any other person who is related (within the meaning of section 482) to the taxpayer. (2) 25-percent owner The term 25-percent owner means, with respect to any corporation, any person who owns at least 25 percent of— (A) the total voting power of all classes of stock of a corporation entitled to vote, or (B) the total value of all classes of stock of such corporation. (3) Section 318 to apply Section 318 shall apply for purposes of paragraphs (1) and (2), except that— (A) 10 percent shall be substituted for 50 percent in section 318(a)(2)(C), and (B) subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person. (h) Exception for certain payments made in the ordinary course of trade or business For purposes of this section— (1) In general Except as provided in paragraph (3), any qualified derivative payment shall not be treated as a base erosion payment. (2) Qualified derivative payment (A) In general The term qualified derivative payment means any payment made by a taxpayer pursuant to a derivative with respect to which the taxpayer— (i) recognizes gain or loss as if such derivative were sold for its fair market value on the last business day of the taxable year (and such additional times as required by this title or the taxpayer's method of accounting), (ii) treats any gain or loss so recognized as ordinary, and (iii) treats the character of all items of income, deduction, gain, or loss with respect to a payment pursuant to the derivative as ordinary. (B) Reporting requirement No payments shall be treated as qualified derivative payments under subparagraph (A) for any taxable year unless the taxpayer includes in the information required to be reported under section 6038B(b)(2) with respect to such taxable year such information as is necessary to identify the payments to be so treated and such other information as the Secretary determines necessary to carry out the provisions of this subsection. (3) Exceptions for payments otherwise treated as base erosion payments This subsection shall not apply to any qualified derivative payment if— (A) the payment would be treated as a base erosion payment if it were not made pursuant to a derivative, including any interest, royalty, or service payment, or (B) in the case of a contract which has derivative and nonderivative components, the payment is properly allocable to the nonderivative component. (4) Derivative defined For purposes of this subsection— (A) In general The term derivative means any contract (including any option, forward contract, futures contract, short position, swap, or similar contract) the value of which, or any payment or other transfer with respect to which, is (directly or indirectly) determined by reference to one or more of the following: (i) Any share of stock in a corporation. (ii) Any evidence of indebtedness. (iii) Any commodity which is actively traded. (iv) Any currency. (v) Any rate, price, amount, index, formula, or algorithm. Such term shall not include any item described in clauses (i) through (v). (B) Treatment of American depository receipts and similar instruments Except as otherwise provided by the Secretary, for purposes of this part, American depository receipts (and similar instruments) with respect to shares of stock in foreign corporations shall be treated as shares of stock in such foreign corporations. (C) Exception for certain contracts Such term shall not include any insurance, annuity, or endowment contract issued by an insurance company to which subchapter L applies (or issued by any foreign corporation to which such subchapter would apply if such foreign corporation were a domestic corporation). (i) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations— (1) providing for such adjustments to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including through— (A) the use of unrelated persons, conduit transactions, or other intermediaries, or (B) transactions or arrangements designed, in whole or in part— (i) to characterize payments otherwise subject to this section as payments not subject to this section, or (ii) to substitute payments not subject to this section for payments otherwise subject to this section and (2) for the application of subsection (g), including rules to prevent the avoidance of the exceptions under subsection (g)(3). . (b) Reporting requirements and penalties (1) In general Subsection (b) of section 6038A is amended to read as follows: (b) Required information (1) In general For purposes of subsection (a), the information described in this subsection is such information as the Secretary prescribes by regulations relating to— (A) the name, principal place of business, nature of business, and country or countries in which organized or resident, of each person which— (i) is a related party to the reporting corporation, and (ii) had any transaction with the reporting corporation during its taxable year, (B) the manner in which the reporting corporation is related to each person referred to in subparagraph (A), and (C) transactions between the reporting corporation and each foreign person which is a related party to the reporting corporation. (2) Additional information regarding base erosion payments For purposes of subsection (a) and section 6038C, if the reporting corporation or the foreign corporation to whom section 6038C applies is an applicable taxpayer, the information described in this subsection shall include— (A) such information as the Secretary determines necessary to determine the base erosion minimum tax amount, base erosion payments, and base erosion tax benefits of the taxpayer for purposes of section 59A for the taxable year, and (B) such other information as the Secretary determines necessary to carry out such section. For purposes of this paragraph, any term used in this paragraph which is also used in section 59A shall have the same meaning as when used in such section. . (2) Increase in penalty Paragraphs (1) and (2) of section 6038A(d) are each amended by striking $10,000 and inserting $25,000 . (c) Disallowance of credits against base erosion tax Paragraph (2) of section 26(b) is amended by inserting after subparagraph (A) the following new subparagraph: (B) section 59A (relating to base erosion and anti-abuse tax), . (d) Conforming amendments (1) The table of parts for subchapter A of chapter 1 is amended by adding after the item relating to part VI the following new item: Part VII. Base Erosion and Anti-abuse Tax . (2) Paragraph (1) of section 882(a), as amended by this Act, is amended by inserting or 59A, after section 11, . (3) Subparagraph (A) of section 6425(c)(1), as amended by section 13001, is amended to read as follows: (A) the sum of— (i) the tax imposed by section 11, or subchapter L of chapter 1, whichever is applicable, plus (ii) the tax imposed by section 59A, over . (4) (A) Subparagraph (A) of section 6655(g)(1), as amended by sections 12001 and 13001, is amended by striking plus at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause: (ii) the tax imposed by section 59A, plus . (B) Subparagraphs (A)(i) and (B)(i) of section 6655(e)(2), as amended by sections 12001 and 13001, are each amended by inserting and modified taxable income after taxable income . (C) Subparagraph (B) of section 6655(e)(2) is amended by adding at the end the following new clause: (iii) Modified taxable income The term modified taxable income has the meaning given such term by section 59A(c)(1). . (e) Effective date The amendments made by this section shall apply to base erosion payments (as defined in section 59A(d) of the Internal Revenue Code of 1986, as added by this section) paid or accrued in taxable years beginning after December 31, 2017. III Other provisions 14501. 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. 14502. Repeal of fair market value method of interest expense apportionment (a) In general Paragraph (2) of section 864(e) is amended to read as follows: (2) Gross income and fair market value methods may not be used for interest All allocations and apportionments of interest expense shall be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. II 20001. Oil and gas program (a) Definitions In this section: (1) Coastal Plain The term Coastal Plain means the area identified as the 1002 Area on the plates prepared by the United States Geological Survey entitled ANWR Map – Plate 1 and ANWR Map – Plate 2 , dated October 24, 2017, and on file with the United States Geological Survey and the Office of the Solicitor of the Department of the Interior. (2) Secretary The term Secretary means the Secretary of the Interior, acting through the Bureau of Land Management. (b) Oil and gas program (1) In general Section 1003 of the Alaska National Interest Lands Conservation Act ( 16 U.S.C. 3143 ) shall not apply to the Coastal Plain. (2) Establishment (A) In general The Secretary shall establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain. (B) Purposes Section 303(2)(B) of the Alaska National Interest Lands Conservation Act ( Public Law 96–487 ; 94 Stat. 2390) is amended— (i) in clause (iii), by striking and at the end; (ii) in clause (iv), by striking the period at the end and inserting ; and ; and (iii) by adding at the end the following: (v) to provide for an oil and gas program on the Coastal Plain. . (3) Management Except as otherwise provided in this section, the Secretary shall manage the oil and gas program on the Coastal Plain in a manner similar to the administration of lease sales under the Naval Petroleum Reserves Production Act of 1976 ( 42 U.S.C. 6501 et seq.) (including regulations). (4) Royalties Notwithstanding the Mineral Leasing Act ( 30 U.S.C. 181 et seq.), the royalty rate for leases issued pursuant to this section shall be 16.67 percent. (5) Receipts Notwithstanding the Mineral Leasing Act ( 30 U.S.C. 181 et seq.), of the amount of adjusted bonus, rental, and royalty receipts derived from the oil and gas program and operations on Federal land authorized under this section— (A) 50 percent shall be paid to the State of Alaska; and (B) the balance shall be deposited into the Treasury as miscellaneous receipts. (c) 2 lease sales within 10 years (1) Requirement (A) In general Subject to subparagraph (B), the Secretary shall conduct not fewer than 2 lease sales area-wide under the oil and gas program under this section by not later than 10 years after the date of enactment of this Act. (B) Sale acreages; schedule (i) Acreages The Secretary shall offer for lease under the oil and gas program under this section— (I) not fewer than 400,000 acres area-wide in each lease sale; and (II) those areas that have the highest potential for the discovery of hydrocarbons. (ii) Schedule The Secretary shall offer— (I) the initial lease sale under the oil and gas program under this section not later than 4 years after the date of enactment of this Act; and (II) a second lease sale under the oil and gas program under this section not later than 7 years after the date of enactment of this Act. (2) Rights-of-way The Secretary shall issue any rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation necessary to carry out this section. (3) Surface development In administering this section, the Secretary shall authorize up to 2,000 surface acres of Federal land on the Coastal Plain to be covered by production and support facilities (including airstrips and any area covered by gravel berms or piers for support of pipelines) during the term of the leases under the oil and gas program under this section. 20002. Limitations on amount of distributed qualified outer Continental Shelf revenues Section 105(f)(1) of the Gulf of Mexico Energy Security Act of 2006 ( 43 U.S.C. 1331 note; Public Law 109–432 ) is amended by striking exceed $500,000,000 for each of fiscal years 2016 through 2055. and inserting the following: “exceed— (A) $500,000,000 for each of fiscal years 2016 through 2019; (B) $650,000,000 for each of fiscal years 2020 and 2021; and (C) $500,000,000 for each of fiscal years 2022 through 2055. . 20003. Strategic Petroleum Reserve drawdown and sale (a) Drawdown and sale (1) In general Notwithstanding section 161 of the Energy Policy and Conservation Act ( 42 U.S.C. 6241 ), except as provided in subsections (b) and (c), the Secretary of Energy shall draw down and sell from the Strategic Petroleum Reserve 7,000,000 barrels of crude oil during the period of fiscal years 2026 through 2027. (2) Deposit of amounts received from sale Amounts received from a sale under paragraph (1) shall be deposited in the general fund of the Treasury during the fiscal year in which the sale occurs. (b) Emergency protection The Secretary of Energy shall not draw down and sell crude oil under subsection (a) in a quantity that would limit the authority to sell petroleum products under subsection (h) of section 161 of the Energy Policy and Conservation Act ( 42 U.S.C. 6241 ) in the full quantity authorized by that subsection. (c) Limitation The Secretary of Energy shall not drawdown or conduct sales of crude oil under subsection (a) after the date on which a total of $600,000,000 has been deposited in the general fund of the Treasury from sales authorized under that subsection.

Secretary

tv_txt: I One Hundred Fifteenth Congress of the United States of America At the First Session Begun and held at the City of Washington on Tuesday, the third day of January, two thousand and seventeen H. R. 1 AN ACT To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

I 11000. Short title, etc (a) Amendment of 1986 code Except as otherwise expressly provided, whenever in this title 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. A Individual tax reform I Tax rate reform 11001. Modification of rates (a) In general Section 1 is amended by adding at the end the following new subsection: (j) Modifications for taxable years 2018 through 2025 (1) In general In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) subsection (i) shall not apply, and (B) this section (other than subsection (i)) shall be applied as provided in paragraphs (2) through (6). (2) Rate tables (A) Married individuals filing joint returns and surviving spouses The following table shall be applied in lieu of the table contained in subsection (a): If taxable income is: The tax is: Not over $19,050 10% of taxable income. Over $19,050 but not over $77,400 $1,905, plus 12% of the excess over $19,050. Over $77,400 but not over $165,000 $8,907, plus 22% of the excess over $77,400. Over $165,000 but not over $315,000 $28,179, plus 24% of the excess over $165,000. Over $315,000 but not over $400,000 $64,179, plus 32% of the excess over $315,000. Over $400,000 but not over $600,000 $91,379, plus 35% of the excess over $400,000. Over $600,000 $161,379, plus 37% of the excess over $600,000. (B) Heads of households The following table shall be applied in lieu of the table contained in subsection (b): If taxable income is: The tax is: Not over $13,600 10% of taxable income. Over $13,600 but not over $51,800 $1,360, plus 12% of the excess over $13,600. Over $51,800 but not over $82,500 $5,944, plus 22% of the excess over $51,800. Over $82,500 but not over $157,500 $12,698, plus 24% of the excess over $82,500. Over $157,500 but not over $200,000 $30,698, plus 32% of the excess over $157,500. Over $200,000 but not over $500,000 $44,298, plus 35% of the excess over $200,000. Over $500,000 $149,298, plus 37% of the excess over $500,000. (C) Unmarried individuals other than surviving spouses and heads of households The following table shall be applied in lieu of the table contained in subsection (c): If taxable income is: The tax is: Not over $9,525 10% of taxable income. Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525. Over $38,700 but not over $82,500 $4,453.50, plus 22% of the excess over $38,700. Over $82,500 but not over $157,500 $14,089.50, plus 24% of the excess over $82,500. Over $157,500 but not over $200,000 $32,089.50, plus 32% of the excess over $157,500. Over $200,000 but not over $500,000 $45,689.50, plus 35% of the excess over $200,000. Over $500,000 $150,689.50, plus 37% of the excess over $500,000. (D) Married individuals filing separate returns The following table shall be applied in lieu of the table contained in subsection (d): If taxable income is: The tax is: Not over $9,525 10% of taxable income. Over $9,525 but not over $38,700 $952.50, plus 12% of the excess over $9,525. Over $38,700 but not over $82,500 $4,453.50, plus 22% of the excess over $38,700. Over $82,500 but not over $157,500 $14,089.50, plus 24% of the excess over $82,500. Over $157,500 but not over $200,000 $32,089.50, plus 32% of the excess over $157,500. Over $200,000 but not over $300,000 $45,689.50, plus 35% of the excess over $200,000. Over $300,000 $80,689.50, plus 37% of the excess over $300,000. (E) Estates and trusts The following table shall be applied in lieu of the table contained in subsection (e): If taxable income is: The tax is: Not over $2,550 10% of taxable income. Over $2,550 but not over $9,150 $255, plus 24% of the excess over $2,550. Over $9,150 but not over $12,500 $1,839, plus 35% of the excess over $9,150. Over $12,500 $3,011.50, plus 37% of the excess over $12,500. (F) References to rate tables Any reference in this title to a rate of tax under subsection (c) shall be treated as a reference to the corresponding rate bracket under subparagraph (C) of this paragraph, except that the reference in section 3402(q)(1) to the third lowest rate of tax applicable under subsection (c) shall be treated as a reference to the fourth lowest rate of tax under subparagraph (C). (3) Adjustments (A) No adjustment in 2018 The tables contained in paragraph (2) shall apply without adjustment for taxable years beginning after December 31, 2017, and before January 1, 2019. (B) Subsequent years For taxable years beginning after December 31, 2018, the Secretary shall prescribe tables which shall apply in lieu of the tables contained in paragraph (2) in the same manner as under paragraphs (1) and (2) of subsection (f) (applied without regard to clauses (i) and (ii) of subsection (f)(2)(A)), except that in prescribing such tables— (i) subsection (f)(3) shall be applied by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof, (ii) subsection (f)(7)(B) shall apply to any unmarried individual other than a surviving spouse or head of household, and (iii) subsection (f)(8) shall not apply. (4) Special rules for certain children with unearned income (A) In general In the case of a child to whom subsection (g) applies for the taxable year, the rules of subparagraphs (B) and (C) shall apply in lieu of the rule under subsection (g)(1). (B) Modifications to applicable rate brackets In determining the amount of tax imposed by this section for the taxable year on a child described in subparagraph (A), the income tax table otherwise applicable under this subsection to the child shall be applied with the following modifications: (i) 24-percent bracket The maximum taxable income which is taxed at a rate below 24 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 24-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (ii) 35-percent bracket The maximum taxable income which is taxed at a rate below 35 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 35-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (iii) 37-percent bracket The maximum taxable income which is taxed at a rate below 37 percent shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the minimum taxable income for the 37-percent bracket in the table under paragraph (2)(E) (as adjusted under paragraph (3)) for the taxable year. (C) Coordination with capital gains rates For purposes of applying section 1(h) (after the modifications under paragraph (5)(A))— (i) the maximum zero rate amount shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the amount in effect under paragraph (5)(B)(i)(IV) for the taxable year, and (ii) the maximum 15-percent rate amount shall not be more than the sum of— (I) the earned taxable income of such child, plus (II) the amount in effect under paragraph (5)(B)(ii)(IV) for the taxable year. (D) Earned taxable income For purposes of this paragraph, the term earned taxable income means, with respect to any child for any taxable year, the taxable income of such child reduced (but not below zero) by the net unearned income (as defined in subsection (g)(4)) of such child. (5) Application of current income tax brackets to capital gains brackets (A) In general Section 1(h)(1) shall be applied— (i) by substituting below the maximum zero rate amount for which would (without regard to this paragraph) be taxed at a rate below 25 percent in subparagraph (B)(i), and (ii) by substituting below the maximum 15-percent rate amount for which would (without regard to this paragraph) be taxed at a rate below 39.6 percent in subparagraph (C)(ii)(I). (B) Maximum amounts defined For purposes of applying section 1(h) with the modifications described in subparagraph (A)— (i) Maximum zero rate amount The maximum zero rate amount shall be— (I) in the case of a joint return or surviving spouse, $77,200, (II) in the case of an individual who is a head of 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 subclause (I), and (IV) in the case of an estate or trust, $2,600. (ii) Maximum 15-percent rate amount The maximum 15-percent rate amount 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 clauses (i) and (ii) of subparagraph (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under subsection (f)(3) 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. If any increase under this subparagraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50. (6) Section 15 not to apply Section 15 shall not apply to any change in a rate of tax by reason of this subsection. . (b) Due diligence tax preparer requirement with respect to head of household filing status Subsection (g) of section 6695 is amended to read as follows: (g) Failure to be diligent in determining eligibility for certain tax benefits Any person who is a tax return preparer with respect to any return or claim for refund who fails to comply with due diligence requirements imposed by the Secretary by regulations with respect to determining— (1) eligibility to file as a head of household (as defined in section 2(b)) on the return, or (2) eligibility for, or the amount of, the credit allowable by section 24, 25A(a)(1), or 32, shall pay a penalty of $500 for each such failure. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11002. Inflation adjustments based on chained CPI (a) In general Subsection (f) of section 1 is amended by striking paragraph (3) and by inserting after paragraph (2) the following new paragraph: (3) 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 CPI for calendar year 2016, multiplied by the amount determined under subparagraph (B). (B) Amount determined The amount determined under this clause is the amount obtained by dividing— (i) the C-CPI-U for calendar year 2016, by (ii) the CPI for calendar year 2016. (C) Special rule for adjustments with a base year after 2016 For purposes of any provision of this title which provides for the substitution of a year after 2016 for 2016 in subparagraph (A)(ii), subparagraph (A) shall be applied by substituting the C-CPI-U for calendar year 2016 for the CPI for calendar year 2016 and all that follows in clause (ii) thereof. . (b) C-CPI-U Subsection (f) of section 1 is amended by striking paragraph (7), by redesignating paragraph (6) as paragraph (7), and by inserting after paragraph (5) the following new paragraph: (6) 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. . (c) Application to permanent tax tables (1) In general Section 1(f)(2)(A) is amended to read as follows: (A) except as provided in paragraph (8), by increasing the minimum and maximum dollar amounts for each bracket for which a tax is imposed under such table by the cost-of-living adjustment for such calendar year, determined— (i) except as provided in clause (ii), by substituting 1992 for 2016 in paragraph (3)(A)(ii), and (ii) in the case of adjustments to the dollar amounts at which the 36 percent rate bracket begins or at which the 39.6 percent rate bracket begins, by substituting 1993 for 2016 in paragraph (3)(A)(ii), . (2) Conforming amendments Section 1(i) is amended— (A) by striking for 1992 in subparagraph (B) in paragraph (1)(C) and inserting for 2016 in subparagraph (A)(ii) , and (B) by striking subsection (f)(3)(B) shall be applied by substituting 2012 for 1992 in paragraph (3)(C) and inserting subsection (f)(3)(A)(ii) shall be applied by substituting 2012 for 2016 . (d) Application to other Internal Revenue Code of 1986 provisions (1) The following sections are each amended by striking for calendar year 1992 in subparagraph (B) and inserting for calendar year 2016 in subparagraph (A)(ii) : (A) Section 23(h)(2). (B) Paragraphs (1)(A)(ii) and (2)(A)(ii) of section 25A(h). (C) Section 25B(b)(3)(B). (D) Subsection (b)(2)(B)(ii)(II), and clauses (i) and (ii) of subsection (j)(1)(B), of section 32. (E) Section 36B(f)(2)(B)(ii)(II). (F) Section 41(e)(5)(C)(i). (G) Subsections (e)(3)(D)(ii) and (h)(3)(H)(i)(II) of section 42. (H) Section 45R(d)(3)(B)(ii). (I) Section 55(d)(4)(A)(ii). (J) Section 62(d)(3)(B). (K) Section 63(c)(4)(B). (L) Section 125(i)(2)(B). (M) Section 135(b)(2)(B)(ii). (N) Section 137(f)(2). (O) Section 146(d)(2)(B). (P) Section 147(c)(2)(H)(ii). (Q) Section 151(d)(4)(B). (R) Section 179(b)(6)(A)(ii). (S) Subsections (b)(5)(C)(i)(II) and (g)(8)(B) of section 219. (T) Section 220(g)(2). (U) Section 221(f)(1)(B). (V) Section 223(g)(1)(B). (W) Section 408A(c)(3)(D)(ii). (X) Section 430(c)(7)(D)(vii)(II). (Y) Section 512(d)(2)(B). (Z) Section 513(h)(2)(C)(ii). (AA) Section 831(b)(2)(D)(ii). (BB) Section 877A(a)(3)(B)(i)(II). (CC) Section 2010(c)(3)(B)(ii). (DD) Section 2032A(a)(3)(B). (EE) Section 2503(b)(2)(B). (FF) Section 4261(e)(4)(A)(ii). (GG) Section 5000A(c)(3)(D)(ii). (HH) Section 6323(i)(4)(B). (II) Section 6334(g)(1)(B). (JJ) Section 6601(j)(3)(B). (KK) Section 6651(i)(1). (LL) Section 6652(c)(7)(A). (MM) Section 6695(h)(1). (NN) Section 6698(e)(1). (OO) Section 6699(e)(1). (PP) Section 6721(f)(1). (QQ) Section 6722(f)(1). (RR) Section 7345(f)(2). (SS) Section 7430(c)(1). (TT) Section 9831(d)(2)(D)(ii)(II). (2) Sections 41(e)(5)(C)(ii) and 68(b)(2)(B) are each amended— (A) by striking 1(f)(3)(B) and inserting 1(f)(3)(A)(ii) , and (B) by striking 1992 and inserting 2016 . (3) Section 42(h)(6)(G) is amended— (A) by striking for calendar year 1987 in clause (i)(II) and inserting for calendar year 2016 in subparagraph (A)(ii) thereof , and (B) by striking if the CPI for any calendar year and all that follows in clause (ii) and inserting if the C-CPI-U for any calendar year (as defined in section 1(f)(6)) exceeds the C-CPI-U for the preceding calendar year by more than 5 percent, the C-CPI-U for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i). In the case of a base calendar year before 2017, the C-CPI-U for such year shall be determined by multiplying the CPI for such year by the amount determined under section 1(f)(3)(B). . (4) Section 59(j)(2)(B) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (5) Section 132(f)(6)(A)(ii) is amended by striking for calendar year 1992 and inserting for calendar year 2016 in subparagraph (A)(ii) thereof . (6) Section 162(o)(3) is amended by striking adjusted for changes in the Consumer Price Index (as defined in section 1(f)(5)) since 1991 and inserting “adjusted by increasing any such amount under the 1991 agreement by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1990 for calendar year 2016 in subparagraph (A)(ii) thereof . (7) So much of clause (ii) of section 213(d)(10)(B) as precedes the last sentence is amended to read as follows: (ii) Medical care cost adjustment For purposes of clause (i), the medical care cost adjustment for any calendar year is the percentage (if any) by which— (I) the medical care component of the C-CPI-U (as defined in section 1(f)(6)) for August of the preceding calendar year, exceeds (II) such component of the CPI (as defined in section 1(f)(4)) for August of 1996, multiplied by the amount determined under section 1(f)(3)(B). . (8) Subparagraph (B) of section 280F(d)(7) is amended to read as follows: (B) Automobile price inflation adjustment For purposes of this paragraph— (i) In general The automobile price inflation adjustment for any calendar year is the percentage (if any) by which— (I) the C-CPI-U automobile component for October of the preceding calendar year, exceeds (II) the automobile component of the CPI (as defined in section 1(f)(4)) for October of 1987, multiplied by the amount determined under 1(f)(3)(B). (ii) C-CPI-U automobile component The term C-CPI-U automobile component means the automobile component of the Chained Consumer Price Index for All Urban Consumers (as described in section 1(f)(6)). . (9) Section 911(b)(2)(D)(ii)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (10) Paragraph (2) of section 1274A(d) is amended to read as follows: (2) Adjustment for inflation In the case of any debt instrument arising out of a sale or exchange during any calendar year after 1989, each dollar amount contained in the preceding provisions of this section shall be increased by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1988 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). . (11) Section 4161(b)(2)(C)(i)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (12) Section 4980I(b)(3)(C)(v)(II) is amended by striking for 1992 in subparagraph (B) and inserting for 2016 in subparagraph (A)(ii) . (13) Section 6039F(d) is amended by striking subparagraph (B) thereof shall be applied by substituting 1995 for 1992 and inserting subparagraph (A)(ii) thereof shall be applied by substituting 1995 for 2016 . (14) Section 7872(g)(5) is amended to read as follows: (5) Adjustment of limit for inflation In the case of any loan made during any calendar year after 1986, the dollar amount in paragraph (2) shall be increased by an amount equal to— (A) such amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 1985 for calendar year 2016 in subparagraph (A)(ii) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. II Deduction for qualified business income of pass-thru entities 11011. Deduction for qualified business income (a) In general Part VI of subchapter B of chapter 1 is amended by adding at the end the following new section: 199A. Qualified business income (a) In general In the case of a taxpayer other than a corporation, there shall be allowed as a deduction for any taxable year an amount equal to the sum of— (1) the lesser of— (A) the combined qualified business income amount of the taxpayer, or (B) an amount equal to 20 percent of the excess (if any) of— (i) the taxable income of the taxpayer for the taxable year, over (ii) the sum of any net capital gain (as defined in section 1(h)), plus the aggregate amount of the qualified cooperative dividends, of the taxpayer for the taxable year, plus (2) the lesser of— (A) 20 percent of the aggregate amount of the qualified cooperative dividends of the taxpayer for the taxable year, or (B) taxable income (reduced by the net capital gain (as so defined)) of the taxpayer for the taxable year. The amount determined under the preceding sentence shall not exceed the taxable income (reduced by the net capital gain (as so defined)) of the taxpayer for the taxable year. (b) Combined qualified business income amount For purposes of this section— (1) In general The term combined qualified business income amount means, with respect to any taxable year, an amount equal to— (A) the sum of the amounts determined under paragraph (2) for each qualified trade or business carried on by the taxpayer, plus (B) 20 percent of the aggregate amount of the qualified REIT dividends and qualified publicly traded partnership income of the taxpayer for the taxable year. (2) Determination of deductible amount for each trade or business The amount determined under this paragraph with respect to any qualified trade or business is the lesser of— (A) 20 percent of the taxpayer's qualified business income with respect to the qualified trade or business, or (B) the greater of— (i) 50 percent of the W–2 wages with respect to the qualified trade or business, or (ii) the sum of 25 percent of the W–2 wages with respect to the qualified trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property. (3) Modifications to limit based on taxable income (A) Exception from limit In the case of any taxpayer whose taxable income for the taxable year does not exceed the threshold amount, paragraph (2) shall be applied without regard to subparagraph (B). (B) Phase-in of limit for certain taxpayers (i) In general If— (I) the taxable income of a taxpayer for any taxable year exceeds the threshold amount, but does not exceed the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), and (II) the amount determined under paragraph (2)(B) (determined without regard to this subparagraph) with respect to any qualified trade or business carried on by the taxpayer is less than the amount determined under paragraph (2)(A) with respect such trade or business, then paragraph (2) shall be applied with respect to such trade or business without regard to subparagraph (B) thereof and by reducing the amount determined under subparagraph (A) thereof by the amount determined under clause (ii). (ii) Amount of reduction The amount determined under this subparagraph is the amount which bears the same ratio to the excess amount as— (I) the amount by which the taxpayer's taxable income for the taxable year exceeds the threshold amount, bears to (II) $50,000 ($100,000 in the case of a joint return). (iii) Excess amount For purposes of clause (ii), the excess amount is the excess of— (I) the amount determined under paragraph (2)(A) (determined without regard to this paragraph), over (II) the amount determined under paragraph (2)(B) (determined without regard to this paragraph). (4) Wages, etc (A) In general The term W–2 wages means, with respect to any person for any taxable year of such person, the amounts described in paragraphs (3) and (8) of section 6051(a) paid by such person with respect to employment of employees by such person during the calendar year ending during such taxable year. (B) Limitation to wages attributable to qualified business income Such term shall not include any amount which is not properly allocable to qualified business income for purposes of subsection (c)(1). (C) Return requirement Such term shall not include any amount which is not properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for such return. (5) Acquisitions, dispositions, and short taxable years The Secretary shall provide for the application of this subsection in cases of a short taxable year or where the taxpayer acquires, or disposes of, the major portion of a trade or business or the major portion of a separate unit of a trade or business during the taxable year. (6) Qualified property For purposes of this section: (A) In general The term qualified property means, with respect to any qualified trade or business for a taxable year, tangible property of a character subject to the allowance for depreciation under section 167— (i) which is held by, and available for use in, the qualified trade or business at the close of the taxable year, (ii) which is used at any point during the taxable year in the production of qualified business income, and (iii) the depreciable period for which has not ended before the close of the taxable year. (B) Depreciable period The term depreciable period means, with respect to qualified property of a taxpayer, the period beginning on the date the property was first placed in service by the taxpayer and ending on the later of— (i) the date that is 10 years after such date, or (ii) the last day of the last full year in the applicable recovery period that would apply to the property under section 168 (determined without regard to subsection (g) thereof). (c) Qualified business income For purposes of this section— (1) In general The term qualified business income means, for any taxable year, the net amount of qualified items of income, gain, deduction, and loss with respect to any qualified trade or business of the taxpayer. Such term shall not include any qualified REIT dividends, qualified cooperative dividends, or qualified publicly traded partnership income. (2) Carryover of losses If the net amount of qualified income, gain, deduction, and loss with respect to qualified trades or businesses of the taxpayer for any taxable year is less than zero, such amount shall be treated as a loss from a qualified trade or business in the succeeding taxable year. (3) Qualified items of income, gain, deduction, and loss For purposes of this subsection— (A) In general The term qualified items of income, gain, deduction, and loss means items of income, gain, deduction, and loss to the extent such items are— (i) effectively connected with the conduct of a trade or business within the United States (within the meaning of section 864(c), determined by substituting qualified trade or business (within the meaning of section 199A) for nonresident alien individual or a foreign corporation or for a foreign corporation each place it appears), and (ii) included or allowed in determining taxable income for the taxable year. (B) Exceptions The following investment items shall not be taken into account as a qualified item of income, gain, deduction, or loss: (i) Any item of short-term capital gain, short-term capital loss, long-term capital gain, or long-term capital loss. (ii) Any dividend, income equivalent to a dividend, or payment in lieu of dividends described in section 954(c)(1)(G). (iii) Any interest income other than interest income which is properly allocable to a trade or business. (iv) Any item of gain or loss described in subparagraph (C) or (D) of section 954(c)(1) (applied by substituting qualified trade or business for controlled foreign corporation ). (v) 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)). (vi) Any amount received from an annuity which is not received in connection with the trade or business. (vii) Any item of deduction or loss properly allocable to an amount described in any of the preceding clauses. (4) Treatment of reasonable compensation and guaranteed payments Qualified business income shall not include— (A) reasonable compensation paid to the taxpayer by any qualified trade or business of the taxpayer for services rendered with respect to the trade or business, (B) any guaranteed payment described in section 707(c) paid to a partner for services rendered with respect to the trade or business, and (C) to the extent provided in regulations, any payment described in section 707(a) to a partner for services rendered with respect to the trade or business. (d) Qualified trade or business For purposes of this section— (1) In general The term qualified trade or business means any trade or business other than— (A) a specified service trade or business, or (B) the trade or business of performing services as an employee. (2) Specified service trade or business The term specified service trade or business means any trade or business— (A) which is described in section 1202(e)(3)(A) (applied without regard to the words engineering, architecture, ) or which would be so described if the term employees or owners were substituted for employees therein, or (B) which involves the performance of services that consist of investing and investment management, trading, or dealing in securities (as defined in section 475(c)(2)), partnership interests, or commodities (as defined in section 475(e)(2)). (3) Exception for specified service businesses based on taxpayer's income (A) In general If, for any taxable year, the taxable income of any taxpayer is less than the sum of the threshold amount plus $50,000 ($100,000 in the case of a joint return), then— (i) any specified service trade or business of the taxpayer shall not fail to be treated as a qualified trade or business due to paragraph (1)(A), but (ii) only the applicable percentage of qualified items of income, gain, deduction, or loss, and the W–2 wages and the unadjusted basis immediately after acquisition of qualified property, of the taxpayer allocable to such specified service trade or business shall be taken into account in computing the qualified business income, W–2 wages, and the unadjusted basis immediately after acquisition of qualified property of the taxpayer for the taxable year for purposes of applying this section. (B) Applicable percentage For purposes of subparagraph (A), the term applicable percentage means, with respect to any taxable year, 100 percent reduced (not below zero) by the percentage equal to the ratio of— (i) the taxable income of the taxpayer for the taxable year in excess of the threshold amount, bears to (ii) $50,000 ($100,000 in the case of a joint return). (e) Other definitions For purposes of this section— (1) Taxable income Taxable income shall be computed without regard to the deduction allowable under this section. (2) Threshold amount (A) In general The term threshold amount means $157,500 (200 percent of such amount in the case of a joint return). (B) Inflation adjustment In the case of any taxable year beginning after 2018, the dollar amount in subparagraph (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(f)(3) 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. The amount of any increase under the preceding sentence shall be rounded as provided in section 1(f)(7). (3) Qualified REIT dividend The term qualified REIT dividend means any dividend from a real estate investment trust received during the taxable year which— (A) is not a capital gain dividend, as defined in section 857(b)(3), and (B) is not qualified dividend income, as defined in section 1(h)(11). (4) Qualified cooperative dividend The term qualified cooperative dividend means any patronage dividend (as defined in section 1388(a)), any per-unit retain allocation (as defined in section 1388(f)), and any qualified written notice of allocation (as defined in section 1388(c)), or any similar amount received from an organization described in subparagraph (B)(ii), which— (A) is includible in gross income, and (B) is received from— (i) an organization or corporation described in section 501(c)(12) or 1381(a), or (ii) an organization which is governed under this title by the rules applicable to cooperatives under this title before the enactment of subchapter T. (5) Qualified publicly traded partnership income The term qualified publicly traded partnership income means, with respect to any qualified trade or business of a taxpayer, the sum of— (A) the net amount of such taxpayer's allocable share of each qualified item of income, gain, deduction, and loss (as defined in subsection (c)(3) and determined after the application of subsection (c)(4)) from a publicly traded partnership (as defined in section 7704(a)) which is not treated as a corporation under section 7704(c), plus (B) any gain recognized by such taxpayer upon disposition of its interest in such partnership to the extent such gain is treated as an amount realized from the sale or exchange of property other than a capital asset under section 751(a). (f) Special rules (1) Application to partnerships and S corporations (A) In general In the case of a partnership or S corporation— (i) this section shall be applied at the partner or shareholder level, (ii) each partner or shareholder shall take into account such person's allocable share of each qualified item of income, gain, deduction, and loss, and (iii) each partner or shareholder shall be treated for purposes of subsection (b) as having W–2 wages and unadjusted basis immediately after acquisition of qualified property for the taxable year in an amount equal to such person's allocable share of the W–2 wages and the unadjusted basis immediately after acquisition of qualified property of the partnership or S corporation for the taxable year (as determined under regulations prescribed by the Secretary). For purposes of clause (iii), a partner's or shareholder's allocable share of W–2 wages shall be determined in the same manner as the partner's or shareholder's allocable share of wage expenses. For purposes of such clause, partner's or shareholder's allocable share of the unadjusted basis immediately after acquisition of qualified property shall be determined in the same manner as the partner’s or shareholder’s allocable share of depreciation. For purposes of this subparagraph, in the case of an S corporation, an allocable share shall be the shareholder's pro rata share of an item. (B) Application to trusts and estates Rules similar to the rules under section 199(d)(1)(B)(i) (as in effect on December 1, 2017) for the apportionment of W–2 wages shall apply to the apportionment of W–2 wages and the apportionment of unadjusted basis immediately after acquisition of qualified property under this section. (C) Treatment of trades or business in Puerto Rico (i) In general In the case of any taxpayer with qualified business income from sources within the commonwealth of Puerto Rico, if all such income is taxable under section 1 for such taxable year, then for purposes of determining the qualified business income of such taxpayer for such taxable year, the term United States shall include the Commonwealth of Puerto Rico. (ii) Special rule for applying limit In the case of any taxpayer described in clause (i), the determination of W–2 wages of such taxpayer with respect to any qualified trade or business conducted in Puerto Rico shall be made without regard to any exclusion under section 3401(a)(8) for remuneration paid for services in Puerto Rico. (2) Coordination with minimum tax For purposes of determining alternative minimum taxable income under section 55, qualified business income shall be determined without regard to any adjustments under sections 56 through 59. (3) Deduction limited to income taxes The deduction under subsection (a) shall only be allowed for purposes of this chapter. (4) Regulations The Secretary shall prescribe such regulations as are necessary to carry out the purposes of this section, including regulations— (A) for requiring or restricting the allocation of items and wages under this section and such reporting requirements as the Secretary determines appropriate, and (B) for the application of this section in the case of tiered entities. (g) Deduction allowed to specified agricultural or horticultural cooperatives (1) In general In the case of any taxable year of a specified agricultural or horticultural cooperative beginning after December 31, 2017, there shall be allowed a deduction in an amount equal to the lesser of— (A) 20 percent of the excess (if any) of— (i) the gross income of a specified agricultural or horticultural cooperative, over (ii) the qualified cooperative dividends (as defined in subsection (e)(4)) paid during the taxable year for the taxable year, or (B) the greater of— (i) 50 percent of the W–2 wages of the cooperative with respect to its trade or business, or (ii) the sum of 25 percent of the W–2 wages of the cooperative with respect to its trade or business, plus 2.5 percent of the unadjusted basis immediately after acquisition of all qualified property of the cooperative. (2) Limitation The amount determined under paragraph (1) shall not exceed the taxable income of the specified agricultural or horticultural for the taxable year. (3) Specified agricultural or horticultural cooperative For purposes of this subsection, the term specified agricultural or horticultural cooperative means an organization to which part I of subchapter T applies which is engaged in— (A) the manufacturing, production, growth, or extraction in whole or significant part of any agricultural or horticultural product, (B) the marketing of agricultural or horticultural products which its patrons have so manufactured, produced, grown, or extracted, or (C) the provision of supplies, equipment, or services to farmers or to organizations described in subparagraph (A) or (B). (h) Anti-abuse rules The Secretary shall— (1) apply rules similar to the rules under section 179(d)(2) in order to prevent the manipulation of the depreciable period of qualified property using transactions between related parties, and (2) prescribe rules for determining the unadjusted basis immediately after acquisition of qualified property acquired in like-kind exchanges or involuntary conversions. (i) Termination This section shall not apply to taxable years beginning after December 31, 2025. . (b) Treatment of deduction in computing adjusted gross and taxable income (1) Deduction not allowed in computing adjusted gross income Section 62(a) is amended by adding at the end the following new sentence: The deduction allowed by section 199A shall not be treated as a deduction described in any of the preceding paragraphs of this subsection. . (2) Deduction allowed to nonitemizers Section 63(b) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and , and by adding at the end the following new paragraph: (3) the deduction provided in section 199A. . (3) Deduction allowed to itemizers without limits on itemized deductions Section 63(d) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and , and by adding at the end the following new paragraph: (3) the deduction provided in section 199A. . (4) Conforming amendment Section 3402(m)(1) is amended by inserting and the estimated deduction allowed under section 199A after chapter 1 . (c) Accuracy-Related penalty on determination of applicable percentage Section 6662(d)(1) is amended by inserting at the end the following new subparagraph: (C) Special rule for taxpayers claiming section 199A deduction In the case of any taxpayer who claims the deduction allowed under section 199A for the taxable year, subparagraph (A) shall be applied by substituting 5 percent for 10 percent . . (d) Conforming amendments (1) Section 172(d) is amended by adding at the end the following new paragraph: (8) Qualified business income deduction The deduction under section 199A shall not be allowed. . (2) Section 246(b)(1) is amended by inserting 199A, before 243(a)(1) . (3) Section 613(a) is amended by inserting and without the deduction under section 199A after and without the deduction under section 199 . (4) Section 613A(d)(1) is amended by redesignating subparagraphs (C), (D), and (E) as subparagraphs (D), (E), and (F), respectively, and by inserting after subparagraph (B), the following new subparagraph: (C) any deduction allowable under section 199A, . (5) Section 170(b)(2)(D) is amended by striking and in clause (iv), by striking the period at the end of clause (v), and by adding at the end the following new clause: (vi) section 199A(g). . (6) The table of sections for part VI of subchapter B of chapter 1 is amended by inserting at the end the following new item: Sec. 199A. Qualified business income. . (e) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11012. Limitation on losses for taxpayers other than corporations (a) In general Section 461 is amended by adding at the end the following new subsection: (l) Limitation on excess business losses of noncorporate taxpayers (1) Limitation In the case of taxable year of a taxpayer other than a corporation beginning after December 31, 2017, and before January 1, 2026— (A) subsection (j) (relating to limitation on excess farm losses of certain taxpayers) shall not apply, and (B) any excess business loss of the taxpayer for the taxable year shall not be allowed. (2) Disallowed loss carryover Any loss which is disallowed under paragraph (1) shall be treated as a net operating loss carryover to the following taxable year under section 172. (3) Excess business loss For purposes of this subsection— (A) In general The term excess business loss means the excess (if any) of— (i) the aggregate deductions of the taxpayer for the taxable year which are attributable to trades or businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such taxable year under paragraph (1)), over (ii) the sum of— (I) the aggregate gross income or gain of such taxpayer for the taxable year which is attributable to such trades or businesses, plus (II) $250,000 (200 percent of such amount in the case of a joint return). (B) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $250,000 amount in subparagraph (A)(ii)(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(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. (4) Application of subsection in case of partnerships and s corporations In the case of a partnership or S corporation— (A) this subsection shall be applied at the partner or shareholder level, and (B) each partner's or shareholder's allocable share of the items of income, gain, deduction, or loss of the partnership or S corporation for any taxable year from trades or businesses attributable to the partnership or S corporation shall be taken into account by the partner or shareholder in applying this subsection to the taxable year of such partner or shareholder with or within which the taxable year of the partnership or S corporation ends. For purposes of this paragraph, in the case of an S corporation, an allocable share shall be the shareholder’s pro rata share of an item. (5) Additional reporting The Secretary shall prescribe such additional reporting requirements as the Secretary determines necessary to carry out the purposes of this subsection. (6) Coordination with section 469 This subsection shall be applied after the application of section 469. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. III Tax benefits for families and individuals 11021. Increase in standard deduction (a) In general Subsection (c) of section 63 is amended by adding at the end the following new paragraph: (7) Special rules for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Increase in standard deduction Paragraph (2) shall be applied— (i) by substituting $18,000 for $4,400 in subparagraph (B), and (ii) by substituting $12,000 for $3,000 in subparagraph (C). (B) Adjustment for inflation (i) In general Paragraph (4) shall not apply to the dollar amounts contained in paragraphs (2)(B) and (2)(C). (ii) Adjustment of increased amounts In the case of a taxable year beginning after 2018, the $18,000 and $12,000 amounts in subparagraph (A) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any increase under this clause is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11022. Increase in and modification of child tax credit (a) In general Section 24 is amended by adding at the end the following new subsection: (h) Special rules for taxable years 2018 through 2025 (1) In general In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, this section shall be applied as provided in paragraphs (2) through (7). (2) Credit amount Subsection (a) shall be applied by substituting $2,000 for $1,000 . (3) Limitation In lieu of the amount determined under subsection (b)(2), the threshold amount shall be $400,000 in the case of a joint return ($200,000 in any other case). (4) Partial credit allowed for certain other dependents (A) In general The credit determined under subsection (a) (after the application of paragraph (2)) shall be increased by $500 for each dependent of the taxpayer (as defined in section 152) other than a qualifying child described in subsection (c). (B) Exception for certain noncitizens Subparagraph (A) shall not apply with respect to any individual who would not be a dependent if subparagraph (A) of section 152(b)(3) were applied without regard to all that follows resident of the United States . (C) Certain qualifying children In the case of any qualifying child with respect to whom a credit is not allowed under this section by reason of paragraph (7), such child shall be treated as a dependent to whom subparagraph (A) applies. (5) Maximum amount of refundable credit (A) In general The amount determined under subsection (d)(1)(A) with respect to any qualifying child shall not exceed $1,400, and such subsection shall be applied without regard to paragraph (4) of this subsection. (B) Adjustment for inflation In the case of a taxable year beginning after 2018, the $1,400 amount in subparagraph (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(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(ii) thereof. If any increase under this clause is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100. (6) Earned income threshold for refundable credit Subsection (d)(1)(B)(i) shall be applied by substituting $2,500 for $3,000 . (7) Social security number required No credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the social security number of such child on the return of tax for the taxable year. For purposes of the preceding sentence, 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— (A) 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, and (B) before the due date for such return. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11023. Increased limitation for certain charitable contributions (a) 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 beginning after December 31, 2017, and before January 1, 2026, 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) for any taxable year described in such clause, 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 For each taxable year described in clause (i), and each taxable year to which any contribution under this subparagraph is carried over under clause (ii), subparagraph (A) shall be applied by reducing (but not below zero) the contribution limitation allowed for the taxable year under such subparagraph by the aggregate contributions allowed under this subparagraph for such taxable year, and subparagraph (B) shall be applied by treating any reference to subparagraph (A) as a reference to both subparagraph (A) and this subparagraph. . (b) Effective date The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2017. 11024. Increased contributions to ABLE accounts (a) Increase in limitation for contributions from compensation of individuals with disabilities (1) In general Section 529A(b)(2)(B) is amended to read as follows: (B) except in the case of contributions under subsection (c)(1)(C), if such contribution to an ABLE account would result in aggregate contributions from all contributors to the ABLE account for the taxable year exceeding the sum of— (i) the amount in effect under section 2503(b) for the calendar year in which the taxable year begins, plus (ii) in the case of any contribution by a designated beneficiary described in paragraph (7) before January 1, 2026, the lesser of— (I) compensation (as defined by section 219(f)(1)) includible in the designated beneficiary's gross income for the taxable year, or (II) an amount equal to the poverty line for a one-person household, as determined for the calendar year preceding the calendar year in which the taxable year begins. . (2) Responsibility for contribution limitation Paragraph (2) of section 529A(b) is amended by adding at the end the following: A designated beneficiary (or a person acting on behalf of such beneficiary) shall maintain adequate records for purposes of ensuring, and shall be responsible for ensuring, that the requirements of subparagraph (B)(ii) are met. (3) Eligible designated beneficiary Section 529A(b) is amended by adding at the end the following: (7) Special rules related to contribution limit For purposes of paragraph (2)(B)(ii)— (A) Designated beneficiary A designated beneficiary described in this paragraph is an employee (including an employee within the meaning of section 401(c)) with respect to whom— (i) no contribution is made for the taxable year to a defined contribution plan (within the meaning of section 414(i)) with respect to which the requirements of section 401(a) or 403(a) are met, (ii) no contribution is made for the taxable year to an annuity contract described in section 403(b), and (iii) no contribution is made for the taxable year to an eligible deferred compensation plan described in section 457(b). (B) Poverty line The term poverty line has the meaning given such term by section 673 of the Community Services Block Grant Act ( 42 U.S.C. 9902 ). . (b) Allowance of saver’s credit for ABLE contributions by account holder Section 25B(d)(1) is amended by striking and at the end of subparagraph (B)(ii), by striking the period at the end of subparagraph (C) and inserting , and , and by inserting at the end the following: (D) the amount of contributions made before January 1, 2026, by such individual to the ABLE account (within the meaning of section 529A) of which such individual is the designated beneficiary. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 11025. Rollovers to ABLE programs from 529 programs (a) In general Clause (i) of section 529(c)(3)(C) is amended by striking or at the end of subclause (I), by striking the period at the end of subclause (II) and inserting , or , and by adding at the end the following: (III) before January 1, 2026, to an ABLE account (as defined in section 529A(e)(6)) of the designated beneficiary or a member of the family of the designated beneficiary. Subclause (III) shall not apply to so much of a distribution which, when added to all other contributions made to the ABLE account for the taxable year, exceeds the limitation under section 529A(b)(2)(B)(i). . (b) Effective date The amendments made by this section shall apply to distributions after the date of the enactment of this Act. 11026. Treatment of certain individuals performing services in the Sinai Peninsula of Egypt (a) In general For purposes of the following provisions of the Internal Revenue Code of 1986, with respect to the applicable period, a qualified hazardous duty area shall be treated in the same manner as if it were a combat zone (as determined under section 112 of such Code): (1) Section 2(a)(3) (relating to special rule where deceased spouse was in missing status). (2) Section 112 (relating to the exclusion of certain combat pay of members of the Armed Forces). (3) Section 692 (relating to income taxes of members of Armed Forces on death). (4) Section 2201 (relating to members of the Armed Forces dying in combat zone or by reason of combat-zone-incurred wounds, etc.). (5) Section 3401(a)(1) (defining wages relating to combat pay for members of the Armed Forces). (6) Section 4253(d) (relating to the taxation of phone service originating from a combat zone from members of the Armed Forces). (7) Section 6013(f)(1) (relating to joint return where individual is in missing status). (8) Section 7508 (relating to time for performing certain acts postponed by reason of service in combat zone). (b) Qualified hazardous duty area For purposes of this section, the term qualified hazardous duty area means the Sinai Peninsula of Egypt, if as of the date of the enactment of this section any member of the Armed Forces of the United States is entitled to special pay under section 310 of title 37, United States Code (relating to special pay; duty subject to hostile fire or imminent danger), for services performed in such location. Such term includes such location only during the period such entitlement is in effect. (c) Applicable period (1) In general Except as provided in paragraph (2), the applicable period is— (A) the portion of the first taxable year ending after June 9, 2015, which begins on such date, and (B) any subsequent taxable year beginning before January 1, 2026. (2) Withholding In the case of subsection (a)(5), the applicable period is— (A) the portion of the first taxable year ending after the date of the enactment of this Act which begins on such date, and (B) any subsequent taxable year beginning before January 1, 2026. (d) Effective date (1) In general Except as provided in paragraph (2), the provisions of this section shall take effect on June 9, 2015. (2) Withholding Subsection (a)(5) shall apply to remuneration paid after the date of the enactment of this Act. 11027. Temporary reduction in medical expense deduction floor (a) In general Subsection (f) of section 213 is amended to read as follows: (f) Special rules for 2013 through 2018 In the case of any taxable year— (1) beginning after December 31, 2012, and ending before January 1, 2017, in the case of a taxpayer if such taxpayer or such taxpayer's spouse has attained age 65 before the close of such taxable year, and (2) beginning after December 31, 2016, and ending before January 1, 2019, in the case of any taxpayer, subsection (a) shall be applied with respect to a taxpayer by substituting 7.5 percent for 10 percent . . (b) Minimum tax preference not to apply Section 56(b)(1)(B) is amended by adding at the end the following new sentence: This subparagraph shall not apply to taxable years beginning after December 31, 2016, and ending before January 1, 2019 . (c) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 11028. Relief for 2016 disaster areas (a) In general For purposes of this section, the term 2016 disaster area means any area with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act during calendar year 2016. (b) Special rules for use of retirement funds with respect to areas damaged by 2016 disasters (1) Tax-Favored Withdrawals From Retirement Plans (A) In general Section 72(t) of the Internal Revenue Code of 1986 shall not apply to any qualified 2016 disaster distribution. (B) Aggregate dollar limitation (i) In general For purposes of this subsection, the aggregate amount of distributions received by an individual which may be treated as qualified 2016 disaster distributions for any taxable year shall not exceed the excess (if any) of— (I) $100,000, over (II) the aggregate amounts treated as qualified 2016 disaster distributions received by such individual for all prior taxable years. (ii) Treatment of plan distributions If a distribution to an individual would (without regard to clause (i)) be a qualified 2016 disaster distribution, a plan shall not be treated as violating any requirement of this title merely because the plan treats such distribution as a qualified 2016 disaster distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $100,000. (iii) Controlled group For purposes of clause (ii), the term controlled group means any group treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986. (C) Amount distributed may be repaid (i) In general Any individual who receives a qualified 2016 disaster distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) of the Internal Revenue Code of 1986, as the case may be. (ii) Treatment of repayments of distributions from eligible retirement plans other than iras For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer shall, to the extent of the amount of the contribution, be treated as having received the qualified 2016 disaster distribution in an eligible rollover distribution (as defined in section 402(c)(4) of the Internal Revenue Code of 1986) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (iii) Treatment of repayments for distributions from iras For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to clause (i) with respect to a qualified 2016 disaster distribution from an individual retirement plan (as defined by section 7701(a)(37) of the Internal Revenue Code of 1986), then, to the extent of the amount of the contribution, the qualified 2016 disaster distribution shall be treated as a distribution described in section 408(d)(3) of such Code and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (D) Definitions For purposes of this paragraph— (i) Qualified 2016 disaster distribution Except as provided in subparagraph (B), the term qualified 2016 disaster distribution means any distribution from an eligible retirement plan made on or after January 1, 2016, and before January 1, 2018, to an individual whose principal place of abode at any time during calendar year 2016 was located in a disaster area described in subsection (a) and who has sustained an economic loss by reason of the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area. (ii) Eligible retirement plan The term eligible retirement plan shall have the meaning given such term by section 402(c)(8)(B) of the Internal Revenue Code of 1986. (E) Income inclusion spread over 3-year period (i) In general In the case of any qualified 2016 disaster distribution, unless the taxpayer elects not to have this subparagraph apply for any taxable year, any amount required to be included in gross income for such taxable year shall be so included ratably over the 3-taxable-year period beginning with such taxable year. (ii) Special rule For purposes of clause (i), rules similar to the rules of subparagraph (E) of section 408A(d)(3) of the Internal Revenue Code of 1986 shall apply. (F) Special rules (i) Exemption of distributions from trustee to trustee transfer and withholding rules For purposes of sections 401(a)(31), 402(f), and 3405 of the Internal Revenue Code of 1986, qualified 2016 disaster distribution shall not be treated as eligible rollover distributions. (ii) Qualified 2016 disaster distributions treated as meeting plan distribution requirements For purposes of the Internal Revenue Code of 1986, a qualified 2016 disaster distribution shall be treated as meeting the requirements of sections 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11), and 457(d)(1)(A) of the Internal Revenue Code of 1986. (2) Provisions Relating to Plan Amendments (A) In general If this paragraph applies to any amendment to any plan or annuity contract, such plan or contract shall be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii)(I). (B) Amendments to which subsection applies (i) In general This paragraph shall apply to any amendment to any plan or annuity contract which is made— (I) pursuant to any provision of this section, or pursuant to any regulation under any provision of this section, and (II) on or before the last day of the first plan year beginning on or after January 1, 2018, or such later date as the Secretary prescribes. In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), subclause (II) shall be applied by substituting the date which is 2 years after the date otherwise applied under subclause (II). (ii) Conditions This paragraph shall not apply to any amendment to a plan or contract unless such amendment applies retroactively for such period, and shall not apply to any such amendment unless the plan or contract is operated as if such amendment were in effect during the period— (I) beginning on the date that this section or the regulation described in clause (i)(I) takes effect (or in the case of a plan or contract amendment not required by this section or such regulation, the effective date specified by the plan), and (II) ending on the date described in clause (i)(II) (or, if earlier, the date the plan or contract amendment is adopted). (c) Special rules for personal casualty losses related to 2016 major disaster (1) In general If an individual has a net disaster loss for any taxable year beginning after December 31, 2015, and before January 1, 2018— (A) the amount determined under section 165(h)(2)(A)(ii) of the Internal Revenue Code of 1986 shall be equal to the sum of— (i) such net disaster loss, and (ii) so much of the excess referred to in the matter preceding clause (i) of section 165(h)(2)(A) of such Code (reduced by the amount in clause (i) of this subparagraph) as exceeds 10 percent of the adjusted gross income of the individual, (B) section 165(h)(1) of such Code shall be applied by substituting $500 for $500 ($100 for taxable years beginning after December 31, 2009) , (C) the standard deduction determined under section 63(c) of such Code shall be increased by the net disaster loss, and (D) section 56(b)(1)(E) of such Code shall not apply to so much of the standard deduction as is attributable to the increase under subparagraph (C) of this paragraph. (2) Net disaster loss For purposes of this subsection, the term net disaster loss means the excess of qualified disaster-related personal casualty losses over personal casualty gains (as defined in section 165(h)(3)(A) of the Internal Revenue Code of 1986). (3) Qualified disaster-related personal casualty losses For purposes of this paragraph, the term qualified disaster-related personal casualty losses means losses described in section 165(c)(3) of the Internal Revenue Code of 1986 which arise in a disaster area described in subsection (a) on or after January 1, 2016, and which are attributable to the events giving rise to the Presidential declaration described in subsection (a) which was applicable to such area. IV Education 11031. Treatment of student loans discharged on account of death or disability (a) In general 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 for such taxable year by reasons of the discharge (in whole or in part) of any loan described in subparagraph (B) after December 31, 2017, and before January 1, 2026, 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) Effective date The amendment made by this section shall apply to discharges of indebtedness after December 31, 2017. 11032. 529 account funding for elementary and secondary education (a) In general (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 or attendance at an elementary or secondary public, private, or religious 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 described in subsection (c)(7) incurred during the taxable year. . (b) Effective date The amendments made by this section shall apply to distributions made after December 31, 2017. V Deductions and exclusions 11041. Suspension of deduction for personal exemptions (a) In general Subsection (d) of section 151 is amended— (1) by striking In the case of in paragraph (4) and inserting Except as provided in paragraph (5), in the case of , and (2) by adding at the end the following new paragraph: (5) Special rules for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) Exemption amount The term exemption amount means zero. (B) References For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section. . (b) Application to estates and trusts Section 642(b)(2)(C) is amended by adding at the end the following new clause: (iii) Years when personal exemption amount is zero (I) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, clause (i) shall be applied by substituting $4,150 for the exemption amount under section 151(d) . (II) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2018, the $4,150 amount in subparagraph (A) shall be increased in the same manner as provided in section 6334(d)(4)(C). . (c) Modification of wage withholding rules (1) In general Section 3402(a)(2) is amended by striking means the amount and all that follows and inserting means the amount by which the wages exceed the taxpayer's withholding allowance, prorated to the payroll period. . (2) Conforming amendments (A) Section 3401 is amended by striking subsection (e). (B) Paragraphs (1) and (2) of section 3402(f) are amended to read as follows: (1) In general Under rules determined by the Secretary, an employee receiving wages shall on any day be entitled to a withholding allowance determined based on— (A) whether the employee is an individual for whom a deduction is allowable with respect to another taxpayer under section 151; (B) if the employee is married, whether the employee's spouse is entitled to an allowance, or would be so entitled if such spouse were an employee receiving wages, under subparagraph (A) or (D), but only if such spouse does not have in effect a withholding allowance certificate claiming such allowance; (C) the number of individuals with respect to whom, on the basis of facts existing at the beginning of such day, there may reasonably be expected to be allowable a credit under section 24(a) for the taxable year under subtitle A in respect of which amounts deducted and withheld under this chapter in the calendar year in which such day falls are allowed as a credit; (D) any additional amounts to which the employee elects to take into account under subsection (m), but only if the employee's spouse does not have in effect a withholding allowance certificate making such an election; (E) the standard deduction allowable to such employee (one-half of such standard deduction in the case of an employee who is married (as determined under section 7703) and whose spouse is an employee receiving wages subject to withholding); and (F) whether the employee has withholding allowance certificates in effect with respect to more than 1 employer. (2) Allowance certificates (A) On commencement of employment On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding allowance certificate relating to the withholding allowance claimed by the employee, which shall in no event exceed the amount to which the employee is entitled. (B) Change of status If, on any day during the calendar year, an employee’s withholding allowance is in excess of the withholding allowance to which the employee would be entitled had the employee submitted a true and accurate withholding allowance certificate to the employer on that day, the employee shall within 10 days thereafter furnish the employer with a new withholding allowance certificate. If, on any day during the calendar year, an employee’s withholding allowance is greater than the withholding allowance claimed, the employee may furnish the employer with a new withholding allowance certificate relating to the withholding allowance to which the employee is so entitled, which shall in no event exceed the amount to which the employee is entitled on such day. (C) Change of status which affects next calendar year If on any day during the calendar year the withholding allowance to which the employee will be, or may reasonably be expected to be, entitled at the beginning of the employee's next taxable year under subtitle A is different from the allowance to which the employee is entitled on such day, the employee shall, in such cases and at such times as the Secretary shall by regulations prescribe, furnish the employer with a withholding allowance certificate relating to the withholding allowance which the employee claims with respect to such next taxable year, which shall in no event exceed the withholding allowance to which the employee will be, or may reasonably be expected to be, so entitled. . (C) Subsections (b)(1), (b)(2), (f)(3), (f)(4), (f)(5), (f)(7) (including the heading thereof), (g)(4), (l)(1), (l)(2), and (n) of section 3402 are each amended by striking exemption each place it appears and inserting allowance . (D) The heading of section 3402(f) is amended by striking exemptions and inserting allowance . (E) Section 3402(m) is amended by striking additional withholding allowances or additional reductions in withholding under this subsection. In determining the number of additional withholding allowances and inserting an additional withholding allowance or additional reductions in withholding under this subsection. In determining the additional withholding allowance . (F) Paragraphs (3) and (4) of section 3405(a) (and the heading for such paragraph (4)) are each amended by striking exemption each place it appears and inserting allowance . (G) Section 3405(a)(4) is amended by striking shall be determined and all that follows through 3 withholding exemptions and inserting shall be determined under rules prescribed by the Secretary . (d) Exception for determining property exempt from levy Section 6334(d) is amended by adding at the end the following new paragraph: (4) Years when personal exemption amount is zero (A) In general In the case of any taxable year in which the exemption amount under section 151(d) is zero, paragraph (2) shall not apply and for purposes of paragraph (1) the term exempt amount means an amount equal to— (i) the sum of the amount determined under subparagraph (B) and the standard deduction, divided by (ii) 52. (B) Amount determined For purposes of subparagraph (A), the amount determined under this subparagraph is $4,150 multiplied by the number of the taxpayer’s dependents for the taxable year in which the levy occurs. (C) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2018, the $4,150 amount in subparagraph (B) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting 2017 for 2016 in subparagraph (A)(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. (D) 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. . (e) Persons required to make returns of income Section 6012 is amended by adding at the end the following new subsection: (f) Special rule for taxable years 2018 through 2025 In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026, subsection (a)(1) shall not apply, and every individual who has gross income for the taxable year shall be required to make returns with respect to income taxes under subtitle A, except that a return shall not be required of— (1) 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 (2) an individual entitled to make a joint return if— (A) 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, (B) such individual and such individual’s spouse have the same household as their home at the close of the taxable year, (C) such individual’s spouse does not make a separate return, and (D) neither such individual nor such individual’s spouse is an individual described in section 63(c)(5) who has income (other than earned income) in excess of the amount in effect under section 63(c)(5)(A). . (f) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Wage withholding The Secretary of the Treasury may administer section 3402 for taxable years beginning before January 1, 2019, without regard to the amendments made by subsections (a) and (c). 11042. Limitation on deduction for State and local, etc. taxes (a) In general Subsection (b) of section 164 is amended by adding at the end the following new paragraph: (6) Limitation on individual deductions for taxable years 2018 through 2025 In the case of an individual and a taxable year beginning after December 31, 2017, and before January 1, 2026— (A) foreign real property taxes shall not be taken into account under subsection (a)(1), and (B) the aggregate amount of taxes taken into account under paragraphs (1), (2), and (3) of subsection (a) and paragraph (5) of this subsection for any taxable year shall not exceed $10,000 ($5,000 in the case of a married individual filing a separate return). The preceding sentence shall not apply to any foreign taxes described in subsection (a)(3) or to any taxes described in paragraph (1) and (2) of subsection (a) which are paid or accrued in carrying on a trade or business or an activity described in section 212. For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 11043. Limitation on deduction for qualified residence interest (a) In general Section 163(h)(3) is amended by adding at the end the following new subparagraph: (F) Special rules for taxable years 2018 through 2025 (i) In general In the case of taxable years beginning after December 31, 2017, and before January 1, 2026— (I) Disallowance of home equity indebtedness interest Subparagraph (A)(ii) shall not apply. (II) Limitation on acquisition indebtedness Subparagraph (B)(ii) shall be applied by substituting $750,000 ($375,000 for $1,000,000 ($500,000 . (III) Treatment of indebtedness incurred on or before December 15, 2017 Subclause (II) shall not apply to any indebtedness incurred on or before December 15, 2017, and, in applying such subclause to any indebtedness incurred after such date, the limitation under such subclause shall be reduced (but not below zero) by the amount of any indebtedness incurred on or before December 15, 2017, which is treated as acquisition indebtedness for purposes of this subsection for the taxable year. (IV) Binding contract exception In the case of a taxpayer who enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, subclause (III) shall be applied by substituting April 1, 2018 for December 15, 2017 . (ii) Treatment of limitation in taxable years after December 31, 2025 In the case of taxable years beginning after December 31, 2025, the limitation under subparagraph (B)(ii) shall be applied to the aggregate amount of indebtedness of the taxpayer described in subparagraph (B)(i) without regard to the taxable year in which the indebtedness was incurred. (iii) Treatment of refinancings of indebtedness (I) In general In the case of any indebtedness which is incurred to refinance indebtedness, such refinanced indebtedness shall be treated for purposes of clause (i)(III) as incurred on the date that the original indebtedness was incurred to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness. (II) Limitation on period of refinancing Subclause (I) shall not apply to any indebtedness after the expiration of the term of the original indebtedness or, 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) Coordination with exclusion of income from discharge of indebtedness Section 108(h)(2) shall be applied without regard to this subparagraph. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11044. Modification of deduction for personal casualty losses (a) In general Subsection (h) of section 165 is amended by adding at the end the following new paragraph: (5) Limitation for taxable years 2018 through 2025 (A) In general In the case of an individual, except as provided in subparagraph (B), any personal casualty loss which (but for this paragraph) would be deductible in a taxable year beginning after December 31, 2017, and before January 1, 2026, shall be allowed as a deduction under subsection (a) only to the extent it is attributable to a Federally declared disaster (as defined in subsection (i)(5)). (B) Exception related to personal casualty gains If a taxpayer has personal casualty gains for any taxable year to which subparagraph (A) applies— (i) subparagraph (A) shall not apply to the portion of the personal casualty loss not attributable to a Federally declared disaster (as so defined) to the extent such loss does not exceed such gains, and (ii) in applying paragraph (2) for purposes of subparagraph (A) to the portion of personal casualty loss which is so attributable to such a disaster, the amount of personal casualty gains taken into account under paragraph (2)(A) shall be reduced by the portion of such gains taken into account under clause (i). . (b) Effective date The amendment made by this section shall apply to losses incurred in taxable years beginning after December 31, 2017. 11045. Suspension of miscellaneous itemized deductions (a) In general Section 67 is amended by adding at the end the following new subsection: (g) Suspension for taxable years 2018 through 2025 Notwithstanding subsection (a), no miscellaneous itemized deduction shall be allowed for any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11046. Suspension of overall limitation on itemized deductions (a) In general Section 68 is amended by adding at the end the following new subsection: (f) Section not to apply This section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11047. Suspension of exclusion for qualified bicycle commuting reimbursement (a) In general Section 132(f) is amended by adding at the end the following new paragraph: (8) Suspension of qualified bicycle commuting reimbursement exclusion Paragraph (1)(D) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11048. Suspension of exclusion for qualified moving expense reimbursement (a) In general Section 132(g) is amended— (1) by striking For purposes of this section, the term and inserting “For purposes of this section— (1) In general The term , and (2) by adding at the end the following new paragraph: (2) Suspension for taxable years 2018 through 2025 Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 11049. Suspension of deduction for moving expenses (a) In general Section 217 is amended by adding at the end the following new subsection: (k) Suspension of deduction for taxable years 2018 through 2025 Except in the case of an individual to whom subsection (g) applies, this section shall not apply to any taxable year beginning after December 31, 2017, and before January 1, 2026. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11050. 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, in the case of taxable years beginning after December 31, 2017, and before January 1, 2026, 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 amendment made by this section shall apply to taxable years beginning after December 31, 2017. 11051. Repeal of deduction for alimony payments (a) In general Part VII of subchapter B is amended by striking section 215 (and by striking the item relating to such section in the table of sections for such subpart). (b) Conforming amendments (1) Corresponding repeal of provisions providing for inclusion of alimony in gross income (A) Subsection (a) of section 61 is amended by striking paragraph (8) and by redesignating paragraphs (9) through (15) as paragraphs (8) through (14), respectively. (B) 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). (C) 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). (2) Related to repeal of section 215 (A) Section 62(a) is amended by striking paragraph (10). (B) Section 3402(m)(1) is amended by striking (other than paragraph (10) thereof) . (C) Section 6724(d)(3) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C). (3) Related to repeal of section 71 (A) 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. . (B) Section 152(d)(5) is amended to read as follows: (5) Special rules for support (A) In general For purposes of this subsection— (i) payments to a spouse of alimony or separate maintenance payments shall not be treated as a payment by the payor spouse for the support of any dependent, and (ii) in the case of the remarriage of a parent, support of a child received from the parent's spouse shall be treated as received from the parent. (B) Alimony or separate maintenance payment For purposes of subparagraph (A), the term alimony or separate maintenance payment means any payment in cash if— (i) such payment is received by (or on behalf of) a spouse under a divorce or separation instrument (as defined in section 121(d)(3)(C)), (ii) in the case of an individual legally separated from the individual's spouse under a decree of divorce or of separate maintenance, the payee spouse and the payor spouse are not members of the same household at the time such payment is made, and (iii) there is no liability to make any such payment for any period after the death of the payee spouse and there is no liability to make any payment (in cash or property) as a substitute for such payments after the death of the payee spouse. . (C) Section 219(f)(1) is amended by striking the third sentence. (D) 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) . (E) 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) . (F) Section 382(l)(3)(B)(iii) is amended by striking section 71(b)(2) and inserting section 121(d)(3)(C) . (G) 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) . (4) Additional conforming amendments Section 7701(a)(17) is amended— (A) by striking sections 682 and 2516 and inserting section 2516 , and (B) by striking such sections each place it appears and inserting such section . (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, 2018, 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. VI Increase in estate and gift tax exemption 11061. Increase in estate and gift tax exemption (a) In general Section 2010(c)(3) is amended by adding at the end the following new subparagraph: (C) Increase in basic exclusion amount In the case of estates of decedents dying or gifts made after December 31, 2017, and before January 1, 2026, subparagraph (A) shall be applied by substituting $10,000,000 for $5,000,000 . . (b) Conforming amendment Subsection (g) of section 2001 is amended to read as follows: (g) Modifications to tax payable (1) Modifications to gift tax payable to reflect different tax rates For purposes of applying subsection (b)(2) with respect to 1 or more gifts, the rates of tax under subsection (c) in effect at the decedent's death shall, in lieu of the rates of tax in effect at the time of such gifts, be used both to compute— (A) the tax imposed by chapter 12 with respect to such gifts, and (B) the credit allowed against such tax under section 2505, including in computing— (i) the applicable credit amount under section 2505(a)(1), and (ii) the sum of the amounts allowed as a credit for all preceding periods under section 2505(a)(2). (2) Modifications to estate tax payable to reflect different basic exclusion amounts The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this section with respect to any difference between— (A) the basic exclusion amount under section 2010(c)(3) applicable at the time of the decedent's death, and (B) the basic exclusion amount under such section applicable with respect to any gifts made by the decedent. . (c) Effective date The amendments made by this section shall apply to estates of decedents dying and gifts made after December 31, 2017. VII Extension of time limit for contesting IRS levy 11071. Extension of time limit for contesting IRS levy (a) Extension of Time for Return of Property Subject to Levy Subsection (b) of section 6343 is amended by striking 9 months and inserting 2 years . (b) Period of Limitation on Suits Subsection (c) of section 6532 is amended— (1) by striking 9 months in paragraph (1) and inserting 2 years , and (2) by striking 9-month in paragraph (2) and inserting 2-year . (c) Effective Date The amendments made by this section shall apply to— (1) levies made after the date of the enactment of this Act, and (2) levies made on or before such date if the 9-month period has not expired under section 6343(b) of the Internal Revenue Code of 1986 (without regard to this section) as of such date. VIII Individual mandate 11081. Elimination of shared responsibility payment for individuals failing to maintain minimum essential coverage (a) In general Section 5000A(c) is amended— (1) in paragraph (2)(B)(iii), by striking 2.5 percent and inserting Zero percent , and (2) in paragraph (3)— (A) by striking $695 in subparagraph (A) and inserting $0 , and (B) by striking subparagraph (D). (b) Effective date The amendments made by this section shall apply to months beginning after December 31, 2018. B Alternative Minimum Tax 12001. Repeal of tax for corporations (a) In general Section 55(a) is amended by striking There and inserting In the case of a taxpayer other than a corporation, there . (b) Conforming amendments (1) Section 38(c)(6) is amended by adding at the end the following new subparagraph: (E) Corporations In the case of a corporation, this subsection shall be applied by treating the corporation as having a tentative minimum tax of zero. . (2) Section 53(d)(2) is amended by inserting , except that in the case of a corporation, the tentative minimum tax shall be treated as zero before the period at the end. (3) (A) Section 55(b)(1) is amended to read as follows: (1) Amount of tentative tax (A) In general The tentative minimum tax for the taxable year is the sum of— (i) 26 percent of so much of the taxable excess as does not exceed $175,000, plus (ii) 28 percent of so much of the taxable excess as exceeds $175,000. The amount determined under the preceding sentence shall be reduced by the alternative minimum tax foreign tax credit for the taxable year. (B) Taxable excess For purposes of this subsection, the term taxable excess means so much of the alternative minimum taxable income for the taxable year as exceeds the exemption amount. (C) Married individual filing separate return In the case of a married individual filing a separate return, subparagraph (A) shall be applied by substituting 50 percent of the dollar amount otherwise applicable under clause (i) and clause (ii) thereof. For purposes of the preceding sentence, marital status shall be determined under section 7703. . (B) Section 55(b)(3) is amended by striking paragraph (1)(A)(i) and inserting paragraph (1)(A) . (C) Section 59(a) is amended— (i) by striking subparagraph (A)(i) or (B)(i) of section 55(b)(1) (whichever applies) in lieu of the highest rate of tax specified in section 1 or 11 (whichever applies) in paragraph (1)(C) and inserting section 55(b)(1) in lieu of the highest rate of tax specified in section 1 , and (ii) in paragraph (2), by striking means and all that follows and inserting means the amount determined under the first sentence of section 55(b)(1)(A). . (D) Section 897(a)(2)(A) is amended by striking section 55(b)(1)(A) and inserting section 55(b)(1) . (E) Section 911(f) is amended— (i) in paragraph (1)(B)— (I) by striking section 55(b)(1)(A)(ii) and inserting section 55(b)(1)(B) , and (II) by striking section 55(b)(1)(A)(i) and inserting section 55(b)(1)(A) , and (ii) in paragraph (2)(B), by striking section 55(b)(1)(A)(ii) each place it appears and inserting section 55(b)(1)(B) . (4) Section 55(c)(1) is amended by striking , the section 936 credit allowable under section 27(b), and the Puerto Rico economic activity credit under section 30A . (5) Section 55(d), as amended by section 11002, is amended— (A) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, (B) in paragraph (2) (as so redesignated), by inserting and at the end of subparagraph (B), by striking , and at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D), and (C) in paragraph (3) (as so redesignated)— (i) by striking (b)(1)(A)(i) in subparagraph (B)(i) and inserting (b)(1)(A) , and (ii) by striking paragraph (3) in subparagraph (B)(iii) and inserting paragraph (2) . (6) Section 55 is amended by striking subsection (e). (7) Section 56(b)(2) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C). (8) (A) Section 56 is amended by striking subsections (c) and (g). (B) Section 847 is amended by striking the last sentence of paragraph (9). (C) Section 848 is amended by striking subsection (i). (9) Section 58(a) is amended by striking paragraph (3) and redesignating paragraph (4) as paragraph (3). (10) Section 59 is amended by striking subsections (b) and (f). (11) Section 11(d) is amended by striking the taxes imposed by subsection (a) and section 55 and inserting the tax imposed by subsection (a) . (12) Section 12 is amended by striking paragraph (7). (13) Section 168(k) is amended by striking paragraph (4). (14) Section 882(a)(1) is amended by striking , 55, . (15) Section 962(a)(1) is amended by striking sections 11 and 55 and inserting section 11 . (16) 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. (17) Section 6425(c)(1)(A) is amended to read as follows: (A) the tax imposed by section 11 or 1201(a), or subchapter L of chapter 1, whichever is applicable, over . (18) Section 6655(e)(2) is amended by striking and alternative minimum taxable income each place it appears in subparagraphs (A) and (B)(i). (19) Section 6655(g)(1)(A) is amended by inserting plus at the end of clause (i), by striking clause (ii), and by redesignating clause (iii) as clause (ii). (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 12002. Credit for prior year minimum tax liability of corporations (a) 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 of a corporation beginning in 2018, 2019, 2020, or 2021, 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 2021) 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. . (b) Treatment of references Section 53(d) is amended by adding at the end the following new paragraph: (3) AMT term references In the case of a corporation, any references in this subsection to section 55, 56, or 57 shall be treated as a reference to such section as in effect before the amendments made by Tax Cuts and Jobs Act . . (c) Conforming amendment Section 1374(b)(3)(B) is amended by striking the last sentence thereof. (d) Effective date (1) In general The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Conforming amendment The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2021. 12003. Increased exemption for individuals (a) In general Section 55(d), as amended by the preceding provisions of this Act, is amended by adding at the end the following new paragraph: (4) Special rule for taxable years beginning after 2017 and before 2026 (A) In general In the case of any taxable year beginning after December 31, 2017, and before January 1, 2026— (i) paragraph (1) shall be applied— (I) by substituting $109,400 for $78,750 in subparagraph (A), and (II) by substituting $70,300 for $50,600 in subparagraph (B), and (ii) paragraph (2) shall be applied— (I) by substituting $1,000,000 for $150,000 in subparagraph (A), (II) by substituting 50 percent of the dollar amount applicable under subparagraph (A) for $112,500 in subparagraph (B), and (III) in the case of a taxpayer described in paragraph (1)(D), without regard to the substitution under subclause (I). (B) Inflation adjustment (i) In general In the case of any taxable year beginning in a calendar year after 2018, the amounts described in clause (ii) shall each be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting calendar year 2017 for calendar year 2016 in subparagraph (A)(ii) thereof. (ii) Amounts described The amounts described in this clause are the $109,400 amount in subparagraph (A)(i)(I), the $70,300 amount in subparagraph (A)(i)(II), and the $1,000,000 amount in subparagraph (A)(ii)(I). (iii) Rounding Any increased amount determined under clause (i) shall be rounded to the nearest multiple of $100. (iv) Coordination with current adjustments In the case of any taxable year to which subparagraph (A) applies, no adjustment shall be made under paragraph (3) to any of the numbers which are substituted under subparagraph (A) and adjusted under this subparagraph. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. C Business-related provisions I Corporate provisions 13001. 21-percent corporate tax rate (a) In general Subsection (b) of section 11 is amended to read as follows: (b) Amount of tax The amount of the tax imposed by subsection (a) shall be 21 percent of taxable income. . (b) Conforming amendments (1) The following sections are each amended by striking section 11(b)(1) and inserting section 11(b) : (A) Section 280C(c)(3)(B)(ii)(II). (B) Paragraphs (2)(B) and (6)(A)(ii) of section 860E(e). (C) Section 7874(e)(1)(B). (2) (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 paragraphs (4) and (6), and by redesignating paragraph (5) as paragraph (4). (C) Section 453A(c)(3) is amended by striking or 1201 (whichever is appropriate) . (D) 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 . (E) Sections 594(a) is amended by striking taxes imposed by section 11 or 1201(a) and inserting tax imposed by section 11 . (F) Section 691(c)(4) is amended by striking 1201, . (G) 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 . (H) Section 831(e) is amended by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively. (I) Sections 832(c)(5) and 834(b)(1)(D) are each amended by striking sec. 1201 and following, . (J) Section 852(b)(3)(A) is amended by striking section 1201(a) and inserting section 11(b) . (K) 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. . (L) Section 882(a)(1), as amended by section 12001, is further amended by striking or 1201(a) . (M) Section 904(b) is amended— (i) by striking or 1201(a) in paragraph (2)(C), (ii) by striking paragraph (3)(D) and inserting the following: (D) Capital gain rate differential There is a capital gain rate differential for any year if subsection (h) of section 1 applies to such taxable year. , and (iii) by striking paragraph (3)(E) and inserting the following: (E) Rate differential portion The rate differential portion of foreign source net capital gain, net capital gain, or the excess of net capital gain from sources within the United States over net capital gain, as the case may be, is the same proportion of such amount as— (i) the excess of— (I) the highest rate of tax set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies), over (II) the alternative rate of tax determined under section 1(h), bears to (ii) that rate referred to in subclause (I). . (N) Section 1374(b) is amended by striking paragraph (4). (O) Section 1381(b) is amended by striking taxes imposed by section 11 or 1201 and inserting tax imposed by section 11 . (P) Sections 6425(c)(1)(A), as amended by section 12001, and 6655(g)(1)(A)(i) are each amended by striking or 1201(a), . (Q) Section 7518(g)(6)(A) is amended by striking or 1201(a) . (3) (A) Section 1445(e)(1) is amended— (i) by striking 35 percent and inserting the highest rate of tax in effect for the taxable year under section 11(b) , and (ii) by striking of the gain and inserting multiplied by the gain . (B) Section 1445(e)(2) is amended by striking 35 percent of the amount and inserting the highest rate of tax in effect for the taxable year under section 11(b) multiplied by the amount . (C) Section 1445(e)(6) is amended— (i) by striking 35 percent and inserting the highest rate of tax in effect for the taxable year under section 11(b) , and (ii) by striking of the amount and inserting multiplied by the amount . (D) Section 1446(b)(2)(B) is amended by striking section 11(b)(1) and inserting section 11(b) . (4) Section 852(b)(1) is amended by striking the last sentence. (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 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 section 12001, 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 subsections (a) and (b) shall apply to taxable years beginning after December 31, 2017. (2) Withholding The amendments made by subsection (b)(3) shall apply to distributions made after December 31, 2017. (3) Certain transfers The amendments made by subsection (b)(6) shall apply to transfers made 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 of the day before the corporate rate reductions provided in the amendments made by this section take effect, 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, during the time period in which the 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 for the corporate rate reductions provided in the amendments made by this section— (A) 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, and (B) such taxpayer shall not be treated as using a normalization method of accounting for purposes of subsections (f)(2) and (i)(9)(C) of section 168 of the Internal Revenue Code of 1986. 13002. Reduction in dividend received deductions to reflect lower corporate income tax rates (a) Dividends received by corporations (1) In general Section 243(a)(1) is amended by striking 70 percent and inserting 50 percent . (2) Dividends from 20-percent owned corporations Section 243(c)(1) is amended— (A) by striking 80 percent and inserting 65 percent , and (B) by striking 70 percent and inserting 50 percent . (3) Conforming amendment The heading for section 243(c) is amended by striking Retention of 80-percent Dividend Received Deduction and inserting Increased Percentage . (b) Dividends received from FSC Section 245(c)(1)(B) is amended— (1) by striking 70 percent and inserting 50 percent , and (2) by striking 80 percent and inserting 65 percent . (c) Limitation on aggregate amount of deductions Section 246(b)(3) is amended— (1) by striking 80 percent in subparagraph (A) and inserting 65 percent , and (2) by striking 70 percent in subparagraph (B) and inserting 50 percent . (d) Reduction in deduction where portfolio stock is debt-financed Section 246A(a)(1) is amended— (1) by striking 70 percent and inserting 50 percent , and (2) by striking 80 percent and inserting 65 percent . (e) Income from sources within the united states Section 861(a)(2) is amended— (1) by striking 100/70th and inserting 100/50th in subparagraph (B), and (2) in the flush sentence at the end— (A) by striking 100/80th and inserting 100/65th , and (B) by striking 100/70th and inserting 100/50th . (f) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. II Small business reforms 13101. Modifications of rules for expensing depreciable business assets (a) Increase in limitation (1) Dollar limitation Section 179(b)(1) is amended by striking $500,000 and inserting $1,000,000 . (2) Reduction in limitation Section 179(b)(2) is amended by striking $2,000,000 and inserting $2,500,000 . (3) Inflation adjustments (A) In general Subparagraph (A) of section 179(b)(6), as amended by section 11002(d), is amended— (i) by striking 2015 and inserting 2018 , and (ii) in clause (ii), by striking calendar year 2014 and inserting calendar year 2017 . (B) Sport utility vehicles Section 179(b)(6) is amended— (i) in subparagraph (A), by striking paragraphs (1) and (2) and inserting paragraphs (1), (2), and (5)(A) , and (ii) in subparagraph (B), by inserting ($100 in the case of any increase in the amount under paragraph (5)(A)) after $10,000 . (b) Section 179 Property To Include Qualified Real Property (1) In general Subparagraph (B) of section 179(d)(1) is amended to read as follows: (B) which is— (i) section 1245 property (as defined in section 1245(a)(3)), or (ii) at the election of the taxpayer, qualified real property (as defined in subsection (f)), and . (2) Qualified real property defined Subsection (f) of section 179 is amended to read as follows: (f) Qualified real property For purposes of this section, the term qualified real property means— (1) any qualified improvement property described in section 168(e)(6), and (2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: (A) Roofs. (B) Heating, ventilation, and air-conditioning property. (C) Fire protection and alarm systems. (D) Security systems. . (c) Repeal of exclusion for certain property The last sentence of section 179(d)(1) is amended by inserting (other than paragraph (2) thereof) after section 50(b) . (d) Effective date The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2017. 13102. 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(f)(3) 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 has the meaning given the term in section 451(b)(3). (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. III Cost recovery and accounting methods A Cost recovery 13201. Temporary 100-percent expensing for certain business assets (a) Increased expensing (1) In general Section 168(k) is amended— (A) in paragraph (1)(A), by striking 50 percent and inserting the applicable percentage , and (B) in paragraph (5)(A)(i), by striking 50 percent and inserting the applicable percentage . (2) Applicable percentage Paragraph (6) of section 168(k) is amended to read as follows: (6) Applicable percentage For purposes of this subsection— (A) In general Except as otherwise provided in this paragraph, the term applicable percentage means— (i) in the case of property placed in service after September 27, 2017, and before January 1, 2023, 100 percent, (ii) in the case of property placed in service after December 31, 2022, and before January 1, 2024, 80 percent, (iii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 60 percent, (iv) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 40 percent, and (v) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 20 percent. (B) Rule for property with longer production periods In the case of property described in subparagraph (B) or (C) of paragraph (2), the term applicable percentage means— (i) in the case of property placed in service after September 27, 2017, and before January 1, 2024, 100 percent, (ii) in the case of property placed in service after December 31, 2023, and before January 1, 2025, 80 percent, (iii) in the case of property placed in service after December 31, 2024, and before January 1, 2026, 60 percent, (iv) in the case of property placed in service after December 31, 2025, and before January 1, 2027, 40 percent, and (v) in the case of property placed in service after December 31, 2026, and before January 1, 2028, 20 percent. (C) Rule for plants bearing fruits and nuts In the case of a specified plant described in paragraph (5), the term applicable percentage means— (i) in the case of a plant which is planted or grafted after September 27, 2017, and before January 1, 2023, 100 percent, (ii) in the case of a plant which is planted or grafted after December 31, 2022, and before January 1, 2024, 80 percent, (iii) in the case of a plant which is planted or grafted after December 31, 2023, and before January 1, 2025, 60 percent, (iv) in the case of a plant which is planted or grafted after December 31, 2024, and before January 1, 2026, 40 percent, and (v) in the case of a plant which is planted or grafted after December 31, 2025, and before January 1, 2027, 20 percent. . (3) Conforming amendment (A) Paragraph (5) of section 168(k) is amended by striking subparagraph (F). (B) Section 168(k) is amended by adding at the end the following new paragraph: (8) 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 (6) shall be applied by substituting for each percentage therein— (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, (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, and (D) 0 percent in the case of— (i) property placed in service after 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 after 2020. . (b) Extension (1) In general Section 168(k) is amended— (A) in paragraph (2)— (i) in subparagraph (A)(iii), clauses (i)(III) and (ii) of subparagraph (B), and subparagraph (E)(i), by striking January 1, 2020 each place it appears and inserting January 1, 2027 , and (ii) in subparagraph (B)— (I) in clause (i)(II), by striking January 1, 2021 and inserting January 1, 2028 , and (II) in the heading of clause (ii), by striking pre-January 1, 2020 and inserting pre-January 1, 2027 , and (B) in paragraph (5)(A), by striking January 1, 2020 and inserting January 1, 2027 . (2) Conforming amendments (A) Clause (ii) of section 460(c)(6)(B) is amended by striking January 1, 2020 (January 1, 2021 and inserting January 1, 2027 (January 1, 2028 . (B) The heading of section 168(k) is amended by striking acquired after December 31, 2007, and before January 1, 2020 . (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 property Section 168(k), as amended by this section, is amended by adding at the end the following new paragraph: (9) Exception for certain property The term qualified property shall not include— (A) any property which is primarily used in a trade or business described in clause (iv) of section 163(j)(7)(A), or (B) any property used in a trade or business that has had floor plan financing indebtedness (as defined in paragraph (9) of section 163(j)), if the floor plan financing interest related to such indebtedness was taken into account under paragraph (1)(C) of such section. . (e) Special rule Section 168(k), as amended by this section, is amended by adding at the end the following new paragraph: (10) Special rule for property placed in service during certain periods (A) In general In the case of qualified property placed in service by the taxpayer during the first taxable year ending after September 27, 2017, if the taxpayer elects to have this paragraph apply for such taxable year, paragraphs (1)(A) and (5)(A)(i) shall be applied by substituting ‘50 percent’ for ‘the applicable percentage’. (B) Form of election Any election under this paragraph shall be made at such time and in such form and manner as the Secretary may prescribe. . (f) Coordination with section 280F Clause (iii) of section 168(k)(2)(F) is amended 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 . (g) Qualified film and television and live theatrical productions (1) In general Clause (i) of section 168(k)(2)(A), as amended by section 13204, is amended— (A) in subclause (II), by striking or , (B) in subclause (III), by adding or after the comma, and (C) by adding at the end the following: (IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, or (V) which is a qualified live theatrical production (as defined in subsection (e) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection, . (2) Production placed in service Paragraph (2) of section 168(k) is amended by adding at the end the following: (H) Production placed in service For purposes of subparagraph (A)— (i) a qualified film or television production shall be considered to be placed in service at the time of initial release or broadcast, and (ii) a qualified live theatrical production shall be considered to be placed in service at the time of the initial live staged performance. . (h) Effective date (1) In general Except as 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 this section shall apply to specified plants planted or grafted after September 27, 2017. 13202. Modifications to depreciation limitations on luxury automobiles and personal use property (a) Luxury automobiles (1) In general 280F(a)(1)(A) is amended— (A) in clause (i), by striking $2,560 and inserting $10,000 , (B) in clause (ii), by striking $4,100 and inserting $16,000 , (C) in clause (iii), by striking $2,450 and inserting $9,600 , and (D) in clause (iv), by striking $1,475 and inserting $5,760 . (2) Conforming amendments (A) Clause (ii) of section 280F(a)(1)(B) is amended by striking $1,475 in the text and heading and inserting $5,760 . (B) Paragraph (7) of section 280F(d) is amended— (i) in subparagraph (A), by striking 1988 and inserting 2018 , and (ii) in subparagraph (B)(i)(II), by striking 1987 and inserting 2017 . (b) Removal of computer equipment from listed property (1) In general Section 280F(d)(4)(A) is amended— (A) by inserting and at the end of clause (iii), (B) by striking clause (iv), and (C) by redesignating clause (v) as clause (iv). (2) Conforming amendment Section 280F(d)(4) is amended by striking subparagraph (B) and by redesignating subparagraph (C) as subparagraph (B). (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 13203. Modifications of treatment of certain farm property (a) Treatment of certain farm property as 5-Year property Clause (vii) of section 168(e)(3)(B) is amended by striking after December 31, 2008, and which is placed in service before January 1, 2010 and inserting after December 31, 2017 . (b) Repeal of required use of 150-Percent declining balance method Section 168(b)(2) is amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively. (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 13204. Applicable recovery period for real property (a) Improvements to real property (1) Elimination of qualified leasehold improvement, qualified restaurant, and qualified retail improvement property Subsection (e) of section 168 is amended— (A) in subparagraph (E) of paragraph (3)— (i) by striking clauses (iv), (v), and (ix), (ii) in clause (vii), by inserting and at the end, (iii) in clause (viii), by striking , and and inserting a period, and (iv) by redesignating clauses (vi), (vii), and (viii), as so amended, as clauses (iv), (v), and (vi), respectively, and (B) by striking paragraphs (6), (7), and (8). (2) Application of straight line method to qualified improvement property Paragraph (3) of section 168(b) is amended— (A) by striking subparagraphs (G), (H), and (I), and (B) by inserting after subparagraph (F) the following new subparagraph: (G) Qualified improvement property described in subsection (e)(6). . (3) Alternative Depreciation System (A) Electing real property trade or business Subsection (g) of section 168 is amended— (i) in paragraph (1)— (I) in subparagraph (D), by striking and at the end, (II) in subparagraph (E), by inserting and at the end, and (III) by inserting after subparagraph (E) the following new subparagraph: (F) any property described in paragraph (8), , and (ii) by adding at the end the following new paragraph: (8) Electing real property trade or business The property described in this paragraph shall consist of any nonresidential real property, residential rental property, and qualified improvement property held by an electing real property trade or business (as defined in 163(j)(7)(B)). . (B) Qualified improvement property The table contained in subparagraph (B) of section 168(g)(3) is amended— (i) by inserting after the item relating to subparagraph (D)(ii) the following new item: (D)(v) 20 , and (ii) by striking the item relating to subparagraph (E)(iv) and all that follows through the item relating to subparagraph (E)(ix) and inserting the following: (E)(iv) 20 (E)(v) 30 (E)(vi) 35 . (C) Applicable recovery period for residential rental property The table contained in subparagraph (C) of section 168(g)(2) is amended by striking clauses (iii) and (iv) and inserting the following: (iii) Residential rental property 30 years (iv) Nonresidential real property 40 years (v) Any railroad grading or tunnel bore or water utility property 50 years . (4) Conforming amendments (A) Clause (i) of section 168(k)(2)(A) is amended— (i) in subclause (II), by inserting or after the comma, (ii) in subclause (III), by striking or at the end, and (iii) by striking subclause (IV). (B) Section 168 is amended— (i) in subsection (e), as amended by paragraph (1)(B), by adding at the end the following: (6) Qualified improvement property (A) In general The term qualified improvement property means any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service. (B) Certain improvements not included Such term shall not include any improvement for which the expenditure is attributable to— (i) the enlargement of the building, (ii) any elevator or escalator, or (iii) the internal structural framework of the building. , and (ii) in subsection (k), by striking paragraph (3). (b) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 2017. (2) Amendments related to electing real property trade or business The amendments made by subsection (a)(3)(A) shall apply to taxable years beginning after December 31, 2017. 13205. Use of alternative depreciation system for electing farming businesses (a) In general Section 168(g)(1), as amended by section 13204, is amended by striking and at the end of subparagraph (E), by inserting and at the end of subparagraph (F), and by inserting after subparagraph (F) the following new subparagraph: (G) any property with a recovery period of 10 years or more which is held by an electing farming business (as defined in section 163(j)(7)(C)), . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13206. Amortization of research and experimental expenditures (a) In general Section 174 is amended to read as follows: 174. Amortization of research and experimental expenditures (a) In general In the case of a taxpayer’s specified research or experimental expenditures for any taxable year— (1) except as provided in paragraph (2), no deduction shall be allowed for such expenditures, and (2) the taxpayer shall— (A) charge such expenditures to capital account, and (B) be allowed an amortization deduction of such expenditures ratably over the 5-year period (15-year period in the case of any specified research or experimental expenditures which are attributable to foreign research (within the meaning of section 41(d)(4)(F))) beginning with the midpoint of the taxable year in which such expenditures are paid or incurred. (b) Specified research or experimental expenditures For purposes of this section, the term specified research or experimental expenditures means, with respect to any taxable year, research or experimental expenditures which are paid or incurred by the taxpayer during such taxable year in connection with the taxpayer’s trade or business. (c) Special rules (1) Land and other property This section shall not apply to any expenditure for the acquisition or improvement of land, or for the acquisition or improvement of property to be used in connection with the research or experimentation and of a character which is subject to the allowance under section 167 (relating to allowance for depreciation, etc.) or section 611 (relating to allowance for depletion); but for purposes of this section allowances under section 167, and allowances under section 611, shall be considered as expenditures. (2) Exploration expenditures This section shall not apply to any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral (including oil and gas). (3) Software development For purposes of this section, any amount paid or incurred in connection with the development of any software shall be treated as a research or experimental expenditure. (d) Treatment upon disposition, retirement, or abandonment If any property with respect to which specified research or experimental expenditures are paid or incurred is disposed, retired, or abandoned during the period during which such expenditures are allowed as an amortization deduction under this section, no deduction shall be allowed with respect to such expenditures on account of such disposition, retirement, or abandonment and such amortization deduction shall continue with respect to such expenditures. . (b) Change in method of accounting The amendments made by subsection (a) shall be treated as a change in method of accounting for purposes of section 481 of the Internal Revenue Code of 1986 and— (1) such change shall be treated as initiated by the taxpayer, (2) such change shall be treated as made with the consent of the Secretary, and (3) such change shall be applied only on a cut-off basis for any research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2021, and no adjustments under section 481(a) shall be made. (c) Clerical amendment The table of sections for part VI of subchapter B of chapter 1 is amended by striking the item relating to section 174 and inserting the following new item: Sec. 174. Amortization of research and experimental expenditures. . (d) Conforming amendments (1) Section 41(d)(1)(A) is amended by striking expenses under section 174 and inserting specified research or experimental expenditures under section 174 . (2) Subsection (c) of section 280C is amended— (A) by striking paragraph (1) and inserting the following: (1) In general If— (A) the amount of the credit determined for the taxable year under section 41(a)(1), exceeds (B) the amount allowable as a deduction for such taxable year for qualified research expenses or basic research expenses, the amount chargeable to capital account for the taxable year for such expenses shall be reduced by the amount of such excess. , (B) by striking paragraph (2), (C) by redesignating paragraphs (3) (as amended by this Act) and (4) as paragraphs (2) and (3), respectively, and (D) in paragraph (2), as redesignated by subparagraph (C), by striking paragraphs (1) and (2) and inserting paragraph (1) . (e) Effective date The amendments made by this section shall apply to amounts paid or incurred in taxable years beginning after December 31, 2021. 13207. Expensing of certain costs of replanting citrus plants lost by reason of casualty (a) In general Section 263A(d)(2) is amended by adding at the end the following new subparagraph: (C) Special temporary rule for citrus plants lost by reason of casualty (i) In general In the case of the replanting of citrus plants, subparagraph (A) shall apply to amounts paid or incurred by a person (other than the taxpayer described in subparagraph (A)) if— (I) the taxpayer described in subparagraph (A) has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which such amounts were paid or incurred and such other person holds any part of the remaining equity interest, or (II) such other person acquired the entirety of such taxpayer’s equity interest in the land on which the lost or damaged citrus plants were located at the time of such loss or damage, and the replanting is on such land. (ii) Termination Clause (i) shall not apply to any cost paid or incurred after the date which is 10 years after the date of the enactment of the Tax Cuts and Jobs Act . . (b) Effective date The amendment made by this section shall apply to costs paid or incurred after the date of the enactment of this Act. B Accounting methods 13221. Certain special rules for taxable year of inclusion (a) Inclusion not later than for financial accounting purposes Section 451 is amended by redesignating subsections (b) through (i) as subsections (c) through (j), respectively, and by inserting after subsection (a) the following new subsection: (b) Inclusion not later than for financial accounting purposes (1) Income taken into account in financial statement (A) In general In the case of a taxpayer the taxable income of which is computed under an accrual method of accounting, the all events test with respect to any item of gross income (or portion thereof) shall not be treated as met any later than when such item (or portion thereof) is taken into account as revenue in— (i) an applicable financial statement of the taxpayer, or (ii) such other financial statement as the Secretary may specify for purposes of this subsection. (B) Exception This paragraph shall not apply to— (i) a taxpayer which does not have a financial statement described in clause (i) or (ii) of subparagraph (A) for a taxable year, or (ii) any item of gross income in connection with a mortgage servicing contract. (C) All events test For purposes of this section, the all events test is met with respect to any item of gross income if all the events have occurred which fix the right to receive such income and the amount of such income can be determined with reasonable accuracy. (2) Coordination with special methods of accounting Paragraph (1) shall not apply with respect to any item of gross income for which the taxpayer uses a special method of accounting provided under any other provision of this chapter, other than any provision of part V of subchapter P (except as provided in clause (ii) of paragraph (1)(B)). (3) 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 agency for purposes other than Federal tax purposes, but only if there is no statement of the taxpayer described in clause (i) or (ii), (B) a financial statement which is made on the basis of international financial reporting standards and is filed by the taxpayer with an agency of a foreign government which is equivalent to the United States Securities and Exchange Commission and which has reporting standards not less stringent than the standards required by such Commission, but only if there is no statement of the taxpayer described in subparagraph (A), or (C) a financial statement filed by the taxpayer with any other regulatory or governmental body specified by the Secretary, but only if there is no statement of the taxpayer described in subparagraph (A) or (B). (4) Allocation of transaction price For purposes of this subsection, in the case of a contract which contains multiple performance obligations, the allocation of the transaction price to each performance obligation shall be equal to the amount allocated to each performance obligation for purposes of including such item in revenue in the applicable financial statement of the taxpayer. (5) Group of entities For purposes of paragraph (1), if the financial results of a taxpayer are reported on the applicable financial statement (as defined in paragraph (3)) for a group of entities, such statement shall be treated as the applicable financial statement of the taxpayer. . (b) Treatment of advance payments Section 451 , as amended by subsection (a), is amended by redesignating subsections (c) through (j) as subsections (d) through (k), respectively, and by inserting after subsection (b) the following new subsection: (c) Treatment of advance payments (1) In general A taxpayer which computes taxable income under the accrual method of accounting, and receives any advance payment during the taxable year, shall— (A) except as provided in subparagraph (B), include such advance payment in gross income for such taxable year, or (B) if the taxpayer elects the application of this subparagraph with respect to the category of advance payments to which such advance payment belongs, the taxpayer shall— (i) to the extent that any portion of such advance payment is required under subsection (b) to be included in gross income in the taxable year in which such payment is received, so include such portion, and (ii) include the remaining portion of such advance payment in gross income in the taxable year following the taxable year in which such payment is received. (2) Election (A) In general Except as otherwise provided in this paragraph, the election under paragraph (1)(B) shall be made at such time, in such form and manner, and with respect to such categories of advance payments, as the Secretary may provide. (B) Period to which election applies An election under paragraph (1)(B) shall be effective for the taxable year with respect to which it is first made and for all subsequent taxable years, unless the taxpayer secures the consent of the Secretary to revoke such election. For purposes of this title, the computation of taxable income under an election made under paragraph (1)(B) shall be treated as a method of accounting. (3) Taxpayers ceasing to exist Except as otherwise provided by the Secretary, the election under paragraph (1)(B) shall not apply with respect to advance payments received by the taxpayer during a taxable year if such taxpayer ceases to exist during (or with the close of) such taxable year. (4) Advance payment For purposes of this subsection— (A) In general The term advance payment means any payment— (i) the full inclusion of which in the gross income of the taxpayer for the taxable year of receipt is a permissible method of accounting under this section (determined without regard to this subsection), (ii) any portion of which is included in revenue by the taxpayer in a financial statement described in clause (i) or (ii) of subsection (b)(1)(A) for a subsequent taxable year, and (iii) which is for goods, services, or such other items as may be identified by the Secretary for purposes of this clause. (B) Exclusions Except as otherwise provided by the Secretary, such term shall not include— (i) rent, (ii) insurance premiums governed by subchapter L, (iii) payments with respect to financial instruments, (iv) payments with respect to warranty or guarantee contracts under which a third party is the primary obligor, (v) payments subject to section 871(a), 881, 1441, or 1442, (vi) payments in property to which section 83 applies, and (vii) any other payment identified by the Secretary for purposes of this subparagraph. (C) Receipt For purposes of this subsection, an item of gross income is received by the taxpayer if it is actually or constructively received, or if it is due and payable to the taxpayer. (D) Allocation of transaction price For purposes of this subsection, rules similar to subsection (b)(4) shall apply. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. (d) Coordination with section 481 (1) In general In the case of any qualified change in method of accounting for the taxpayer's first taxable year beginning after December 31, 2017— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as made with the consent of the Secretary of the Treasury. (2) Qualified change in method of accounting For purposes of this subsection, the term qualified change in method of accounting means any change in method of accounting which— (A) is required by the amendments made by this section, or (B) was prohibited under the Internal Revenue Code of 1986 prior to such amendments and is permitted under such Code after such amendments. (e) Special rules for original issue discount Notwithstanding subsection (c), in the case of income from a debt instrument having original issue discount— (1) the amendments made by this section shall apply to taxable years beginning after December 31, 2018, and (2) the period for taking into account any adjustments under section 481 by reason of a qualified change in method of accounting (as defined in subsection (d)) shall be 6 years. IV Business-related exclusions and deductions 13301. Limitation on deduction for interest (a) In general Section 163(j) is amended to read as follows: (j) Limitation on business interest (1) In general The amount allowed as a deduction under this chapter for any taxable year for business interest shall not exceed the sum of— (A) the business interest income of such taxpayer for such taxable year, (B) 30 percent of the adjusted taxable income of such taxpayer for such taxable year, plus (C) the floor plan financing interest of such taxpayer for such taxable year. The amount determined under subparagraph (B) shall not be less than zero. (2) Carryforward of disallowed business interest The amount of any business interest not allowed as a deduction for any taxable year by reason of paragraph (1) shall be treated as business interest paid or accrued in the succeeding taxable year. (3) 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. (4) 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, and (ii) the adjusted taxable income of each partner of such partnership— (I) shall be determined without regard to such partner's distributive share of any items of income, gain, deduction, or loss of such partnership, and (II) shall be increased by such partner's distributive share of such partnership's excess taxable income. For purposes of clause (ii)(II), a partner's distributive share of partnership excess taxable income shall be determined in the same manner as the partner's distributive share of nonseparately stated taxable income or loss of the partnership. (B) Special rules for carryforwards (i) In general The amount of any business interest not allowed as a deduction to a partnership for any taxable year by reason of paragraph (1) for any taxable year— (I) shall not be treated under paragraph (2) as business interest paid or accrued by the partnership in the succeeding taxable year, and (II) shall, subject to clause (ii), be treated as excess business interest which is allocated to each partner in the same manner as the non-separately stated taxable income or loss of the partnership. (ii) Treatment of excess business interest allocated to partners If a partner is allocated any excess business interest from a partnership under clause (i) for any taxable year— (I) such excess business interest shall be treated as business interest paid or accrued by the partner in the next succeeding taxable year in which the partner is allocated excess taxable income from such partnership, but only to the extent of such excess taxable income, and (II) any portion of such excess business interest remaining after the application of subclause (I) shall, subject to the limitations of subclause (I), be treated as business interest paid or accrued in succeeding taxable years. For purposes of applying this paragraph, excess taxable income allocated to a partner from a partnership for any taxable year shall not be taken into account under paragraph (1)(A) with respect to any business interest other than excess business interest from the partnership until all such excess business interest for such taxable year and all preceding taxable years has been treated as paid or accrued under clause (ii). (iii) Basis adjustments (I) In general The adjusted basis of a partner in a partnership interest shall be reduced (but not below zero) by the amount of excess business interest allocated to the partner under clause (i)(II). (II) Special rule for dispositions If a partner disposes of a partnership interest, the adjusted basis of the partner in the partnership interest shall be increased immediately before the disposition by the amount of the excess (if any) of the amount of the basis reduction under subclause (I) over the portion of any excess business interest allocated to the partner under clause (i)(II) which has previously been treated under clause (ii) as business interest paid or accrued by the partner. The preceding sentence shall also apply to transfers of the partnership interest (including by reason of death) in a transaction in which gain is not recognized in whole or in part. No deduction shall be allowed to the transferor or transferee under this chapter for any excess business interest resulting in a basis increase under this subclause. (C) Excess taxable income The term excess taxable income means, with respect to any partnership, the amount which bears the same ratio to the partnership's adjusted taxable income as— (i) the excess (if any) of— (I) the amount determined for the partnership under paragraph (1)(B), over (II) the amount (if any) by which the business interest of the partnership, reduced by the floor plan financing interest, exceeds the business interest income of the partnership, bears to (ii) the amount determined for the partnership under paragraph (1)(B). (D) Application to s corporations Rules similar to the rules of subparagraphs (A) and (C) shall apply with respect to any S corporation and its shareholders. (5) 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)). (6) 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)). (7) Trade or business For purposes of this subsection— (A) In general The term trade or business shall not include— (i) the trade or business of performing services as an employee, (ii) any electing real property trade or business, (iii) any electing farming business, or (iv) 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, 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, by a public service or public utility commission or other similar body of any State or political subdivision thereof, or by the governing or ratemaking body of an electric cooperative. (B) Electing real property trade or business For purposes of this paragraph, the term electing real property trade or business means any trade or business which is described in section 469(c)(7)(C) and which makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable. (C) Electing farming business For purposes of this paragraph, the term electing farming business means— (i) a farming business (as defined in section 263A(e)(4)) which makes an election under this subparagraph, or (ii) any trade or business of a specified agricultural or horticultural cooperative (as defined in section 199A(g)(2)) with respect to which the cooperative makes an election under this subparagraph. Any such election shall be made at such time and in such manner as the Secretary shall prescribe, and, once made, shall be irrevocable. (8) 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, (iv) the amount of any deduction allowed under section 199A, and (v) in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion, and (B) computed with such other adjustments as provided by the Secretary. (9) Floor plan financing interest defined For purposes of this subsection— (A) In general The term floor plan financing interest means interest paid or accrued on floor plan financing indebtedness. (B) Floor plan financing indebtedness The term floor plan financing indebtedness means indebtedness— (i) used to finance the acquisition of motor vehicles held for sale or lease, and (ii) secured by the inventory so acquired. (C) Motor vehicle The term motor vehicle means a motor vehicle that is any of the following: (i) Any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road. (ii) A boat. (iii) Farm machinery or equipment. (10) Cross references (A) For requirement that an electing real property trade or business use the alternative depreciation system, see section 168(g)(1)(F). (B) For requirement that an electing farming business use the alternative depreciation system, see section 168(g)(1)(G). . (b) 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 business interest The carryover of disallowed business interest described in section 163(j)(2) 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(j)(2) 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). . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13302. Modification of net operating loss deduction (a) Limitation on deduction (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) 80 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 . . (b) Repeal of net operating loss carryback; indefinite carryforward (1) In general Section 172(b)(1)(A) is amended— (A) by striking shall be a net operating loss carryback to each of the 2 taxable years in clause (i) and inserting except as otherwise provided in this paragraph, shall not be a net operating loss carryback to any taxable year , and (B) by striking to each of the 20 taxable years in clause (ii) and inserting to each taxable year . (2) Conforming amendment Section 172(b)(1) is amended by striking subparagraphs (B) through (F). (c) Treatment of farming losses (1) Allowance of carrybacks Section 172(b)(1), as amended by subsection (b)(2), is amended by adding at the end the following new subparagraph: (B) Farming losses (i) In general In the case of any portion of a net operating loss for the taxable year which is a farming loss with respect to the taxpayer, such loss shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss. (ii) Farming loss For purposes of this section, the term farming loss means the lesser of— (I) the amount which would be the net operating loss for the taxable year if only income and deductions attributable to farming businesses (as defined in section 263A(e)(4)) are taken into account, or (II) the amount of the net operating loss for such taxable year. (iii) Coordination with paragraph (2) For purposes of applying paragraph (2), a farming loss for any taxable year shall be treated as a separate net operating loss for such taxable year to be taken into account after the remaining portion of the net operating loss for such taxable year. (iv) Election Any taxpayer entitled to a 2-year carryback under clause (i) from any loss year may elect not to have such clause apply to such loss year. Such election shall be made in such manner as prescribed by the Secretary and shall be made by the due date (including extensions of time) for filing the taxpayer's return for the taxable year of the net operating loss. Such election, once made for any taxable year, shall be irrevocable for such taxable year. . (2) Conforming amendments (A) Section 172 is amended by striking subsections (f), (g), and (h), and by redesignating subsection (i) as subsection (f). (B) Section 537(b)(4) is amended by inserting (as in effect before the date of enactment of the Tax Cuts and Jobs Act) after as defined in section 172(f) . (d) Treatment of certain insurance losses (1) Treatment of carryforwards and carrybacks Section 172(b)(1), as amended by subsections (b)(2) and (c)(1), is amended by adding at the end the following new subparagraph: (C) Insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company, the net operating loss for any taxable year— (i) shall be a net operating loss carryback to each of the 2 taxable years preceding the taxable year of such loss, and (ii) shall be a net operating loss carryover to each of the 20 taxable years following the taxable year of the loss. . (2) Exemption from limitation Section 172 , as amended by subsection (c)(2)(A), is amended by redesignating subsection (f) as subsection (g) and inserting after subsection (e) the following new subsection: (f) Special rule for insurance companies In the case of an insurance company (as defined in section 816(a)) other than a life insurance company— (1) the amount of the deduction allowed under subsection (a) shall be the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and (2) subparagraph (C) of subsection (b)(2) shall not apply. . (e) Effective date (1) Net operating loss limitation The amendments made by subsections (a) and (d)(2) shall apply to losses arising in taxable years beginning after December 31, 2017. (2) Carryforwards and carrybacks The amendments made by subsections (b), (c), and (d)(1) shall apply to net operating losses arising in taxable years ending after December 31, 2017. 13303. 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) (A) 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. . (B) Section 1031 is amended by striking subsection (i). (2) Section 1031 is amended by striking subsection (e). (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. 13304. Limitation on deduction by employers of expenses for fringe benefits (a) No deduction allowed for entertainment expenses (1) In general Section 274(a) is amended— (A) in paragraph (1)(A), by striking unless and all that follows through trade or business, , (B) by striking the flush sentence at the end of paragraph (1), and (C) by striking paragraph (2)(C). (2) Conforming amendments (A) Section 274(d) is amended— (i) by striking paragraph (2) and redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively, and (ii) in the flush text following paragraph (3) (as so redesignated)— (I) by striking , entertainment, amusement, recreation, or use of the facility or property, 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 , (B) Section 274 is amended by striking subsection (l). (C) Section 274(n) is amended by striking and entertainment in the heading. (D) Section 274(n)(1) is amended to read as follows: (1) In general The amount allowable as a deduction under this chapter for any expense for food or beverages shall not exceed 50 percent of the amount of such expense which would (but for this paragraph) be allowable as a deduction under this chapter. . (E) Section 274(n)(2) is amended— (i) in subparagraph (B), by striking in the case of an expense for food or beverages, , (ii) by striking subparagraph (C) and redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively, (iii) by striking of subparagraph (E) the last sentence and inserting of subparagraph (D) , and (iv) by striking in subparagraph (D) in the last sentence and inserting in subparagraph (C) . (F) Clause (iv) of section 7701(b)(5)(A) is amended to read as follows: (iv) a professional athlete who is temporarily in the United States to compete in a sports event— (I) which is organized for the primary purpose of benefiting an organization which is described in section 501(c)(3) and exempt from tax under section 501(a), (II) all of the net proceeds of which are contributed to such organization, and, (III) which utilizes volunteers for substantially all of the work performed in carrying out such event. . (b) Only 50 percent of expenses for meals provided on or near business premises allowed as deduction Paragraph (2) of section 274(n), as amended by subsection (a), is amended— (1) by striking subparagraph (B), (2) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, (3) by striking of subparagraph (D) in the last sentence and inserting of subparagraph (C) , and (4) by striking in subparagraph (C) in the last sentence and inserting in subparagraph (B) . (c) Treatment of transportation benefits Section 274 , as amended by subsection (a), is amended— (1) in subsection (a)— (A) in the heading, by striking or recreation and inserting recreation, or qualified transportation fringes , and (B) by adding at the end the following new paragraph: (4) Qualified transportation fringes No deduction shall be allowed under this chapter for the expense of any qualified transportation fringe (as defined in section 132(f)) provided to an employee of the taxpayer. , and (2) by inserting after subsection (k) the following new subsection: (l) Transportation and commuting benefits (1) In general No deduction shall be allowed under this chapter for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee's residence and place of employment, except as necessary for ensuring the safety of the employee. (2) Exception In the case of any qualified bicycle commuting reimbursement (as described in section 132(f)(5)(F)), this subsection shall not apply for any amounts paid or incurred after December 31, 2017, and before January 1, 2026. . (d) Elimination of deduction for meals provided at convenience of employer Section 274 , as amended by subsection (c), is amended— (1) by redesignating subsection (o) as subsection (p), and (2) by inserting after subsection (n) the following new subsection: (o) Meals provided at convenience of employer No deduction shall be allowed under this chapter for— (1) any expense for the operation of a facility described in section 132(e)(2), and any expense for food or beverages, including under section 132(e)(1), associated with such facility, or (2) any expense for meals described in section 119(a). . (e) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to amounts incurred or paid after December 31, 2017. (2) Effective date for elimination of deduction for meals provided at convenience of employer The amendments made by subsection (d) shall apply to amounts incurred or paid after December 31, 2025. 13305. 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), 135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 221(b)(2)(C), 222(b)(2)(C), 246(b)(1), and 469(i)(3)(F)(iii) are each amended by striking 199, . (2) Section 170(b)(2)(D), as amended by subtitle A, is amended by striking clause (iv), and by redesignating clauses (v) and (vi) as clauses (iv) and (v). (3) Section 172(d) is amended by striking paragraph (7). (4) Section 613(a), as amended by section 11011, is amended by striking and without the deduction under section 199 . (5) Section 613A(d)(1), as amended by section 11011, is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), (E), and (F) as subparagraphs (B), (C), (D), and (E), respectively. (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13306. Denial of deduction for certain fines, penalties, and other amounts (a) Denial of deduction (1) In general Subsection (f) of section 162 is amended to read as follows: (f) Fines, penalties, and other amounts (1) In general Except as provided in the following paragraphs of this subsection, no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. (2) Exception for amounts constituting restitution or paid to come into compliance with law (A) In general Paragraph (1) shall not apply to any amount that— (i) the taxpayer establishes— (I) constitutes restitution (including remediation of property) for damage or harm which was or may be caused by the violation of any law or the potential violation of any law, or (II) is paid to come into compliance with any law which was violated or otherwise involved in the investigation or inquiry described in paragraph (1), (ii) is identified as restitution or as an amount paid to come into compliance with such law, as the case may be, in the court order or settlement agreement, and (iii) in the case of any amount of restitution for failure to pay any tax imposed under this title in the same manner as if such amount were such tax, would have been allowed as a deduction under this chapter if it had been timely paid. The identification under clause (ii) alone shall not be sufficient to make the establishment required under clause (i). (B) Limitation Subparagraph (A) shall not apply to any amount paid or incurred as reimbursement to the government or entity for the costs of any investigation or litigation. (3) Exception for amounts paid or incurred as the result of certain court orders Paragraph (1) shall not apply to any amount paid or incurred by reason of any order of a court in a suit in which no government or governmental entity is a party. (4) Exception for taxes due Paragraph (1) shall not apply to any amount paid or incurred as taxes due. (5) Treatment of certain nongovernmental regulatory entities For purposes of this subsection, the following nongovernmental entities shall be treated as governmental entities: (A) Any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) in connection with a qualified board or exchange (as defined in section 1256(g)(7)). (B) To the extent provided in regulations, any nongovernmental entity which exercises self-regulatory powers (including imposing sanctions) as part of performing an essential governmental function. . (2) Effective date The amendment made by this subsection shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. (b) Reporting of deductible amounts (1) In general Subpart B of part III of subchapter A of chapter 61 is amended by inserting after section 6050W the following new section: 6050X. Information with respect to certain fines, penalties, and other amounts (a) Requirement of reporting (1) In general The appropriate official of any government or any entity described in section 162(f)(5) which is involved in a suit or agreement described in paragraph (2) shall make a return in such form as determined by the Secretary setting forth— (A) the amount required to be paid as a result of the suit or agreement to which paragraph (1) of section 162(f) applies, (B) any amount required to be paid as a result of the suit or agreement which constitutes restitution or remediation of property, and (C) any amount required to be paid as a result of the suit or agreement for the purpose of coming into compliance with any law which was violated or involved in the investigation or inquiry. (2) Suit or agreement described (A) In general A suit or agreement is described in this paragraph if— (i) it is— (I) a suit with respect to a violation of any law over which the government or entity has authority and with respect to which there has been a court order, or (II) an agreement which is entered into with respect to a violation of any law over which the government or entity has authority, or with respect to an investigation or inquiry by the government or entity into the potential violation of any law over which such government or entity has authority, and (ii) the aggregate amount involved in all court orders and agreements with respect to the violation, investigation, or inquiry is $600 or more. (B) Adjustment of reporting threshold The Secretary shall adjust the $600 amount in subparagraph (A)(ii) as necessary in order to ensure the efficient administration of the internal revenue laws. (3) Time of filing The return required under this subsection shall be filed at the time the agreement is entered into, as determined by the Secretary. (b) Statements to be furnished to individuals involved in the settlement Every person required to make a return under subsection (a) shall furnish to each person who is a party to the suit or agreement a written statement showing— (1) the name of the government or entity, and (2) the information supplied to the Secretary under subsection (a)(1). The written statement required under the preceding sentence shall be furnished to the person at the same time the government or entity provides the Secretary with the information required under subsection (a). (c) Appropriate official defined For purposes of this section, the term appropriate official means the officer or employee having control of the suit, investigation, or inquiry or the person appropriately designated for purposes of this section. . (2) Conforming amendment The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6050W the following new item: Sec. 6050X. Information with respect to certain fines, penalties, and other amounts. . (3) Effective date The amendments made by this subsection shall apply to amounts paid or incurred on or after the date of the enactment of this Act, except that such amendments shall not apply to amounts paid or incurred under any binding order or agreement entered into before such date. Such exception shall not apply to an order or agreement requiring court approval unless the approval was obtained before such date. 13307. Denial of deduction for settlements subject to nondisclosure agreements paid in connection with sexual harassment or sexual abuse (a) Denial of deduction Section 162 is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection: (q) Payments related to sexual harassment and sexual abuse No deduction shall be allowed under this chapter for— (1) any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or (2) attorney's fees related to such a settlement or payment. . (b) Effective date The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act. 13308. 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 on or after the date of the enactment of this Act. 13309. Recharacterization of certain gains in the case of partnership profits interests held in connection with performance of investment services (a) In general Part IV of subchapter O of chapter 1 is amended— (1) by redesignating section 1061 as section 1062, and (2) by inserting after section 1060 the following new section: 1061. Partnership interests held in connection with performance of services (a) In general If one or more applicable partnership interests are held by a taxpayer at any time during the taxable year, the excess (if any) of— (1) the taxpayer's net long-term capital gain with respect to such interests for such taxable year, over (2) the taxpayer's net long-term capital gain with respect to such interests for such taxable year computed by applying paragraphs (3) and (4) of sections 1222 by substituting 3 years for 1 year , shall be treated as short-term capital gain, notwithstanding section 83 or any election in effect under section 83(b). (b) Special rule To the extent provided by the Secretary, subsection (a) shall not apply to income or gain attributable to any asset not held for portfolio investment on behalf of third party investors. (c) Applicable partnership interest For purposes of this section— (1) In general Except as provided in this paragraph or paragraph (4), the term applicable partnership interest means any interest in a partnership which, directly or indirectly, is transferred to (or is held by) the taxpayer in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. The previous sentence shall not apply to an interest held by a person who is employed by another entity that is conducting a trade or business (other than an applicable trade or business) and only provides services to such other entity. (2) Applicable trade or business The term applicable trade or business means any activity conducted on a regular, continuous, and substantial basis which, regardless of whether the activity is conducted in one or more entities, consists, in whole or in part, of— (A) raising or returning capital, and (B) either— (i) investing in (or disposing of) specified assets (or identifying specified assets for such investing or disposition), or (ii) developing specified assets. (3) Specified asset The term specified asset means securities (as defined in section 475(c)(2) without regard to the last sentence thereof), commodities (as defined in section 475(e)(2)), real estate held for rental or investment, cash or cash equivalents, options or derivative contracts with respect to any of the foregoing, and an interest in a partnership to the extent of the partnership's proportionate interest in any of the foregoing. (4) Exceptions The term applicable partnership interest shall not include— (A) any interest in a partnership directly or indirectly held by a corporation, or (B) any capital interest in the partnership which provides the taxpayer with a right to share in partnership capital commensurate with— (i) the amount of capital contributed (determined at the time of receipt of such partnership interest), or (ii) the value of such interest subject to tax under section 83 upon the receipt or vesting of such interest. (5) Third party investor The term third party investor means a person who— (A) holds an interest in the partnership which does not constitute property held in connection with an applicable trade or business; and (B) is not (and has not been) actively engaged, and is (and was) not related to a person so engaged, in (directly or indirectly) providing substantial services described in paragraph (1) for such partnership or any applicable trade or business. (d) Transfer of applicable partnership interest to related person (1) In general If a taxpayer transfers any applicable partnership interest, directly or indirectly, to a person related to the taxpayer, the taxpayer shall include in gross income (as short term capital gain) the excess (if any) of— (A) so much of the taxpayer's long-term capital gains with respect to such interest for such taxable year attributable to the sale or exchange of any asset held for not more than 3 years as is allocable to such interest, over (B) any amount treated as short term capital gain under subsection (a) with respect to the transfer of such interest. (2) Related person For purposes of this paragraph, a person is related to the taxpayer if— (A) the person is a member of the taxpayer's family within the meaning of section 318(a)(1), or (B) the person performed a service within the current calendar year or the preceding three calendar years in any applicable trade or business in which or for which the taxpayer performed a service. (e) Reporting The Secretary shall require such reporting (at the time and in the manner prescribed by the Secretary) as is necessary to carry out the purposes of this section. (f) Regulations The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section . (b) Clerical amendment The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to 1061 and inserting the following new items: Sec. 1061. Partnership interests held in connection with performance of services. Sec. 1062. Cross references. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13310. Prohibition on cash, gift cards, and other non-tangible personal property as employee achievement awards (a) In general Subparagraph (A) of section 274(j)(3) is amended— (1) by striking The term and inserting the following: (i) In general The term . (2) by redesignating clauses (i), (ii), and (iii) as subclauses (I), (II), and (III), respectively, and conforming the margins accordingly, and (3) by adding at the end the following new clause: (ii) Tangible personal property For purposes of clause (i), the term tangible personal property shall not include— (I) cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited array of such items pre-selected or pre-approved by the employer), or (II) vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items. . (b) Effective date The amendments made by this section shall apply to amounts paid or incurred after December 31, 2017. 13311. Elimination of deduction for living expenses incurred by members of congress (a) In general Subsection (a) of section 162 is amended in the matter following paragraph (3) by striking in excess of $3,000 . (b) Effective date The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act. 13312. Certain contributions by governmental entities not treated as contributions to capital (a) In general Section 118 is amended— (1) by striking subsections (b), (c), and (d), (2) by redesignating subsection (e) as subsection (d), and (3) by inserting after subsection (a) the following new subsections: (b) Exceptions For purposes of subsection (a), the term contribution to the capital of the taxpayer does not include— (1) any contribution in aid of construction or any other contribution as a customer or potential customer, and (2) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such). (c) Regulations The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out this section, including regulations or other guidance for determining whether any contribution constitutes a contribution in aid of construction. . (b) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to contributions made after the date of enactment of this Act. (2) Exception The amendments made by this section shall not apply to any contribution, made after the date of enactment of this Act by a governmental entity, which is made pursuant to a master development plan that has been approved prior to such date by a governmental entity. 13313. 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. 13314. 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) Conforming amendment 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 . (c) Effective date The amendments made by this section shall apply to dispositions after December 31, 2017. V Business credits 13401. Modification of orphan drug credit (a) Credit rate Subsection (a) of section 45C is amended by striking 50 percent and inserting 25 percent . (b) Election of reduced credit Subsection (b) of section 280C is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Election of reduced credit (A) In general In the case of any taxable year for which an election is made under this paragraph— (i) paragraphs (1) and (2) shall not apply, and (ii) the amount of the credit under section 45C(a) shall be the amount determined under subparagraph (B). (B) Amount of reduced credit The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of— (i) the amount of credit determined under section 45C(a) without regard to this paragraph, over (ii) the product of— (I) the amount described in clause (i), and (II) the maximum rate of tax under section 11(b). (C) Election An election under this paragraph for any taxable year shall be made not later than the time for filing the return of tax for such year (including extensions), shall be made on such return, and shall be made in such manner as the Secretary shall prescribe. Such an election, once made, shall be irrevocable. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13402. Rehabilitation credit limited to certified historic structures (a) In general Subsection (a) of section 47 is amended to read as follows: (a) General rule (1) In general For purposes of section 46, for any taxable year during the 5-year period beginning in the taxable year in which a qualified rehabilitated building is placed in service, the rehabilitation credit for such year is an amount equal to the ratable share for such year. (2) Ratable share For purposes of paragraph (1), the ratable share for any taxable year during the period described in such paragraph is the amount equal to 20 percent of the qualified rehabilitation expenditures with respect to the qualified rehabilitated building, as allocated ratably to each year during such period. . (b) Conforming amendments (1) Section 47(c) is amended— (A) in paragraph (1)— (i) in subparagraph (A), by amending clause (iii) to read as follows: (iii) such building is a certified historic structure, and , (ii) by striking subparagraph (B), and (iii) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively, and (B) in paragraph (2)(B), by amending clause (iv) to read as follows: (iv) Certified historic structure Any expenditure attributable to the rehabilitation of a qualified rehabilitated building unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)). . (2) Paragraph (4) of section 145(d) is amended— (A) by striking of section 47(c)(1)(C) each place it appears and inserting of section 47(c)(1)(B) , and (B) by striking section 47(c)(1)(C)(i) and inserting section 47(c)(1)(B)(i) . (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 with respect to any building— (A) owned or leased by the taxpayer during the entirety of the period after December 31, 2017, and (B) with respect to which the 24-month period selected by the taxpayer under clause (i) of section 47(c)(1)(B) of the Internal Revenue Code (as amended by subsection (b)), or the 60-month period applicable under clause (ii) of such section, begins not later than 180 days after 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, or the 60-month period, referred to in subparagraph (B) ends. 13403. Employer credit for paid family and medical leave (a) In general (1) Allowance of credit Subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section: 45S. Employer credit for paid family and medical leave (a) Establishment of credit (1) In general For purposes of section 38, in the case of an eligible employer, the paid family and medical leave credit is an amount equal to the applicable percentage of the amount of wages paid to qualifying employees during any period in which such employees are on family and medical leave. (2) Applicable percentage For purposes of paragraph (1), the term applicable percentage means 12.5 percent increased (but not above 25 percent) by 0.25 percentage points for each percentage point by which the rate of payment (as described under subsection (c)(1)(B)) exceeds 50 percent. (b) Limitation (1) In general The credit allowed under subsection (a) with respect to any employee for any taxable year shall not exceed an amount equal to the product of the normal hourly wage rate of such employee for each hour (or fraction thereof) of actual services performed for the employer and the number of hours (or fraction thereof) for which family and medical leave is taken. (2) Non-hourly wage rate For purposes of paragraph (1), in the case of any employee who is not paid on an hourly wage rate, the wages of such employee shall be prorated to an hourly wage rate under regulations established by the Secretary. (3) Maximum amount of leave subject to credit The amount of family and medical leave that may be taken into account with respect to any employee under subsection (a) for any taxable year shall not exceed 12 weeks. (c) Eligible employer For purposes of this section— (1) In general The term eligible employer means any employer who has in place a written policy that meets the following requirements: (A) The policy provides— (i) in the case of a qualifying employee who is not a part-time employee (as defined in section 4980E(d)(4)(B)), not less than 2 weeks of annual paid family and medical leave, and (ii) in the case of a qualifying employee who is a part-time employee, an amount of annual paid family and medical leave that is not less than an amount which bears the same ratio to the amount of annual paid family and medical leave that is provided to a qualifying employee described in clause (i) as— (I) the number of hours the employee is expected to work during any week, bears to (II) the number of hours an equivalent qualifying employee described in clause (i) is expected to work during the week. (B) The policy requires that the rate of payment under the program is not less than 50 percent of the wages normally paid to such employee for services performed for the employer. (2) Special rule for certain employers (A) In general An added employer shall not be treated as an eligible employer unless such employer provides paid family and medical leave in compliance with a written policy which ensures that the employer— (i) will not interfere with, restrain, or deny the exercise of or the attempt to exercise, any right provided under the policy, and (ii) will not discharge or in any other manner discriminate against any individual for opposing any practice prohibited by the policy. (B) Added employer; added employee For purposes of this paragraph— (i) Added employee The term added employee means a qualifying employee who is not covered by title I of the Family and Medical Leave Act of 1993, as amended. (ii) Added employer The term added employer means an eligible employer (determined without regard to this paragraph), whether or not covered by that title I, who offers paid family and medical leave to added employees. (3) Aggregation rule All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer. (4) Treatment of benefits mandated or paid for by state or local governments For purposes of this section, any leave which is paid by a State or local government or required by State or local law shall not be taken into account in determining the amount of paid family and medical leave provided by the employer. (5) No inference Nothing in this subsection shall be construed as subjecting an employer to any penalty, liability, or other consequence (other than ineligibility for the credit allowed by reason of subsection (a) or recapturing the benefit of such credit) for failure to comply with the requirements of this subsection. (d) Qualifying employees For purposes of this section, the term qualifying employee means any employee (as defined in section 3(e) of the Fair Labor Standards Act of 1938, as amended) who— (1) has been employed by the employer for 1 year or more, and (2) for the preceding year, had compensation not in excess of an amount equal to 60 percent of the amount applicable for such year under clause (i) of section 414(q)(1)(B). (e) Family and medical leave (1) In general Except as provided in paragraph (2), for purposes of this section, the term family and medical leave means leave for any 1 or more of the purposes described under subparagraph (A), (B), (C), (D), or (E) of paragraph (1), or paragraph (3), of section 102(a) of the Family and Medical Leave Act of 1993, as amended, whether the leave is provided under that Act or by a policy of the employer. (2) Exclusion If an employer provides paid leave as vacation leave, personal leave, or medical or sick leave (other than leave specifically for 1 or more of the purposes referred to in paragraph (1)), that paid leave shall not be considered to be family and medical leave under paragraph (1). (3) Definitions In this subsection, the terms vacation leave , personal leave , and medical or sick leave mean those 3 types of leave, within the meaning of section 102(d)(2) of that Act. (f) Determinations made by secretary of treasury For purposes of this section, any determination as to whether an employer or an employee satisfies the applicable requirements for an eligible employer (as described in subsection (c)) or qualifying employee (as described in subsection (d)), respectively, shall be made by the Secretary based on such information, to be provided by the employer, as the Secretary determines to be necessary or appropriate. (g) Wages For purposes of this section, the term wages has the meaning given such term by subsection (b) of section 3306 (determined without regard to any dollar limitation contained in such section). Such term shall not include any amount taken into account for purposes of determining any other credit allowed under this subpart. (h) Election to have credit not apply (1) In general A taxpayer may elect to have this section not apply for any taxable year. (2) Other rules Rules similar to the rules of paragraphs (2) and (3) of section 51(j) shall apply for purposes of this subsection. (i) Termination This section shall not apply to wages paid in taxable years beginning after December 31, 2019. . (b) Credit part of general business credit Section 38(b) is amended by striking plus at the end of paragraph (35), by striking the period at the end of paragraph (36) and inserting , plus , and by adding at the end the following new paragraph: (37) in the case of an eligible employer (as defined in section 45S(c)), the paid family and medical leave credit determined under section 45S(a). . (c) Credit allowed against AMT Subparagraph (B) of section 38(c)(4) is amended by redesignating clauses (ix) through (xi) as clauses (x) through (xii), respectively, and by inserting after clause (viii) the following new clause: (ix) the credit determined under section 45S, . (d) Conforming amendments (1) Denial of double benefit Section 280C(a) is amended by inserting 45S(a), after 45P(a), . (2) Election to have credit not apply Section 6501(m) is amended by inserting 45S(h), after 45H(g), . (3) Clerical amendment The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item: Sec. 45S. Employer credit for paid family and medical leave. . (e) Effective date The amendments made by this section shall apply to wages paid in taxable years beginning after December 31, 2017. 13404. 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. VI Provisions related to specific entities and industries A Partnership provisions 13501. Treatment of gain or loss of foreign persons from sale or exchange of interests in partnerships engaged in trade or business within the united states (a) Amount treated as effectively connected (1) In general Section 864(c) is amended by adding at the end the following: (8) Gain or loss of foreign persons from sale or exchange of certain partnership interests (A) In general Notwithstanding any other provision of this subtitle, if a nonresident alien individual or foreign corporation owns, directly or indirectly, an interest in a partnership which is engaged in any trade or business within the United States, gain or loss on the sale or exchange of all (or any portion of) such interest shall be treated as effectively connected with the conduct of such trade or business to the extent such gain or loss does not exceed the amount determined under subparagraph (B). (B) Amount treated as effectively connected The amount determined under this subparagraph with respect to any partnership interest sold or exchanged— (i) in the case of any gain on the sale or exchange of the partnership interest, is— (I) the portion of the partner's distributive share of the amount of gain which would have been effectively connected with the conduct of a trade or business within the United States if the partnership had sold all of its assets at their fair market value as of the date of the sale or exchange of such interest, or (II) zero if no gain on such deemed sale would have been so effectively connected, and (ii) in the case of any loss on the sale or exchange of the partnership interest, is— (I) the portion of the partner's distributive share of the amount of loss on the deemed sale described in clause (i)(I) which would have been so effectively connected, or (II) zero if no loss on such deemed sale would be have been so effectively connected. For purposes of this subparagraph, a partner's distributive share of gain or loss on the deemed sale shall be determined in the same manner as such partner’s distributive share of the non-separately stated taxable income or loss of such partnership. (C) Coordination with United States real property interests If a partnership described in subparagraph (A) holds any United States real property interest (as defined in section 897(c)) at the time of the sale or exchange of the partnership interest, then the gain or loss treated as effectively connected income under subparagraph (A) shall be reduced by the amount so treated with respect to such United States real property interest under section 897. (D) Sale or exchange For purposes of this paragraph, the term sale or exchange means any sale, exchange, or other disposition. (E) Secretarial authority The Secretary shall prescribe such regulations or other guidance as the Secretary determines appropriate for the application of this paragraph, including with respect to exchanges described in section 332, 351, 354, 355, 356, or 361. . (2) Conforming amendments Section 864(c)(1) is amended— (A) by striking and (7) in subparagraph (A), and inserting (7), and (8) , and (B) by striking or (7) in subparagraph (B), and inserting (7), or (8) . (b) Withholding requirements Section 1446 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following: (f) Special rules for withholding on dispositions of partnership interests (1) In general Except as provided in this subsection, if any portion of the gain (if any) on any disposition of an interest in a partnership would be treated under section 864(c)(8) as effectively connected with the conduct of a trade or business within the United States, the transferee shall be required to deduct and withhold a tax equal to 10 percent of the amount realized on the disposition. (2) Exception if nonforeign affidavit furnished (A) In general No person shall be required to deduct and withhold any amount under paragraph (1) with respect to any disposition if the transferor furnishes to the transferee an affidavit by the transferor stating, under penalty of perjury, the transferor's United States taxpayer identification number and that the transferor is not a foreign person. (B) False affidavit Subparagraph (A) shall not apply to any disposition if— (i) the transferee has actual knowledge that the affidavit is false, or the transferee receives a notice (as described in section 1445(d)) from a transferor's agent or transferee's agent that such affidavit or statement is false, or (ii) the Secretary by regulations requires the transferee to furnish a copy of such affidavit or statement to the Secretary and the transferee fails to furnish a copy of such affidavit or statement to the Secretary at such time and in such manner as required by such regulations. (C) Rules for agents The rules of section 1445(d) shall apply to a transferor's agent or transferee's agent with respect to any affidavit described in subparagraph (A) in the same manner as such rules apply with respect to the disposition of a United States real property interest under such section. (3) Authority of secretary to prescribe reduced amount At the request of the transferor or transferee, the Secretary may prescribe a reduced amount to be withheld under this section if the Secretary determines that to substitute such reduced amount will not jeopardize the collection of the tax imposed under this title with respect to gain treated under section 864(c)(8) as effectively connected with the conduct of a trade or business with in the United States. (4) Partnership to withhold amounts not withheld by the transferee If a transferee fails to withhold any amount required to be withheld under paragraph (1), the partnership shall be required to deduct and withhold from distributions to the transferee a tax in an amount equal to the amount the transferee failed to withhold (plus interest under this title on such amount). (5) Definitions Any term used in this subsection which is also used under section 1445 shall have the same meaning as when used in such section. (6) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary to carry out the purposes of this subsection, including regulations providing for exceptions from the provisions of this subsection. . (c) Effective dates (1) Subsection (a) The amendments made by subsection (a) shall apply to sales, exchanges, and dispositions on or after November 27, 2017. (2) Subsection (b) The amendment made by subsection (b) shall apply to sales, exchanges, and dispositions after December 31, 2017. 13502. Modify definition of substantial built-in loss in the case of transfer of partnership interest (a) In general Paragraph (1) of section 743(d) is to read as follows: (1) In general For purposes of this section, a partnership has a substantial built-in loss with respect to a transfer of an interest in the partnership if— (A) the partnership's adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of such property, or (B) the transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after such transfer. . (b) Effective date The amendments made by this section shall apply to transfers of partnership interests after December 31, 2017. 13503. Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner's share of loss (a) In general Subsection (d) of section 704 is amended— (1) by striking A partner's distributive share and inserting the following: (1) In general A partner's distributive share , (2) by striking Any excess of such loss and inserting the following: (2) Carryover Any excess of such loss , and (3) by adding at the end the following new paragraph: (3) Special rules (A) In general In determining the amount of any loss under paragraph (1), there shall be taken into account the partner's distributive share of amounts described in paragraphs (4) and (6) of section 702(a). (B) Exception In the case of a charitable contribution of property whose fair market value exceeds its adjusted basis, subparagraph (A) shall not apply to the extent of the partner's distributive share of such excess. . (b) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. 13504. 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) Conforming amendment (1) Section 168(i)(7)(B) is amended by striking the second sentence. (2) Section 743(e) is amended by striking paragraph (4) and redesignating paragraphs (5), (6), and (7) as paragraphs (4), (5), and (6). (c) Effective date The amendments made by this section shall apply to partnership taxable years beginning after December 31, 2017. B Insurance reforms 13511. 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) (A) 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). (B) Section 831(b)(3) is amended by striking except as provided in section 844, (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 805(b)(2)(A)(iv) is amended to read as follows: (iv) any net operating loss carryback to the taxable year under section 172, and . (7) 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. . (8) Section 1351(i)(3) is amended by striking or the operations loss deduction under section 810, . (c) Effective date The amendments made by this section shall apply to losses arising in taxable years beginning after December 31, 2017. 13512. 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 this Act, 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), as amended by this Act, 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 13511, 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. 13513. 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. 13514. 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. 13515. Modification of proration rules for property and casualty insurance companies (a) In general Section 832(b)(5)(B) is amended— (1) by striking 15 percent and inserting the applicable percentage , and (2) by inserting at the end the following new sentence: For purposes of this subparagraph, the applicable percentage is 5.25 percent divided by the highest rate in effect under section 11(b). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13516. 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. 13517. Computation of life insurance tax reserves (a) In general (1) Appropriate rate of interest The second sentence of section 807(c) is amended to read as follows: For purposes of paragraph (3), the appropriate rate of interest is the highest rate or rates permitted to be used to discount the obligations by the National Association of Insurance Commissioners as of the date the reserve is determined. . (2) Method of computing reserves Section 807(d) is amended— (A) by striking paragraphs (1), (2), (4), and (5), (B) by redesignating paragraph (6) as paragraph (4), (C) by inserting before paragraph (3) the following new paragraphs: (1) Determination of reserve (A) In general For purposes of this part (other than section 816), the amount of the life insurance reserves for any contract (other than a contract to which subparagraph (B) applies) shall be the greater of— (i) the net surrender value of such contract, or (ii) 92.81 percent of the reserve determined under paragraph (2). (B) Variable contracts For purposes of this part (other than section 816), the amount of the life insurance reserves for a variable contract shall be equal to the sum of— (i) the greater of— (I) the net surrender value of such contract, or (II) the portion of the reserve that is separately accounted for under section 817, plus (ii) 92.81 percent of the excess (if any) of the reserve determined under paragraph (2) over the amount in clause (i). (C) Statutory cap In no event shall the reserves determined under subparagraphs (A) or (B) for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining statutory reserves (as defined in paragraph (4)). (D) No double counting In no event shall any amount or item be taken into account more than once in determining any reserve under this subchapter. (2) Amount of reserve The amount of the reserve determined under this paragraph with respect to any contract shall be determined by using the tax reserve method applicable to such contract. . (D) by striking (other than a qualified long-term care insurance contract, as defined in section 7702B(b)), a 2-year full preliminary term method in paragraph (3)(A)(iii) and inserting , the reserve method prescribed by the National Association of Insurance Commissioners which covers such contract as of the date the reserve is determined , (E) by striking (as of the date of issuance) in paragraph (3)(A)(iv)(I) and inserting (as of the date the reserve is determined) , (F) by striking as of the date of the issuance of in paragraph (3)(A)(iv)(II) and inserting as of the date the reserve is determined for , (G) by striking in effect on the date of the issuance of the contract in paragraph (3)(B)(i) and inserting applicable to the contract and in effect as of the date the reserve is determined , and (H) by striking in effect on the date of the issuance of the contract in paragraph (3)(B)(ii) and inserting applicable to the contract and in effect as of the date the reserve is determined . (3) Special rules Section 807(e) is amended— (A) by striking paragraphs (2) and (5), (B) by redesignating paragraphs (3), (4), (6), and (7) as paragraphs (2), (3), (4), and (5), respectively, (C) by amending paragraph (2) (as so redesignated) to read as follows: (2) Qualified supplemental benefits (A) Qualified supplemental benefits treated separately For purposes of this part, the amount of the life insurance reserve for any qualified supplemental benefit shall be computed separately as though such benefit were under a separate contract. (B) Qualified supplemental benefit For purposes of this paragraph, the term qualified supplemental benefit means any supplemental benefit described in subparagraph (C) if— (i) there is a separately identified premium or charge for such benefit, and (ii) any net surrender value under the contract attributable to any other benefit is not available to fund such benefit. (C) Supplemental benefits For purposes of this paragraph, the supplemental benefits described in this subparagraph are any— (i) guaranteed insurability, (ii) accidental death or disability benefit, (iii) convertibility, (iv) disability waiver benefit, or (v) other benefit prescribed by regulations, which is supplemental to a contract for which there is a reserve described in subsection (c). , and (D) by adding at the end the following new paragraph: (6) 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. . (4) Definition of life insurance contract Section 7702 is amended— (A) by striking clause (i) of subsection (c)(3)(B) and inserting the following: (i) reasonable mortality charges which meet the requirements prescribed in regulations to be promulgated by the Secretary or that do not exceed the mortality charges specified in the prevailing commissioners' standard tables as defined in subsection (f)(10), and (B) by adding at the end of subsection (f) the following new paragraph: (10) Prevailing commissioners' standard tables For purposes of subsection (c)(3)(B)(i), the term prevailing commissioners standard tables' means the most recent commissioners' standard tables prescribed by the National Association of Insurance Commissioners which are permitted to be used in computing reserves for that type of contract under the insurance laws of at least 26 States when the contract was issued. If the prevailing commissioners' standard tables as of the beginning of any calendar year (hereinafter in this paragraph referred to as the year of change ) are different from the prevailing commissioners' standard tables as of the beginning of the preceding calendar year, the issuer may use the prevailing commissioners' standard tables as of the beginning of the preceding calendar year with respect to any contract issued after the change and before the close of the 3-year period beginning on the first day of the year of change. . (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) Section 848(e)(1)(B)(iii) is amended by striking 807(e)(4) and inserting 807(e)(3) . (5) Subparagraph (B) of section 954(i)(5) is amended by striking shall be substituted for the prevailing State assumed interest rate, and inserting shall apply, . (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) 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) of the Internal Revenue Code of 1986 (determined after application of paragraph (2)) 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) or 832(c)(4) of such Code, as applicable. (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) or 832(b)(1)(C) of such Code, as applicable. 13518. 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, 70 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, 30 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. 13519. Capitalization of certain policy acquisition expenses (a) In general (1) Section 848(a)(2) is amended by striking 120-month and inserting 180-month . (2) Section 848(c)(1) is amended by striking 1.75 percent and inserting 2.09 percent . (3) Section 848(c)(2) is amended by striking 2.05 percent and inserting 2.45 percent . (4) Section 848(c)(3) is amended by striking 7.7 percent and inserting 9.2 percent . (b) Conforming amendments Section 848(b)(1) is amended by striking 120-month and inserting 180-month . (c) Effective date (1) In general The amendments made by this section shall apply to net premiums for taxable years beginning after December 31, 2017. (2) Transition rule Specified policy acquisition expenses first required to be capitalized in a taxable year beginning before January 1, 2018, will continue to be allowed as a deduction ratably over the 120-month period beginning with the first month in the second half of such taxable year. 13520. Tax reporting for life settlement transactions (a) In general Subpart B of part III of subchapter A of chapter 61, as amended by section 13306, is amended by adding at the end the following new section: 6050Y. Returns relating to certain life insurance contract transactions (a) Requirement of reporting of certain payments (1) In general Every person who acquires a life insurance contract or any interest in a life insurance contract in a reportable policy sale during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of such person, (B) the name, address, and TIN of each recipient of payment in the reportable policy sale, (C) the date of such sale, (D) the name of the issuer of the life insurance contract sold and the policy number of such contract, and (E) the amount of each payment. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to such person, except that in the case of an issuer of a life insurance contract, such statement is not required to include the information specified in paragraph (1)(E). (b) Requirement of reporting of seller's basis in life insurance contracts (1) In general Upon receipt of the statement required under subsection (a)(2) or upon notice of a transfer of a life insurance contract to a foreign person, each issuer of a life insurance contract shall make a return (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of the seller who transfers any interest in such contract in such sale, (B) the investment in the contract (as defined in section 72(e)(6)) with respect to such seller, and (C) the policy number of such contract. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to each seller whose name is required to be set forth in such return. (c) Requirement of reporting with respect to reportable death benefits (1) In general Every person who makes a payment of reportable death benefits during any taxable year shall make a return for such taxable year (at such time and in such manner as the Secretary shall prescribe) setting forth— (A) the name, address, and TIN of the person making such payment, (B) the name, address, and TIN of each recipient of such payment, (C) the date of each such payment, (D) the gross amount of each such payment, and (E) such person's estimate of the investment in the contract (as defined in section 72(e)(6)) with respect to the buyer. (2) Statement to be furnished to persons with respect to whom information is required Every person required to make a return under this subsection shall furnish to each person whose name is required to be set forth in such return a written statement showing— (A) the name, address, and phone number of the information contact of the person required to make such return, and (B) the information required to be shown on such return with respect to each recipient of payment whose name is required to be set forth in such return. (d) Definitions For purposes of this section: (1) Payment The term payment means, with respect to any reportable policy sale, the amount of cash and the fair market value of any consideration transferred in the sale. (2) Reportable policy sale The term reportable policy sale has the meaning given such term in section 101(a)(3)(B). (3) Issuer The term issuer means any life insurance company that bears the risk with respect to a life insurance contract on the date any return or statement is required to be made under this section. (4) Reportable death benefits The term reportable death benefits means amounts paid by reason of the death of the insured under a life insurance contract that has been transferred in a reportable policy sale. . (b) Clerical amendment The table of sections for subpart B of part III of subchapter A of chapter 61, as amended by section 13306, is amended by inserting after the item relating to section 6050X the following new item: Sec. 6050Y. Returns relating to certain life insurance contract transactions. . (c) Conforming amendments (1) Subsection (d) of section 6724 is amended— (A) by striking or at the end of clause (xxiv) of paragraph (1)(B), by striking and at the end of clause (xxv) of such paragraph and inserting or , and by inserting after such clause (xxv) the following new clause: (xxvi) section 6050Y (relating to returns relating to certain life insurance contract transactions), and , and (B) by striking or at the end of subparagraph (HH) of paragraph (2), by striking the period at the end of subparagraph (II) of such paragraph and inserting , or , and by inserting after such subparagraph (II) the following new subparagraph: (JJ) subsection (a)(2), (b)(2), or (c)(2) of section 6050Y (relating to returns relating to certain life insurance contract transactions). . (2) Section 6047 is amended— (A) by redesignating subsection (g) as subsection (h), (B) by inserting after subsection (f) the following new subsection: (g) Information relating to life insurance contract transactions This section shall not apply to any information which is required to be reported under section 6050Y. , and (C) by adding at the end of subsection (h), as so redesignated, the following new paragraph: (4) For provisions requiring reporting of information relating to certain life insurance contract transactions, see section 6050Y. . (d) Effective date The amendments made by this section shall apply to— (1) reportable policy sales (as defined in section 6050Y(d)(2) of the Internal Revenue Code of 1986 (as added by subsection (a)) after December 31, 2017, and (2) reportable death benefits (as defined in section 6050Y(d)(4) of such Code (as added by subsection (a)) paid after December 31, 2017. 13521. Clarification of tax basis of life insurance contracts (a) Clarification with respect to adjustments Paragraph (1) of section 1016(a) is amended by striking subparagraph (A) and all that follows and inserting the following: (A) for— (i) taxes or other carrying charges described in section 266; or (ii) expenditures described in section 173 (relating to circulation expenditures), for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or (B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract; . (b) Effective date The amendment made by this section shall apply to transactions entered into after August 25, 2009. 13522. Exception to transfer for valuable consideration rules (a) In general Subsection (a) of section 101 is amended by inserting after paragraph (2) the following new paragraph: (3) Exception to valuable consideration rules for commercial transfers (A) In general The second sentence of paragraph (2) shall not apply in the case of a transfer of a life insurance contract, or any interest therein, which is a reportable policy sale. (B) Reportable policy sale For purposes of this paragraph, the term reportable policy sale means the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. For purposes of the preceding sentence, the term indirectly applies to the acquisition of an interest in a partnership, trust, or other entity that holds an interest in the life insurance contract. . (b) Conforming amendment Paragraph (1) of section 101(a) is amended by striking paragraph (2) and inserting paragraphs (2) and (3) . (c) Effective date The amendments made by this section shall apply to transfers after December 31, 2017. 13523. 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), determined by substituting 60-month period for 24-month period therein). . (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 subparagraph: (B) Treatment of certain losses (i) 3-year loss payment pattern In the case of any line of business not described in subparagraph (A)(ii), losses paid after the 1st year following the accident year shall be treated as paid equally in the 2nd and 3rd year following the accident 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 24th year after the accident year, they shall be treated as paid in such 24th year. . (c) Repeal of historical payment pattern election Section 846 , as amended by this Act, 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. C Banks and financial instruments 13531. Limitation on deduction for FDIC premiums (a) In general Section 162 , as amended by sections 13307, is amended by redesignating subsection (r) as subsection (s) and by inserting after subsection (q) the following new subsection: (r) 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 (i) In general 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). (ii) Control of non-corporate entities 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 clause). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13532. 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. D S corporations 13541. Expansion of qualifying beneficiaries of an electing small business trust (a) No look-through for eligibility purposes Section 1361(c)(2)(B)(v) is amended by adding at the end the following new sentence: This clause shall not apply for purposes of subsection (b)(1)(C). . (b) Effective date The amendment made by this section shall take effect on January 1, 2018. 13542. Charitable contribution deduction for electing small business trusts (a) In general Section 641(c)(2) is amended by inserting after subparagraph (D) the following new subparagraph: (E) (i) Section 642(c) shall not apply. (ii) For purposes of section 170(b)(1)(G), adjusted gross income shall be computed in the same manner as in the case of an individual, except that the deductions for costs which are paid or incurred in connection with the administration of the trust and which would not have been incurred if the property were not held in such trust shall be treated as allowable in arriving at adjusted gross income. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. 13543. Modification of treatment of S corporation conversions to C corporations (a) Adjustments attributable to conversion from S corporation to C corporation Section 481 is amended by adding at the end the following new subsection: (d) Adjustments attributable to conversion from S corporation to C corporation (1) In general In the case of an eligible terminated S corporation, any adjustment required by subsection (a)(2) which is attributable to such corporation’s revocation described in paragraph (2)(A)(ii) shall be taken into account ratably during the 6-taxable year period beginning with the year of change. (2) Eligible terminated S corporation For purposes of this subsection, the term eligible terminated S corporation means any C corporation— (A) which— (i) was an S corporation on the day before the date of the enactment of the Tax Cuts and Jobs Act , and (ii) during the 2-year period beginning on the date of such enactment makes a revocation of its election under section 1362(a), and (B) the owners of the stock of which, determined on the date such revocation is made, are the same owners (and in identical proportions) as on the date of such enactment. . (b) Cash distributions following post-termination transition period from S corporation status Section 1371 is amended by adding at the end the following new subsection: (f) Cash distributions following post-termination transition period In the case of a distribution of money by an eligible terminated S corporation (as defined in section 481(d)) after the post-termination transition period, the accumulated adjustments account shall be allocated to such distribution, and the distribution shall be chargeable to accumulated earnings and profits, in the same ratio as the amount of such accumulated adjustments account bears to the amount of such accumulated earnings and profits. . VII Employment A Compensation 13601. 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 Paragraph (4) of section 162(m) 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) Modification of definition of covered employees Paragraph (3) of section 162(m) 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 any individual described in subparagraph (A)) , 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. . (c) Expansion of applicable employer (1) In general 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) ). . (2) Conforming amendment Section 162(m)(3), as amended by subsection (b), is amended by adding at the end the following flush sentence: 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 Paragraph (4) of section 162(m), 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 (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2017. (2) Exception for binding contracts The amendments made by this section shall not apply to remuneration which is provided pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. 13602. 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 the product of the rate of tax under section 11 and 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. For purposes of the preceding sentence, remuneration shall be treated as paid when there is no substantial risk of forfeiture (within the meaning of section 457(f)(3)(B)) of the rights to such remuneration. (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 which 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: (A) In general 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)) and shall include amounts required to be included in gross income under section 457(f). (B) Exception for remuneration for medical services The term remuneration shall not include the portion of any remuneration paid to a licensed medical professional (including a veterinarian) which is for the performance of medical or veterinary services by such professional. (4) Remuneration from related organizations (A) In general Remuneration of a covered employee 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 which control the organization, (iii) is a supported organization (as defined in section 509(f)(3)) 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 which is a voluntary employees' beneficiary association described in section 501(c)(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 of 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. (C) Exception Such term does not include any payment— (i) described in section 280G(b)(6) (relating to exemption for payments under qualified plans), (ii) made under or to an annuity contract described in section 403(b) or a plan described in section 457(b), (iii) to a licensed medical professional (including a veterinarian) to the extent that such payment is for the performance of medical or veterinary services by such professional, or (iv) to an individual who is not a highly compensated employee as defined in section 414(q). (D) Base amount Rules similar to the rules of 280G(b)(3) shall apply for purposes of determining the base amount. (E) 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 tax under this section, including regulations to prevent avoidance of such tax through the performance of services other than as an employee or by providing compensation through a pass-through or other entity to avoid such tax. . (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 tax-exempt organization executive compensation. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13603. Treatment of qualified equity grants (a) In general Section 83 is amended by adding at the end the following new subsection: (i) Qualified equity grants (1) In general For purposes of this subtitle— (A) Timing of inclusion If qualified stock is transferred to a qualified employee who makes an election with respect to such stock under this subsection, subsection (a) shall be applied by including the amount determined under such subsection with respect to such stock in income of the employee in the taxable year determined under subparagraph (B) in lieu of the taxable year described in subsection (a). (B) Taxable year determined The taxable year determined under this subparagraph is the taxable year of the employee which includes the earliest of— (i) the first date such qualified stock becomes transferable (including, solely for purposes of this clause, becoming transferable to the employer), (ii) the date the employee first becomes an excluded employee, (iii) the first date on which any stock of the corporation which issued the qualified stock becomes readily tradable on an established securities market (as determined by the Secretary, but not including any market unless such market is recognized as an established securities market by the Secretary for purposes of a provision of this title other than this subsection), (iv) the date that is 5 years after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, or (v) the date on which the employee revokes (at such time and in such manner as the Secretary provides) the election under this subsection with respect to such stock. (2) Qualified stock (A) In general For purposes of this subsection, the term qualified stock means, with respect to any qualified employee, any stock in a corporation which is the employer of such employee, if— (i) such stock is received— (I) in connection with the exercise of an option, or (II) in settlement of a restricted stock unit, and (ii) such option or restricted stock unit was granted by the corporation— (I) in connection with the performance of services as an employee, and (II) during a calendar year in which such corporation was an eligible corporation. (B) Limitation The term qualified stock shall not include any stock if the employee may sell such stock to, or otherwise receive cash in lieu of stock from, the corporation at the time that the rights of the employee in such stock first become transferable or not subject to a substantial risk of forfeiture. (C) Eligible corporation For purposes of subparagraph (A)(ii)(II)— (i) In general The term eligible corporation means, with respect to any calendar year, any corporation if— (I) no stock of such corporation (or any predecessor of such corporation) is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) during any preceding calendar year, and (II) such corporation has a written plan under which, in such calendar year, not less than 80 percent of all employees who provide services to such corporation in the United States (or any possession of the United States) are granted stock options, or are granted restricted stock units, with the same rights and privileges to receive qualified stock. (ii) Same rights and privileges For purposes of clause (i)(II)— (I) except as provided in subclauses (II) and (III), the determination of rights and privileges with respect to stock shall be made in a similar manner as under section 423(b)(5), (II) employees shall not fail to be treated as having the same rights and privileges to receive qualified stock solely because the number of shares available to all employees is not equal in amount, so long as the number of shares available to each employee is more than a de minimis amount, and (III) rights and privileges with respect to the exercise of an option shall not be treated as the same as rights and privileges with respect to the settlement of a restricted stock unit. (iii) Employee For purposes of clause (i)(II), the term employee shall not include any employee described in section 4980E(d)(4) or any excluded employee. (iv) Special rule for calendar years before 2018 In the case of any calendar year beginning before January 1, 2018, clause (i)(II) shall be applied without regard to whether the rights and privileges with respect to the qualified stock are the same. (3) Qualified employee; excluded employee For purposes of this subsection— (A) In general The term qualified employee means any individual who— (i) is not an excluded employee, and (ii) agrees in the election made under this subsection to meet such requirements as are determined by the Secretary to be necessary to ensure that the withholding requirements of the corporation under chapter 24 with respect to the qualified stock are met. (B) Excluded employee The term excluded employee means, with respect to any corporation, any individual— (i) who is a 1-percent owner (within the meaning of section 416(i)(1)(B)(ii)) at any time during the calendar year or who was such a 1 percent owner at any time during the 10 preceding calendar years, (ii) who is or has been at any prior time— (I) the chief executive officer of such corporation or an individual acting in such a capacity, or (II) the chief financial officer of such corporation or an individual acting in such a capacity, (iii) who bears a relationship described in section 318(a)(1) to any individual described in subclause (I) or (II) of clause (ii), or (iv) who is one of the 4 highest compensated officers of such corporation for the taxable year, or was one of the 4 highest compensated officers of such corporation for any of the 10 preceding taxable years, determined with respect to each such taxable year on the basis of the shareholder disclosure rules for compensation under the Securities Exchange Act of 1934 (as if such rules applied to such corporation). (4) Election (A) Time for making election An election with respect to qualified stock shall be made under this subsection no later than 30 days after the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier, and shall be made in a manner similar to the manner in which an election is made under subsection (b). (B) Limitations No election may be made under this section with respect to any qualified stock if— (i) the qualified employee has made an election under subsection (b) with respect to such qualified stock, (ii) any stock of the corporation which issued the qualified stock is readily tradable on an established securities market (as determined under paragraph (1)(B)(iii)) at any time before the election is made, or (iii) such corporation purchased any of its outstanding stock in the calendar year preceding the calendar year which includes the first date the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, unless— (I) not less than 25 percent of the total dollar amount of the stock so purchased is deferral stock, and (II) the determination of which individuals from whom deferral stock is purchased is made on a reasonable basis. (C) Definitions and special rules related to limitation on stock redemptions (i) Deferral stock For purposes of this paragraph, the term deferral stock means stock with respect to which an election is in effect under this subsection. (ii) Deferral stock with respect to any individual not taken into account if individual holds deferral stock with longer deferral period Stock purchased by a corporation from any individual shall not be treated as deferral stock for purposes of subparagraph (B)(iii) if such individual (immediately after such purchase) holds any deferral stock with respect to which an election has been in effect under this subsection for a longer period than the election with respect to the stock so purchased. (iii) Purchase of all outstanding deferral stock The requirements of subclauses (I) and (II) of subparagraph (B)(iii) shall be treated as met if the stock so purchased includes all of the corporation's outstanding deferral stock. (iv) Reporting Any corporation which has outstanding deferral stock as of the beginning of any calendar year and which purchases any of its outstanding stock during such calendar year shall include on its return of tax for the taxable year in which, or with which, such calendar year ends the total dollar amount of its outstanding stock so purchased during such calendar year and such other information as the Secretary requires for purposes of administering this paragraph. (5) Controlled groups For purposes of this subsection, all persons treated as a single employer under section 414(b) shall be treated as 1 corporation. (6) Notice requirement Any corporation which transfers qualified stock to a qualified employee shall, at the time that (or a reasonable period before) an amount attributable to such stock would (but for this subsection) first be includible in the gross income of such employee— (A) certify to such employee that such stock is qualified stock, and (B) notify such employee— (i) that the employee may be eligible to elect to defer income on such stock under this subsection, and (ii) that, if the employee makes such an election— (I) the amount of income recognized at the end of the deferral period will be based on the value of the stock at the time at which the rights of the employee in such stock first become transferable or not subject to substantial risk of forfeiture, notwithstanding whether the value of the stock has declined during the deferral period, (II) the amount of such income recognized at the end of the deferral period will be subject to withholding under section 3401(i) at the rate determined under section 3402(t), and (III) the responsibilities of the employee (as determined by the Secretary under paragraph (3)(A)(ii)) with respect to such withholding. (7) Restricted stock units This section (other than this subsection), including any election under subsection (b), shall not apply to restricted stock units. . (b) Withholding (1) Time of withholding Section 3401 is amended by adding at the end the following new subsection: (i) Qualified stock for which an election is in effect under section 83(i) For purposes of subsection (a), qualified stock (as defined in section 83(i)) with respect to which an election is made under section 83(i) shall be treated as wages— (1) received on the earliest date described in section 83(i)(1)(B), and (2) in an amount equal to the amount included in income under section 83 for the taxable year which includes such date. . (2) Amount of withholding Section 3402 is amended by adding at the end the following new subsection: (t) Rate of withholding for certain stock In the case of any qualified stock (as defined in section 83(i)(2)) with respect to which an election is made under section 83(i)— (1) the rate of tax under subsection (a) shall not be less than the maximum rate of tax in effect under section 1, and (2) such stock shall be treated for purposes of section 3501(b) in the same manner as a non-cash fringe benefit. . (c) Coordination with other deferred compensation rules (1) Election to apply deferral to statutory options (A) Incentive stock options Section 422(b) is amended by adding at the end the following: Such term shall not include any option if an election is made under section 83(i) with respect to the stock received in connection with the exercise of such option. . (B) Employee stock purchase plans Section 423 is amended— (i) in subsection (b)(5), by striking and before the plan and by inserting , and the rules of section 83(i) shall apply in determining which employees have a right to make an election under such section before the semicolon at the end, and (ii) by adding at the end the following new subsection: (d) Coordination with qualified equity grants An option for which an election is made under section 83(i) with respect to the stock received in connection with its exercise shall not be considered as granted pursuant an employee stock purchase plan. . (2) Exclusion from definition of nonqualified deferred compensation plan Subsection (d) of section 409A is amended by adding at the end the following new paragraph: (7) Treatment of qualified stock An arrangement under which an employee may receive qualified stock (as defined in section 83(i)(2)) shall not be treated as a nonqualified deferred compensation plan with respect to such employee solely because of such employee's election, or ability to make an election, to defer recognition of income under section 83(i). . (d) Information reporting Section 6051(a) is amended by striking and at the end of paragraph (14)(B), by striking the period at the end of paragraph (15) and inserting a comma, and by inserting after paragraph (15) the following new paragraphs: (16) the amount includible in gross income under subparagraph (A) of section 83(i)(1) with respect to an event described in subparagraph (B) of such section which occurs in such calendar year, and (17) the aggregate amount of income which is being deferred pursuant to elections under section 83(i), determined as of the close of the calendar year. . (e) Penalty for failure of employer to provide notice of tax consequences Section 6652 is amended by adding at the end the following new subsection: (p) Failure to provide notice under section 83(i) In the case of each failure to provide a notice as required by section 83(i)(6), at the time prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, there shall be paid, on notice and demand of the Secretary and in the same manner as tax, by the person failing to provide such notice, an amount equal to $100 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $50,000. . (f) Effective dates (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to stock attributable to options exercised, or restricted stock units settled, after December 31, 2017. (2) Requirement to provide notice The amendments made by subsection (e) shall apply to failures after December 31, 2017. (g) Transition rule Until such time as the Secretary (or the Secretary's delegate) issues regulations or other guidance for purposes of implementing the requirements of paragraph (2)(C)(i)(II) of section 83(i) of the Internal Revenue Code of 1986 (as added by this section), or the requirements of paragraph (6) of such section, a corporation shall be treated as being in compliance with such requirements (respectively) if such corporation complies with a reasonable good faith interpretation of such requirements. 13604. Increase in excise tax rate for stock compensation of insiders in expatriated corporations (a) In general Section 4985(a)(1) is amended by striking section 1(h)(1)(C) and inserting section 1(h)(1)(D) . (b) Effective date The amendment made by this section shall apply to corporations first becoming expatriated corporations (as defined in section 4985 of the Internal Revenue Code of 1986) after the date of enactment of this Act. B Retirement plans 13611. Repeal of special rule permitting recharacterization of Roth conversions (a) In general Section 408A(d)(6)(B) is amended by adding at the end the following new clause: (iii) Conversions Subparagraph (A) shall not apply in the case of a qualified rollover contribution to which subsection (d)(3) applies (including by reason of subparagraph (C) thereof). . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13612. Modification of rules applicable to length of service award plans (a) Maximum deferral amount Clause (ii) of section 457(e)(11)(B) is amended by striking $3,000 and inserting $6,000 . (b) Cost of living adjustment Subparagraph (B) of section 457(e)(11) is amended by adding at the end the following: (iii) Cost of living adjustment In the case of taxable years beginning after December 31, 2017, the Secretary shall adjust the $6,000 amount under clause (ii) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2016, and any increase under this paragraph that is not a multiple of $500 shall be rounded to the next lowest multiple of $500. . (c) Application of limitation on accruals Subparagraph (B) of section 457(e)(11), as amended by subsection (b), is amended by adding at the end the following: (iv) Special rule for application of limitation on accruals for certain plans In the case of a plan described in subparagraph (A)(ii) which is a defined benefit plan (as defined in section 414(j)), the limitation under clause (ii) shall apply to the actuarial present value of the aggregate amount of length of service awards accruing with respect to any year of service. Such actuarial present value with respect to any year shall be calculated using reasonable actuarial assumptions and methods, assuming payment will be made under the most valuable form of payment under the plan with payment commencing at the later of the earliest age at which unreduced benefits are payable under the plan or the participant's age at the time of the calculation. . (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 13613. Extended rollover period for plan loan offset amounts (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 severance from employment of the participant. (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 amendments Section 402(c)(3) is amended— (1) by striking Transfer must be made within 60 days of receipt in the heading and inserting Time limit on transfers , and (2) by striking subparagraph (B) in subparagraph (A) and inserting subparagraphs (B) and (C) . (c) Effective date The amendments made by this section shall apply to plan loan offset amounts which are treated as distributed in taxable years beginning after December 31, 2017. VIII Exempt organizations 13701. 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. 4968. Excise tax based on investment income of private colleges and universities. 4968. 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(f)(2))— (A) which had at least 500 students during the preceding taxable year, (B) more than 50 percent of the students of which are located in the United States, (C) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities), and (D) 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 $500,000 per student of the institution. (2) Students For purposes of paragraph (1), the number of students of an institution (including for purposes of determining the number of students at a particular location) 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). (d) Assets and net investment income of related organizations (1) In general For purposes of subsections (b)(1)(C) and (c), assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that— (A) no such amount shall be taken into account with respect to more than 1 educational institution, and (B) unless such organization is controlled by such institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account. (2) Related organization For purposes of this subsection, the term related organization means, with respect to an educational institution, any organization which— (A) controls, or is controlled by, such institution, (B) is controlled by 1 or more persons which also control such institution, or (C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution. . (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. 13702. Unrelated business taxable income separately computed for each trade or business activity (a) In general Subsection (a) of section 512 is amended by adding at the end the following new paragraph: (6) Special rule for organization with more than 1 unrelated trade or business In the case of any organization with more than 1 unrelated trade or business— (A) unrelated business taxable income, including for purposes of determining any net operating loss deduction, shall be computed separately with respect to each such trade or business and without regard to subsection (b)(12), (B) the unrelated business taxable income of such organization shall be the sum of the unrelated business taxable income so computed with respect to each such trade or business, less a specific deduction under subsection (b)(12), and (C) for purposes of subparagraph (B), unrelated business taxable income with respect to any such trade or business shall not be less than zero. . (b) Effective date (1) In general Except to the extent provided in paragraph (2), the amendment made by this section shall apply to taxable years beginning after December 31, 2017. (2) Carryovers of net operating losses If any net operating loss arising in a taxable year beginning before January 1, 2018, is carried over to a taxable year beginning on or after such date— (A) subparagraph (A) of section 512(a)(6) of the Internal Revenue Code of 1986, as added by this Act, shall not apply to such net operating loss, and (B) the unrelated business taxable income of the organization, after the application of subparagraph (B) of such section, shall be reduced by the amount of such net operating loss. 13703. Unrelated business taxable income increased by amount of certain fringe benefit expenses for which deduction is disallowed (a) In general Section 512(a), as amended by this Act, is further amended by adding at the end the following new paragraph: (7) 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 shall 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. 13704. Repeal of deduction for amounts paid in exchange for college athletic event seating rights (a) In general Section 170(l) is amended— (1) by striking paragraph (1) and inserting the following: (1) In general No deduction shall be allowed under this section for any amount described in paragraph (2). , and (2) in paragraph (2)(B), by striking such amount would be allowable as a deduction under this section but for the fact that . (b) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2017. 13705. Repeal of substantiation exception in case of contributions reported by donee (a) In general Section 170(f)(8) is amended by striking subparagraph (D) and by redesignating subparagraph (E) as subparagraph (D). (b) Effective date The amendments made by this section shall apply to contributions made in taxable years beginning after December 31, 2016. IX Other provisions A Craft beverage modernization and tax reform 13801. Production period for beer, wine, and distilled spirits (a) In general Section 263A(f) is amended— (1) by redesignating paragraph (4) as paragraph (5), and (2) by inserting after paragraph (3) the following new paragraph: (4) Exemption for aging process of beer, wine, and distilled spirits (A) In general For purposes of this subsection, the production period shall not include the aging period for— (i) beer (as defined in section 5052(a)), (ii) wine (as described in section 5041(a)), or (iii) distilled spirits (as defined in section 5002(a)(8)), except such spirits that are unfit for use for beverage purposes. (B) Termination This paragraph shall not apply to interest costs paid or accrued after December 31, 2019. . (b) Conforming amendment Paragraph (5)(B)(ii) of section 263A(f), as redesignated by this section, is amended by inserting except as provided in paragraph (4), before ending on the date . (c) Effective date The amendments made by this section shall apply to interest costs paid or accrued in calendar years beginning after December 31, 2017. 13802. Reduced rate of excise tax on beer (a) In general Paragraph (1) of section 5051(a) is amended to read as follows: (1) In general (A) Imposition of tax A tax is hereby imposed on all beer brewed or produced, and removed for consumption or sale, within the United States, or imported into the United States. Except as provided in paragraph (2), the rate of such tax shall be the amount determined under this paragraph. (B) Rate Except as provided in subparagraph (C), the rate of tax shall be $18 for per barrel. (C) Special rule In the case of beer removed after December 31, 2017, and before January 1, 2020, the rate of tax shall be— (i) $16 on the first 6,000,000 barrels of beer— (I) brewed by the brewer and removed during the calendar year for consumption or sale, or (II) imported by the importer into the United States during the calendar year, and (ii) $18 on any barrels of beer to which clause (i) does not apply. (D) Barrel For purposes of this section, a barrel shall contain not more than 31 gallons of beer, and any tax imposed under this section shall be applied at a like rate for any other quantity or for fractional parts of a barrel. . (b) Reduced rate for certain domestic production Subparagraph (A) of section 5051(a)(2) is amended— (1) in the heading, by striking $7 a barrel , and (2) by inserting ($3.50 in the case of beer removed after December 31, 2017, and before January 1, 2020) after $7 . (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (a) of section 5051 is amended— (1) in subparagraph (C)(i)(II) of paragraph (1), as amended by subsection (a), by inserting but only if the importer is an electing importer under paragraph (4) and the barrels have been assigned to the importer pursuant to such paragraph after during the calendar year , and (2) by adding at the end the following new paragraph: (4) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any barrels of beer which have been brewed or produced outside of the United States and imported into the United States, the rate of tax applicable under clause (i) of paragraph (1)(C) (referred to in this paragraph as the reduced tax rate ) may be assigned by the brewer (provided that the brewer makes an election described in subparagraph (B)(ii)) to any electing importer of such barrels pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of barrels of beer for which the reduced tax rate has been assigned by a brewer— (I) to any importer does not exceed the number of barrels of beer brewed or produced by such brewer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 6,000,000 barrels to which the reduced tax rate applies, (ii) procedures that allow the election of a brewer to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the brewer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the brewer and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the brewer, as described under paragraph (5). . (d) Controlled group and single taxpayer rules Subsection (a) of section 5051 , as amended by this section, is amended— (1) in paragraph (2)— (A) by striking subparagraph (B), and (B) by redesignating subparagraph (C) as subparagraph (B), and (2) by adding at the end the following new paragraph: (5) Controlled group and single taxpayer rules (A) In general Except as provided in subparagraph (B), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 2,000,000 barrel quantity specified in paragraph (2)(A) shall be applied to the controlled group, and the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) and the 60,000 barrel quantity specified in paragraph (2)(A) shall be apportioned among the brewers who are members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning assigned to it by subsection (a) of section 1563, except that for such purposes the phrase more than 50 percent shall be substituted for the phrase at least 80 percent in each place it appears in such subsection. Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation. (B) Foreign manufacturers and importers For purposes of paragraph (4), in the case of a controlled group, the 6,000,000 barrel quantity specified in paragraph (1)(C)(i) shall be applied to the controlled group and apportioned among the members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning given such term under subparagraph (A). Under regulations prescribed by the Secretary, principles similar to the principles of the preceding two sentences shall be applied to a group of brewers under common control where one or more of the brewers is not a corporation. (C) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce beer marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. . (e) Effective date The amendments made by this section shall apply to beer removed after December 31, 2017. 13803. Transfer of beer between bonded facilities (a) In general Section 5414 is amended— (1) by striking Beer may be removed and inserting (a) In general .—Beer may be removed , and (2) by adding at the end the following: (b) Transfer of beer between bonded facilities (1) In general Beer may be removed from one bonded brewery to another bonded brewery, without payment of tax, and may be mingled with beer at the receiving brewery, subject to such conditions, including payment of the tax, and in such containers, as the Secretary by regulations shall prescribe, which shall include— (A) any removal from one brewery to another brewery belonging to the same brewer, (B) any removal from a brewery owned by one corporation to a brewery owned by another corporation when— (i) one such corporation owns the controlling interest in the other such corporation, or (ii) the controlling interest in each such corporation is owned by the same person or persons, and (C) any removal from one brewery to another brewery when— (i) the proprietors of transferring and receiving premises are independent of each other and neither has a proprietary interest, directly or indirectly, in the business of the other, and (ii) the transferor has divested itself of all interest in the beer so transferred and the transferee has accepted responsibility for payment of the tax. (2) Transfer of liability for tax For purposes of paragraph (1)(C), such relief from liability shall be effective from the time of removal from the transferor's bonded premises, or from the time of divestment of interest, whichever is later. (3) Termination This subsection shall not apply to any calendar quarter beginning after December 31, 2019. . (b) Removal from brewery by pipeline Section 5412 is amended by inserting pursuant to section 5414 or before by pipeline . (c) Effective date The amendments made by this section shall apply to any calendar quarters beginning after December 31, 2017. 13804. Reduced rate of excise tax on certain wine (a) In general Section 5041(c) is amended by adding at the end the following new paragraph: (8) Special rule for 2018 and 2019 (A) In general In the case of wine removed after December 31, 2017, and before January 1, 2020, paragraphs (1) and (2) shall not apply and there shall be allowed as a credit against any tax imposed by this title (other than chapters 2, 21, and 22) an amount equal to the sum of— (i) $1 per wine gallon on the first 30,000 wine gallons of wine, plus (ii) 90 cents per wine gallon on the first 100,000 wine gallons of wine to which clause (i) does not apply, plus (iii) 53.5 cents per wine gallon on the first 620,000 wine gallons of wine to which clauses (i) and (ii) do not apply, which are produced by the producer and removed during the calendar year for consumption or sale, or which are imported by the importer into the United States during the calendar year. (B) Adjustment of credit for hard cider In the case of wine described in subsection (b)(6), subparagraph (A) of this paragraph shall be applied— (i) in clause (i) of such subparagraph, by substituting 6.2 cents for $1 , (ii) in clause (ii) of such subparagraph, by substituting 5.6 cents for 90 cents , and (iii) in clause (iii) of such subparagraph, by substituting 3.3 cents for 53.5 cents . , (b) Controlled group and single taxpayer rules Paragraph (4) of section 5041(c) is amended by striking section 5051(a)(2)(B) and inserting section 5051(a)(5) . (c) Allowance of credit for foreign manufacturers and importers Subsection (c) of section 5041 , as amended by subsection (a), is amended— (1) in subparagraph (A) of paragraph (8), by inserting but only if the importer is an electing importer under paragraph (9) and the wine gallons of wine have been assigned to the importer pursuant to such paragraph after into the United States during the calendar year , and (2) by adding at the end the following new paragraph: (9) Allowance of credit for foreign manufacturers and importers (A) In general In the case of any wine gallons of wine which have been produced outside of the United States and imported into the United States, the credit allowable under paragraph (8) (referred to in this paragraph as the tax credit ) may be assigned by the person who produced such wine (referred to in this paragraph as the foreign producer ), provided that such person makes an election described in subparagraph (B)(ii), to any electing importer of such wine gallons pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the tax credit provided under this paragraph, which shall include— (i) a limitation to ensure that the number of wine gallons of wine for which the tax credit has been assigned by a foreign producer— (I) to any importer does not exceed the number of wine gallons of wine produced by such foreign producer during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 750,000 wine gallons of wine to which the tax credit applies, (ii) procedures that allow the election of a foreign producer to assign and an importer to receive the tax credit provided under this paragraph, (iii) requirements that the foreign producer provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the foreign producer and the importer for the tax credit provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such credit. (C) Controlled group For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the foreign producer, as described under paragraph (4). . (d) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13805. Adjustment of alcohol content level for application of excise tax rates (a) In general Paragraphs (1) and (2) of section 5041(b) are each amended by inserting (16 percent in the case of wine removed after December 31, 2017, and before January 1, 2020 after 14 percent . (b) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13806. Definition of mead and low alcohol by volume wine (a) In general Section 5041 is amended— (1) in subsection (a), by striking Still wines and inserting Subject to subsection (h), still wines , and (2) by adding at the end the following new subsection: (h) Mead and low alcohol by volume wine (1) In general For purposes of subsections (a) and (b)(1), mead and low alcohol by volume wine shall be deemed to be still wines containing not more than 16 percent of alcohol by volume. (2) Definitions (A) Mead For purposes of this section, the term mead means a wine— (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived solely from honey and water, (iii) which contains no fruit product or fruit flavoring, and (iv) which contains less than 8.5 percent alcohol by volume. (B) Low alcohol by volume wine For purposes of this section, the term low alcohol by volume wine means a wine— (i) containing not more than 0.64 gram of carbon dioxide per hundred milliliters of wine, except that the Secretary shall by regulations prescribe such tolerances to this limitation as may be reasonably necessary in good commercial practice, (ii) which is derived— (I) primarily from grapes, or (II) from grape juice concentrate and water, (iii) which contains no fruit product or fruit flavoring other than grape, and (iv) which contains less than 8.5 percent alcohol by volume. (3) Termination This subsection shall not apply to wine removed after December 31, 2019. . (b) Effective date The amendments made by this section shall apply to wine removed after December 31, 2017. 13807. Reduced rate of excise tax on certain distilled spirits (a) In general Section 5001 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection: (c) Reduced rate for 2018 and 2019 (1) In general In the case of a distilled spirits operation, the otherwise applicable tax rate under subsection (a)(1) shall be— (A) $2.70 per proof gallon on the first 100,000 proof gallons of distilled spirits, and (B) $13.34 per proof gallon on the first 22,130,000 of proof gallons of distilled spirits to which subparagraph (A) does not apply, which have been distilled or processed by such operation and removed during the calendar year for consumption or sale, or which have been imported by the importer into the United States during the calendar year. (2) Controlled groups (A) In general In the case of a controlled group, the proof gallon quantities specified under subparagraphs (A) and (B) of paragraph (1) shall be applied to such group and apportioned among the members of such group in such manner as the Secretary or their delegate shall by regulations prescribe. (B) Definition For purposes of subparagraph (A), the term controlled group shall have the meaning given such term by subsection (a) of section 1563, except that more than 50 percent shall be substituted for at least 80 percent each place it appears in such subsection. (C) Rules for non-corporations Under regulations prescribed by the Secretary, principles similar to the principles of subparagraphs (A) and (B) shall be applied to a group under common control where one or more of the persons is not a corporation. (D) Single taxpayer Pursuant to rules issued by the Secretary, two or more entities (whether or not under common control) that produce distilled spirits marketed under a similar brand, license, franchise, or other arrangement shall be treated as a single taxpayer for purposes of the application of this subsection. (3) Termination This subsection shall not apply to distilled spirits removed after December 31, 2019. . (b) Conforming amendment Section 7652(f)(2) is amended by striking section 5001(a)(1) and inserting subsection (a)(1) of section 5001, determined as if subsection (c)(1) of such section did not apply . (c) Application of reduced tax rate for foreign manufacturers and importers Subsection (c) of section 5001 , as added by subsection (a), is amended— (1) in paragraph (1), by inserting but only if the importer is an electing importer under paragraph (3) and the proof gallons of distilled spirits have been assigned to the importer pursuant to such paragraph after into the United States during the calendar year , and (2) by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: (3) Reduced tax rate for foreign manufacturers and importers (A) In general In the case of any proof gallons of distilled spirits which have been produced outside of the United States and imported into the United States, the rate of tax applicable under paragraph (1) (referred to in this paragraph as the reduced tax rate ) may be assigned by the distilled spirits operation (provided that such operation makes an election described in subparagraph (B)(ii)) to any electing importer of such proof gallons pursuant to the requirements established by the Secretary under subparagraph (B). (B) Assignment The Secretary shall, through such rules, regulations, and procedures as are determined appropriate, establish procedures for assignment of the reduced tax rate provided under this paragraph, which shall include— (i) a limitation to ensure that the number of proof gallons of distilled spirits for which the reduced tax rate has been assigned by a distilled spirits operation— (I) to any importer does not exceed the number of proof gallons produced by such operation during the calendar year which were imported into the United States by such importer, and (II) to all importers does not exceed the 22,230,000 proof gallons of distilled spirits to which the reduced tax rate applies, (ii) procedures that allow the election of a distilled spirits operation to assign and an importer to receive the reduced tax rate provided under this paragraph, (iii) requirements that the distilled spirits operation provide any information as the Secretary determines necessary and appropriate for purposes of carrying out this paragraph, and (iv) procedures that allow for revocation of eligibility of the distilled spirits operation and the importer for the reduced tax rate provided under this paragraph in the case of any erroneous or fraudulent information provided under clause (iii) which the Secretary deems to be material to qualifying for such reduced rate. (C) Controlled group (i) In general For purposes of this section, any importer making an election described in subparagraph (B)(ii) shall be deemed to be a member of the controlled group of the distilled spirits operation, as described under paragraph (2). (ii) Apportionment For purposes of this paragraph, in the case of a controlled group, rules similar to section 5051(a)(5)(B) shall apply. . (d) Effective date The amendments made by this section shall apply to distilled spirits removed after December 31, 2017. 13808. Bulk distilled spirits (a) In general Section 5212 is amended by adding at the end the following sentence: In the case of distilled spirits transferred in bond after December 31, 2017, and before January 1, 2020, this section shall be applied without regard to whether distilled spirits are bulk distilled spirits. . (b) Effective date The amendments made by this section shall apply distilled spirits transferred in bond after December 31, 2017. B Miscellaneous provisions 13821. Modification of tax treatment of alaska native corporations and settlement trusts (a) Exclusion for ANCSA payments assigned to alaska native settlement trusts (1) In general Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section: 139G. Assignments to alaska native settlement trusts (a) In general In the case of a Native Corporation, gross income shall not include the value of any payments that would otherwise be made, or treated as being made, to such Native Corporation pursuant to, or as required by, any provision of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1601 et seq.), including any payment that would otherwise be made to a Village Corporation pursuant to section 7(j) of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1606(j) ), provided that any such payments— (1) are assigned in writing to a Settlement Trust, and (2) were not received by such Native Corporation prior to the assignment described in paragraph (1). (b) Inclusion in gross income In the case of a Settlement Trust which has been assigned payments described in subsection (a), gross income shall include such payments when received by such Settlement Trust pursuant to the assignment and shall have the same character as if such payments were received by the Native Corporation. (c) Amount and scope of assignment The amount and scope of any assignment under subsection (a) shall be described with reasonable particularity and may either be in a percentage of one or more such payments or in a fixed dollar amount. (d) Duration of assignment; revocability Any assignment under subsection (a) shall specify— (1) a duration either in perpetuity or for a period of time, and (2) whether such assignment is revocable. (e) Prohibition on deduction Notwithstanding section 247, no deduction shall be allowed to a Native Corporation for purposes of any amounts described in subsection (a). (f) Definitions For purposes of this section, the terms Native Corporation and Settlement Trust have the same meaning given such terms under section 646(h). . (2) Conforming amendment The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item: Sec. 139G. Assignments to Alaska Native Settlement Trusts. . (3) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016. (b) Deduction of contributions to alaska native settlement trusts (1) In general Part VIII of subchapter B of chapter 1 is amended by inserting before section 248 the following new section: 247. Contributions to alaska native settlement trusts (a) In general In the case of a Native Corporation, there shall be allowed a deduction for any contributions made by such Native Corporation to a Settlement Trust (regardless of whether an election under section 646 is in effect for such Settlement Trust) for which the Native Corporation has made an annual election under subsection (e). (b) Amount of deduction The amount of the deduction under subsection (a) shall be equal to— (1) in the case of a cash contribution (regardless of the method of payment, including currency, coins, money order, or check), the amount of such contribution, or (2) in the case of a contribution not described in paragraph (1), the lesser of— (A) the Native Corporation's adjusted basis in the property contributed, or (B) the fair market value of the property contributed. (c) Limitation and carryover (1) In general Subject to paragraph (2), the deduction allowed under subsection (a) for any taxable year shall not exceed the taxable income (as determined without regard to such deduction) of the Native Corporation for the taxable year in which the contribution was made. (2) Carryover If the aggregate amount of contributions described in subsection (a) for any taxable year exceeds the limitation under paragraph (1), such excess shall be treated as a contribution described in subsection (a) in each of the 15 succeeding years in order of time. (d) Definitions For purposes of this section, the terms Native Corporation and Settlement Trust have the same meaning given such terms under section 646(h). (e) Manner of making election (1) In general For each taxable year, a Native Corporation may elect to have this section apply for such taxable year on the income tax return or an amendment or supplement to the return of the Native Corporation, with such election to have effect solely for such taxable year. (2) Revocation Any election made by a Native Corporation pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Native Corporation. (f) Additional rules (1) Earnings and profits Notwithstanding section 646(d)(2), in the case of a Native Corporation which claims a deduction under this section for any taxable year, the earnings and profits of such Native Corporation for such taxable year shall be reduced by the amount of such deduction. (2) Gain or loss No gain or loss shall be recognized by the Native Corporation with respect to a contribution of property for which a deduction is allowed under this section. (3) Income Subject to subsection (g), a Settlement Trust shall include in income the amount of any deduction allowed under this section in the taxable year in which the Settlement Trust actually receives such contribution. (4) Period The holding period under section 1223 of the Settlement Trust shall include the period the property was held by the Native Corporation. (5) Basis The basis that a Settlement Trust has for which a deduction is allowed under this section shall be equal to the lesser of— (A) the adjusted basis of the Native Corporation in such property immediately before such contribution, or (B) the fair market value of the property immediately before such contribution. (6) Prohibition No deduction shall be allowed under this section with respect to any contributions made to a Settlement Trust which are in violation of subsection (a)(2) or (c)(2) of section 39 of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1629e ). (g) Election by settlement trust to defer income recognition (1) In general In the case of a contribution which consists of property other than cash, a Settlement Trust may elect to defer recognition of any income related to such property until the sale or exchange of such property, in whole or in part, by the Settlement Trust. (2) Treatment In the case of property described in paragraph (1), any income or gain realized on the sale or exchange of such property shall be treated as— (A) for such amount of the income or gain as is equal to or less than the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, ordinary income, and (B) for any amounts of the income or gain which are in excess of the amount of income which would be included in income at the time of contribution under subsection (f)(3) but for the taxpayer's election under this subsection, having the same character as if this subsection did not apply. (3) Election (A) In general For each taxable year, a Settlement Trust may elect to apply this subsection for any property described in paragraph (1) which was contributed during such year. Any property to which the election applies shall be identified and described with reasonable particularity on the income tax return or an amendment or supplement to the return of the Settlement Trust, with such election to have effect solely for such taxable year. (B) Revocation Any election made by a Settlement Trust pursuant to this subsection may be revoked pursuant to a timely filed amendment or supplement to the income tax return of such Settlement Trust. (C) Certain dispositions (i) In general In the case of any property for which an election is in effect under this subsection and which is disposed of within the first taxable year subsequent to the taxable year in which such property was contributed to the Settlement Trust— (I) this section shall be applied as if the election under this subsection had not been made, (II) any income or gain which would have been included in the year of contribution under subsection (f)(3) but for the taxpayer's election under this subsection shall be included in income for the taxable year of such contribution, and (III) the Settlement Trust shall pay any increase in tax resulting from such inclusion, including any applicable interest, and increased by 10 percent of the amount of such increase with interest. (ii) Assessment Notwithstanding section 6501(a), any amount described in subclause (III) of clause (i) may be assessed, or a proceeding in court with respect to such amount may be initiated without assessment, within 4 years after the date on which the return making the election under this subsection for such property was filed. . (2) Conforming amendment The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting before the item relating to section 248 the following new item: Sec. 247. Contributions to Alaska Native Settlement Trusts. . (3) Effective date (A) In general The amendments made by this subsection shall apply to taxable years for which the period of limitation on refund or credit under section 6511 of the Internal Revenue Code of 1986 has not expired. (B) One-year waiver of statute of limitations If the period of limitation on a credit or refund resulting from the amendments made by paragraph (1) expires before the end of the 1-year period beginning on the date of the enactment of this Act, refund or credit of such overpayment (to the extent attributable to such amendments) may, nevertheless, be made or allowed if claim therefor is filed before the close of such 1-year period. (c) Information reporting for deductible contributions to alaska native settlement trusts (1) In general Section 6039H is amended— (A) in the heading, by striking sponsoring , and (B) by adding at the end the following new subsection: (e) Deductible contributions by native corporations to alaska native settlement trusts (1) In general Any Native Corporation (as defined in subsection (m) of section 3 of the Alaska Native Claims Settlement Act ( 43 U.S.C. 1602(m) )) which has made a contribution to a Settlement Trust (as defined in subsection (t) of such section) to which an election under subsection (e) of section 247 applies shall provide such Settlement Trust with a statement regarding such election not later than January 31 of the calendar year subsequent to the calendar year in which the contribution was made. (2) Content of statement The statement described in paragraph (1) shall include— (A) the total amount of contributions to which the election under subsection (e) of section 247 applies, (B) for each contribution, whether such contribution was in cash, (C) for each contribution which consists of property other than cash, the date that such property was acquired by the Native Corporation and the adjusted basis and fair market value of such property on the date such property was contributed to the Settlement Trust, (D) the date on which each contribution was made to the Settlement Trust, and (E) such information as the Secretary determines to be necessary or appropriate for the identification of each contribution and the accurate inclusion of income relating to such contributions by the Settlement Trust. . (2) Conforming amendment The item relating to section 6039H in the table of sections for subpart A of part III of subchapter A of chapter 61 is amended to read as follows: Sec. 6039H. Information With Respect to Alaska Native Settlement Trusts and Native Corporations. . (3) Effective date The amendments made by this subsection shall apply to taxable years beginning after December 31, 2016. 13822. Amounts paid for aircraft management services (a) In general Subsection (e) of section 4261 is amended by adding at the end the following new paragraph: (5) Amounts paid for aircraft management services (A) In general No tax shall be imposed by this section or section 4271 on any amounts paid by an aircraft owner for aircraft management services related to— (i) maintenance and support of the aircraft owner's aircraft, or (ii) flights on the aircraft owner's aircraft. (B) Aircraft management services For purposes of subparagraph (A), the term aircraft management services includes— (i) assisting an aircraft owner with administrative and support services, such as scheduling, flight planning, and weather forecasting, (ii) obtaining insurance, (iii) maintenance, storage and fueling of aircraft, (iv) hiring, training, and provision of pilots and crew, (v) establishing and complying with safety standards, and (vi) such other services as are necessary to support flights operated by an aircraft owner. (C) Lessee treated as aircraft owner (i) In general For purposes of this paragraph, the term aircraft owner includes a person who leases the aircraft other than under a disqualified lease. (ii) Disqualified lease For purposes of clause (i), the term disqualified lease means a lease from a person providing aircraft management services with respect to such aircraft (or a related person (within the meaning of section 465(b)(3)(C)) to the person providing such services), if such lease is for a term of 31 days or less. (D) Pro rata allocation In the case of amounts paid to any person which (but for this subsection) are subject to the tax imposed by subsection (a), a portion of which consists of amounts described in subparagraph (A), this paragraph shall apply on a pro rata basis only to the portion which consists of amounts described in such subparagraph. . (b) Effective date The amendment made by this section shall apply to amounts paid after the date of the enactment of this Act. 13823. Opportunity zones (a) In general Chapter 1 is amended by adding at the end the following: Z Opportunity zones Sec. 1400Z–1. Designation. Sec. 1400Z–2. Special rules for capital gains invested in opportunity zones. 1400Z–1. Designation (a) Qualified opportunity zone defined For the purposes of this subchapter, the term qualified opportunity zone means a population census tract that is a low-income community that is designated as a qualified opportunity zone. (b) Designation (1) In general For purposes of subsection (a), a population census tract that is a low-income community is designated as a qualified opportunity zone if— (A) not later than the end of the determination period, the chief executive officer of the State in which the tract is located— (i) nominates the tract for designation as a qualified opportunity zone, and (ii) notifies the Secretary in writing of such nomination, and (B) the Secretary certifies such nomination and designates such tract as a qualified opportunity zone before the end of the consideration period. (2) Extension of periods A chief executive officer of a State may request that the Secretary extend either the determination or consideration period, or both (determined without regard to this subparagraph), for an additional 30 days. (c) Other definitions For purposes of this subsection— (1) Low-income communities The term low-income community has the same meaning as when used in section 45D(e). (2) Definition of periods (A) Consideration period The term consideration period means the 30-day period beginning on the date on which the Secretary receives notice under subsection (b)(1)(A)(ii), as extended under subsection (b)(2). (B) Determination period The term determination period means the 90-day period beginning on the date of the enactment of the Tax Cuts and Jobs Act, as extended under subsection (b)(2). (3) State For purposes of this section, the term State includes any possession of the United States. (d) Number of designations (1) In general Except as provided by paragraph (2), the number of population census tracts in a State that may be designated as qualified opportunity zones under this section may not exceed 25 percent of the number of low-income communities in the State. (2) Exception If the number of low-income communities in a State is less than 100, then a total of 25 of such tracts may be designated as qualified opportunity zones. (e) Designation of tracts contiguous with low-income communities (1) In general A population census tract that is not a low-income community may be designated as a qualified opportunity zone under this section if— (A) the tract is contiguous with the low-income community that is designated as a qualified opportunity zone, and (B) the median family income of the tract does not exceed 125 percent of the median family income of the low-income community with which the tract is contiguous. (2) Limitation Not more than 5 percent of the population census tracts designated in a State as a qualified opportunity zone may be designated under paragraph (1). (f) Period for which designation is in effect A designation as a qualified opportunity zone shall remain in effect for the period beginning on the date of the designation and ending at the close of the 10th calendar year beginning on or after such date of designation. 1400Z–2. Special rules for capital gains invested in opportunity zones (a) In general (1) Treatment of gains In the case of gain from the sale to, or exchange with, an unrelated person of any property held by the taxpayer, at the election of the taxpayer— (A) gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified opportunity fund during the 180-day period beginning on the date of such sale or exchange, (B) the amount of gain excluded by subparagraph (A) shall be included in gross income as provided by subsection (b), and (C) subsection (c) shall apply. (2) Election No election may be made under paragraph (1)— (A) with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect, or (B) with respect to any sale or exchange after December 31, 2026. (b) Deferral of gain invested in opportunity zone property (1) Year of inclusion Gain to which subsection (a)(1)(B) applies shall be included in income in the taxable year which includes the earlier of— (A) the date on which such investment is sold or exchanged, or (B) December 31, 2026. (2) Amount includible (A) In general The amount of gain included in gross income under subsection (a)(1)(A) shall be the excess of— (i) the lesser of the amount of gain excluded under paragraph (1) or the fair market value of the investment as determined as of the date described in paragraph (1), over (ii) the taxpayer's basis in the investment. (B) Determination of basis (i) In general Except as otherwise provided in this clause or subsection (c), the taxpayer's basis in the investment shall be zero. (ii) Increase for gain recognized under subsection (a)(1)(B) The basis in the investment shall be increased by the amount of gain recognized by reason of subsection (a)(1)(B) with respect to such property. (iii) Investments held for 5 years In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (iv) Investments held for 7 years In the case of any investment held by the taxpayer for at least 7 years, in addition to any adjustment made under clause (iii), the basis of such property shall be increased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (c) Special rule for investments held for at least 10 years In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this clause, the basis of such property shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged. (d) Qualified opportunity fund For purposes of this section— (1) In general The term qualified opportunity fund means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property, determined by the average of the percentage of qualified opportunity zone property held in the fund as measured— (A) on the last day of the first 6-month period of the taxable year of the fund, and (B) on the last day of the taxable year of the fund. (2) Qualified opportunity zone property (A) In general The term qualified opportunity zone property means property which is— (i) qualified opportunity zone stock, (ii) qualified opportunity zone partnership interest, or (iii) qualified opportunity zone business property. (B) Qualified opportunity zone stock (i) In general Except as provided in clause (ii), the term qualified opportunity zone stock means any stock in a domestic corporation if— (I) such stock is acquired by the qualified opportunity fund after December 31, 2017, at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash, (II) as of the time such stock was issued, such corporation was a qualified opportunity zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a qualified opportunity zone business), and (III) during substantially all of the qualified opportunity fund's holding period for such stock, such corporation qualified as a qualified opportunity zone business. (ii) Redemptions A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (C) Qualified opportunity zone partnership interest The term qualified opportunity zone partnership interest means any capital or profits interest in a domestic partnership if— (i) such interest is acquired by the qualified opportunity fund after December 31, 2017, from the partnership solely in exchange for cash, (ii) as of the time such interest was acquired, such partnership was a qualified opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified opportunity zone business), and (iii) during substantially all of the qualified opportunity fund's holding period for such interest, such partnership qualified as a qualified opportunity zone business. (D) Qualified opportunity zone business property (i) In general The term qualified opportunity zone business property means tangible property used in a trade or business of the qualified opportunity fund if— (I) such property was acquired by the qualified opportunity fund by purchase (as defined in section 179(d)(2)) after December 31, 2017, (II) the original use of such property in the qualified opportunity zone commences with the qualified opportunity fund or the qualified opportunity fund substantially improves the property, and (III) during substantially all of the qualified opportunity fund's holding period for such property, substantially all of the use of such property was in a qualified opportunity zone. (ii) Substantial improvement For purposes of subparagraph (A)(ii), property shall be treated as substantially improved by the qualified opportunity fund only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified opportunity fund exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the qualified opportunity fund. (iii) Related party For purposes of subparagraph (A)(i), the related person rule of section 179(d)(2) shall be applied pursuant to paragraph (8) of this subsection in lieu of the application of such rule in section 179(d)(2)(A). (3) Qualified opportunity zone business (A) In general The term qualified opportunity zone business means a trade or business— (i) in which substantially all of the tangible property owned or leased by the taxpayer is qualified opportunity zone business property (determined by substituting qualified opportunity zone business for qualified opportunity fund each place it appears in paragraph (2)(D)), (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (iii) which is not described in section 144(c)(6)(B). (B) Special rule For purposes of subparagraph (A), tangible property that ceases to be a qualified opportunity zone business property shall continue to be treated as a qualified opportunity zone business property for the lesser of— (i) 5 years after the date on which such tangible property ceases to be so qualified, or (ii) the date on which such tangible property is no longer held by the qualified opportunity zone business. (e) Applicable rules (1) Treatment of investments with mixed funds In the case of any investment in a qualified opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a) is in effect— (A) such investment shall be treated as 2 separate investments, consisting of— (i) one investment that only includes amounts to which the election under subsection (a) applies, and (ii) a separate investment consisting of other amounts, and (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i). (2) Related persons For purposes of this section, persons are related to each other if such persons are described in section 267(b) or 707(b)(1), determined by substituting 20 percent for 50 percent each place it occurs in such sections. (3) Decedents In the case of a decedent, amounts recognized under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691. (4) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including— (A) rules for the certification of qualified opportunity funds for the purposes of this section, (B) rules to ensure a qualified opportunity fund has a reasonable period of time to reinvest the return of capital from investments in qualified opportunity zone stock and qualified opportunity zone partnership interests, and to reinvest proceeds received from the sale or disposition of qualified opportunity zone property, and (C) rules to prevent abuse. (f) Failure of qualified opportunity fund to maintain investment standard (1) In general If a qualified opportunity fund fails to meet the 90-percent requirement of subsection (c)(1), the qualified opportunity fund shall pay a penalty for each month it fails to meet the requirement in an amount equal to the product of— (A) the excess of— (i) the amount equal to 90 percent of its aggregate assets, over (ii) the aggregate amount of qualified opportunity zone property held by the fund, multiplied by (B) the underpayment rate established under section 6621(a)(2) for such month. (2) Special rule for partnerships In the case that the qualified opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account proportionately as part of the distributive share of each partner of the partnership. (3) Reasonable cause exception No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause. . (b) Basis adjustments Section 1016(a) is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and , and by inserting after paragraph (37) the following: (38) to the extent provided in subsections (b)(2) and (c) of section 1400Z–2. . (c) Clerical amendment The table of subchapters for chapter 1 is amended by adding at the end the following new item: Subchapter Z. Opportunity zones . (d) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. D International tax provisions I Outbound transactions A Establishment of participation exemption system for taxation of foreign income 14101. 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— (1) In general The term specified 10-percent owned foreign corporation means any foreign corporation with respect to which any domestic corporation is a United States shareholder with respect to such corporation. (2) Exclusion of passive foreign investment companies Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which 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 from a specified 10-percent owned foreign corporation is an amount which bears the same ratio to such dividend as— (A) the undistributed foreign earnings of the specified 10-percent owned foreign corporation, bears to (B) the total undistributed earnings of such foreign corporation. (2) Undistributed earnings The term 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)— (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) Undistributed foreign earnings The term undistributed foreign earnings means the portion of the 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)). (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) Special rules for hybrid dividends (1) In general Subsection (a) shall not apply to any dividend received by a United States shareholder from a controlled foreign corporation if the dividend is a hybrid dividend. (2) Hybrid dividends of tiered corporations If a controlled foreign corporation with respect to which a domestic corporation is a United States shareholder receives a hybrid dividend from any other controlled foreign corporation with respect to which such domestic corporation is also a United States shareholder, then, notwithstanding any other provision of this title— (A) the hybrid dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the receiving controlled foreign corporation for the taxable year of the controlled foreign corporation in which the dividend was received, and (B) the United States shareholder shall include in gross income an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the subpart F income described in subparagraph (A). (3) Denial of foreign tax credit, etc The rules of subsection (d) shall apply to any hybrid dividend received by, or any amount included under paragraph (2) in the gross income of, a United States shareholder. (4) Hybrid dividend The term hybrid dividend means an amount received from a controlled foreign corporation— (A) for which a deduction would be allowed under subsection (a) but for this subsection, and (B) for which the controlled foreign corporation received a deduction (or other tax benefit) with respect to any income, war profits, or excess profits taxes imposed by any foreign country or possession of the United States. (f) Special rule for purging distributions of passive foreign investment companies Any amount which is treated as a dividend under section 1291(d)(2)(B) shall not be treated as a dividend for purposes of this section. (g) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations for the treatment of United States shareholders owning stock of a specified 10 percent owned foreign corporation through a partnership. . (b) Application of holding period requirement Subsection (c) of section 246 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) 1-year holding period requirement For purposes of section 245A— (i) paragraph (1)(A) shall be applied— (I) by substituting 365 days for 45 days each place it appears, and (II) by substituting 731-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 at all times during such period, and (ii) the taxpayer is a United States shareholder with respect to such specified 10-percent owned foreign corporation at all times during such period. . (c) Application of rules generally applicable to deductions for dividends received (1) Treatment of dividends from certain corporations Paragraph (1) of section 246(a) is amended by striking and 245 and inserting 245, and 245A . (2) Coordination with section 1059 Subparagraph (B) of section 1059(b)(2) is amended by striking or 245 and inserting 245, or 245A . (d) Coordination with foreign tax credit limitation Subsection (b) of section 904 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 domestic corporation which is 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 amounts includible under section 951(a)(1) or 951A(a)) 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 amounts includible under section 951(a)(1) or 951A(a). 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) Subsection (b) of section 951 is amended by striking subpart and inserting title . (2) Subsection (a) of section 957 is amended by striking subpart in the matter preceding paragraph (1) and inserting title . (3) The table of sections for part VIII of subchapter B of chapter 1 is amended by inserting after the item relating to section 245 the following new item: Sec. 245A. Deduction for foreign source-portion of dividends received by domestic corporations from certain 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. 14102. Special rules relating to sales or transfers involving specified 10-percent owned foreign corporations (a) Sales by united states persons of stock (1) In general Section 1248 is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection: (j) Coordination with dividends received deduction In the case of the sale or exchange by a domestic corporation of stock in a foreign corporation held for 1 year or more, any amount received by the domestic corporation which is treated as a dividend by reason of this section shall be treated as a dividend for purposes of applying section 245A. . (2) Effective date The amendments made by this subsection shall apply to sales or exchanges after December 31, 2017. (b) 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. (c) Sale by a CFC of a lower tier CFC (1) In general Section 964(e) is amended by adding at the end the following new paragraph: (4) Coordination with dividends received deduction (A) In general If, for any taxable year of a controlled foreign corporation beginning after December 31, 2017, any amount is treated as a dividend under paragraph (1) by reason of a sale or exchange by the controlled foreign corporation of stock in another foreign corporation held for 1 year or more, then, notwithstanding any other provision of this title— (i) the foreign-source portion of such dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the selling controlled foreign corporation for such taxable year, (ii) a United States shareholder with respect to the selling controlled foreign corporation shall include in gross income for the taxable year of the shareholder with or within which such taxable year of the controlled foreign corporation ends an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the amount treated as subpart F income under clause (i), and (iii) the deduction under section 245A(a) shall be allowable to the United States shareholder with respect to the subpart F income included in gross income under clause (ii) in the same manner as if such subpart F income were a dividend received by the shareholder from the selling controlled foreign corporation. (B) Application of basis or similar adjustment For purposes of this title, in the case of a sale or exchange by a controlled foreign corporation of stock in another foreign corporation in a taxable year of the selling controlled foreign corporation beginning after December 31, 2017, rules similar to the rules of section 961(d) shall apply. (C) Foreign-source portion For purposes of this paragraph, the foreign-source portion of any amount treated as a dividend under paragraph (1) shall be determined in the same manner as under section 245A(c). . (2) Effective date The amendments made by this subsection shall apply to sales or exchanges after December 31, 2017. (d) 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), as in effect before the date of the enactment of the Tax Cuts and Jobs Act) 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 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 (b)(2)(B)). (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 shall 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) 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. . (3) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. (4) Transition rule The amount of gain taken into account under section 91(c) of the Internal Revenue Code of 1986, as added by this subsection, shall be reduced by the amount of gain which would be recognized under section 367(a)(3)(C) (determined without regard to the amendments made by subsection (e)) with respect to losses incurred before January 1, 2018. (e) Repeal of active trade or business exception under section 367 (1) In general Section 367(a) is amended by striking paragraph (3) and redesignating paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), respectively. (2) Conforming amendments Section 367(a)(4), as redesignated by paragraph (1), is amended— (A) by striking Paragraphs (2) and (3) and inserting Paragraph (2) , and (B) by striking Paragraphs (2) and (3) in the heading and inserting Paragraph (2) . (3) Effective date The amendments made by this subsection shall apply to transfers after December 31, 2017. 14103. 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 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 (i) In general The term aggregate foreign E&P deficit means, with respect to any United States shareholder, the lesser of— (I) 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, or (II) the amount determined under paragraph (2)(B). (ii) Allocation of deficit If the amount described in clause (i)(II) is less than the amount described in clause (i)(I), then the shareholder shall designate, in such form and manner as the Secretary determines— (I) the amount of the specified E&P deficit which is to be taken into account for each E&P deficit corporation with respect to the taxpayer, and (II) in the case of an E&P deficit corporation which has a qualified deficit (as defined in section 952), the portion (if any) of the deficit taken into account under subclause (I) which is attributable to a qualified deficit, including the qualified activities to which such portion is attributable. (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, as of November 2, 2017— (i) such specified foreign corporation has a deficit in post-1986 earnings and profits, (ii) such corporation was a specified foreign corporation, and (iii) 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) Treatment of earnings and profits in future years (A) Reduced earnings and profits treated as previously taxed income when distributed For purposes of applying section 959 in any taxable year beginning with the taxable year described in subsection (a), with respect to any United States shareholder of a deferred foreign income corporation, an amount equal to such shareholder's reduction under paragraph (1) which is allocated to such deferred foreign income corporation under this subsection shall be treated as an amount which was included in the gross income of such United States shareholder under section 951(a). (B) E&P deficits For purposes of this title, with respect to any taxable year beginning with the taxable year described in subsection (a), a United States shareholder's pro rata share of the earnings and profits of any E&P deficit foreign corporation under this subsection shall be increased by the amount of the specified E&P deficit of such corporation taken into account by such shareholder under paragraph (1), and, for purposes of section 952, such increase shall be attributable to the same activity to which the deficit so taken into account was attributable. (5) 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) without regard to clause (i)(II) thereof), 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 8 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 15.5 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) 8 and 15.5 percent rate equivalent percentages For purposes of this subsection— (A) 8 percent rate equivalent percentage The term 8 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 8 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) 15.5 percent rate equivalent percentage The term 15.5 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 15.5 percent rate of tax for 8 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, the greater 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 the close of the last taxable year of such specified foreign corporation which begins before January 1, 2018, or (ii) one half of the sum of— (I) 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, plus (II) 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 subclause (I). (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) Personal property which is of a type that is actively traded and 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 Cash positions of a specified foreign corporation described in clause (ii), (iii)(I), or (iii)(IV) of subparagraph (B) shall not be taken into account by a United States shareholder under subparagraph (A) to the extent that such United States shareholder demonstrates to the satisfaction of the Secretary that such amount is so taken into account by such United States shareholder with respect to another specified foreign corporation. (E) Cash positions of certain non-corporate entities taken into account An entity (other than a 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. (F) Anti-abuse If the Secretary determines that a 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)) 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) in the case of a controlled foreign corporation, 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, and by only taking into account periods when the foreign corporation was a specified foreign corporation) 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, and (B) without diminution by reason of dividends distributed during the taxable year described in subsection (a) other than dividends distributed to another specified foreign corporation. (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. (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) Exclusion of passive foreign investment companies Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which is not a controlled foreign corporation. (f) Determinations of pro rata share (1) In general 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). (2) Special rules The portion which is included in the income of a United States shareholder under section 951(a)(1) by reason of subsection (a) which is equal to the deduction allowed under subsection (c) by reason of such inclusion— (A) shall be treated as income exempt from tax for purposes of sections 705(a)(1)(B) and 1367(a)(1)(A), and (B) shall not be treated as income exempt from tax for purposes of determining whether an adjustment shall be made to an accumulated adjustment account under section 1368(e)(1)(A). (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) 0.771 multiplied by 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) 0.557 multiplied by 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 With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as— (A) the excess of— (i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over (ii) the deduction allowable under subsection (c) with respect to such amounts, bears to (B) such amounts. (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 installments of the following amounts: (A) 8 percent of the net tax liability in the case of each of the first 5 of such installments, (B) 15 percent of the net tax liability in the case of the 6th such installment, (C) 20 percent of the net tax liability in the case of the 7th such installment, and (D) 25 percent of the net tax liability in the case of the 8th such installment. (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 shall 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 or deduction 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 of tax 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) of subparagraph (A) 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 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 shall provide. (j) Reporting by s corporation Each S corporation which is a United States shareholder of a specified foreign 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) Extension of limitation on assessment Notwithstanding section 6501, the limitation on the time period for the assessment of the net tax liability under this section (as defined in subsection (h)(6)) shall not expire before the date that is 6 years after the return for the taxable year described in such subsection was filed. (l) Recapture for expatriated entities (1) In general If a deduction is allowed under subsection (c) to a United States shareholder and such shareholder first becomes an expatriated entity at any time during the 10-year period beginning on the date of the enactment of the Tax Cuts and Jobs Act (with respect to a surrogate foreign corporation which first becomes a surrogate foreign corporation during such period), then— (A) the tax imposed by this chapter shall be increased for the first taxable year in which such taxpayer becomes an expatriated entity by an amount equal to 35 percent of the amount of the deduction allowed under subsection (c), and (B) no credits shall be allowed against the increase in tax under subparagraph (A). (2) Expatriated entity For purposes of this subsection, the term expatriated entity has the same meaning given such term under section 7874(a)(2), except that such term shall not include an entity if the surrogate foreign corporation with respect to the entity is treated as a domestic corporation under section 7874(b). (3) Surrogate foreign corporation For purposes of this subsection, the term surrogate foreign corporation has the meaning given such term in section 7874(a)(2)(B). (m) Special rules for united states shareholders which are real estate investment trusts (1) In general If a real estate investment trust is a United States shareholder in 1 or more deferred foreign income corporations— (A) any amount required to be taken into account under section 951(a)(1) by reason of this section shall not be taken into account as gross income of the real estate investment trust for purposes of applying paragraphs (2) and (3) of section 856(c) to any taxable year for which such amount is taken into account under section 951(a)(1), and (B) if the real estate investment trust elects the application of this subparagraph, notwithstanding subsection (a), any amount required to be taken into account under section 951(a)(1) by reason of this section shall, in lieu of the taxable year in which it would otherwise be included in gross income (for purposes of the computation of real estate investment trust taxable income under section 857(b)), be included in gross income as follows: (i) 8 percent of such amount in the case of each of the taxable years in the 5-taxable year period beginning with the taxable year in which such amount would otherwise be included. (ii) 15 percent of such amount in the case of the 1st taxable year following such period. (iii) 20 percent of such amount in the case of the 2nd taxable year following such period. (iv) 25 percent of such amount in the case of the 3rd taxable year following such period. (2) Rules for trusts electing deferred inclusion (A) Election Any election under paragraph (1)(B) shall be made not later than the due date for the first taxable year in the 5-taxable year period described in clause (i) of paragraph (1)(B) and shall be made in such manner as the Secretary shall provide. (B) Special rules If an election under paragraph (1)(B) is in effect with respect to any real estate investment trust, the following rules shall apply: (i) Application of participation exemption For purposes of subsection (c)(1)— (I) the aggregate amount to which subparagraph (A) or (B) of subsection (c)(1) applies shall be determined without regard to the election, (II) each such aggregate amount shall be allocated to each taxable year described in paragraph (1)(B) in the same proportion as the amount included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section is allocated to each such taxable year. (III) No installment payments The real estate investment trust may not make an election under subsection (g) for any taxable year described in paragraph (1)(B). (ii) Acceleration of inclusion If there is a liquidation or sale of substantially all the assets of the real estate investment trust (including in a title 11 or similar case), a cessation of business by such trust, or any similar circumstance, then any amount not yet included in gross income under paragraph (1)(B) shall be included in gross income as of the day before the date of the event and the unpaid portion of any tax liability with respect to such inclusion 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). (n) Election not To apply net operating loss deduction (1) In general If a United States shareholder of a deferred foreign income corporation elects the application of this subsection for the taxable year described in subsection (a), then the amount described in paragraph (2) shall not be taken into account— (A) in determining the amount of the net operating loss deduction under section 172 of such shareholder for such taxable year, or (B) in determining the amount of taxable income for such taxable year which may be reduced by net operating loss carryovers or carrybacks to such taxable year under section 172. (2) Amount described The amount described in this paragraph is the sum of— (A) the amount required to be taken into account under section 951(a)(1) by reason of this section (determined after the application of subsection (c)), plus (B) in the case of a domestic corporation which chooses to have the benefits of subpart A of part III of subchapter N for the taxable year, the taxes deemed to be paid by such corporation under subsections (a) and (b) of section 960 for such taxable year with respect to the amount described in subparagraph (A) which are treated as a dividends under section 78. (3) Election Any election under this subsection shall be made not later than the due date (including extensions) for filing the return of tax for the taxable year and shall be made in such manner as the Secretary shall prescribe. (o) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including— (1) regulations or other guidance to provide appropriate basis adjustments, and (2) regulations or other guidance to prevent the avoidance of the purposes of this section, including through a reduction in earnings and profits, through changes in entity classification or accounting methods, or otherwise. . (b) Clerical amendment 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 965 and inserting the following: Sec. 965. Treatment of deferred foreign income upon transition to participation exemption system of taxation. . B Rules related to passive and mobile income 1 Taxation of foreign-derived intangible income and global intangible low-taxed income 14201. Current year inclusion of global intangible low-taxed income by united states shareholders (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. Global intangible low-taxed income 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 such shareholder's global intangible low-taxed income for such taxable year. (b) Global intangible low-taxed income For purposes of this section— (1) In general The term global intangible low-taxed income 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) such shareholder's net deemed tangible income return for such taxable year. (2) Net deemed tangible income return The term net deemed tangible income return means, with respect to any United States shareholder for any taxable year, the excess of— (A) 10 percent 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 (B) 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 to the extent the interest income attributable to such expense is not taken into account in determining such shareholder’s net CFC tested income. (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 described in section 952(b), (II) any gross income taken into account in determining the subpart F income of such corporation, (III) any gross income excluded from the foreign base company income (as defined in section 954) and the insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4), (IV) any dividend received from a related person (as defined in section 954(d)(3)), and (V) any foreign oil and gas extraction income (as defined in section 907(c)(1)) 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 to which such deductions would be allocable if there were such gross income). (B) Tested loss (i) In general 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). (ii) Coordination with subpart f to deny double benefit of losses Section 952(c)(1)(A) shall be applied by increasing the earnings and profits of the controlled foreign corporation by the tested loss of such corporation. (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, the average of such corporation’s aggregate adjusted bases as of the close of each quarter of 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 167. (2) Specified tangible property (A) In general The term specified tangible property means, except as provided in subparagraph (B), any tangible property used in the production of tested income. (B) Dual use property In the case of property used both in the production of tested income and income which is not tested income, such property shall be treated as specified tangible property in the same proportion that the gross income described in subsection (c)(1)(A) produced with respect to such property bears to the total gross income produced with respect to such property. (3) Determination of adjusted basis For purposes of this subsection, notwithstanding any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section, the adjusted basis in any property shall be determined— (A) by using the alternative depreciation system under section 168(g), and (B) by allocating the depreciation deduction with respect to such property ratably to each day during the period in the taxable year to which such depreciation relates. (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, (B) is of a type with respect to which a deduction is allowable under section 167, and (C) is used in the production of tested income (determined with respect to such controlled foreign corporation’s distributive share of income 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 with respect to such property. (4) 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) Determination of pro rata share, etc For purposes of this section— (1) In general The pro rata shares referred to in subsections (b), (c)(1)(A), and (c)(1)(B), respectively, shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income and shall be taken into account in the taxable year of the United States shareholder in which or with which the taxable year of the controlled foreign corporation ends. (2) Treatment as United States shareholder A person shall be treated as a United States shareholder of a controlled foreign corporation for any taxable year of such person only if such person owns (within the meaning of section 958(a)) stock in such foreign corporation on the last day in the taxable year of such foreign corporation on which such foreign corporation is a controlled foreign corporation. (3) Treatment as controlled foreign corporation A foreign corporation shall be treated as a controlled foreign corporation for any taxable year if such foreign corporation is a controlled foreign corporation at any time during such taxable year. (f) Treatment as subpart f income for certain purposes (1) In general (A) Application Except as provided in subparagraph (B), any global intangible low-taxed income 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, 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). (B) Exception The Secretary shall provide rules for the application of subparagraph (A) to other provisions of this title in any case in which the determination of subpart F income is required to be made at the level of the controlled foreign corporation. (2) Allocation of global intangible low-taxed income 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 global intangible low-taxed income included in gross income of a United States shareholder under subsection (a), the portion of such global intangible low-taxed income which is treated as being with respect to such controlled foreign corporation is— (A) in the case of a controlled foreign corporation with no tested income, zero, and (B) in the case of a controlled foreign corporation with tested income, the portion of such global intangible low-taxed income which bears the same ratio to such global intangible low-taxed income 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 described in subsection (c)(1)(A) with respect to such United States shareholder. . (b) Foreign tax credit (1) Application of deemed paid foreign tax credit Section 960 is amended adding at the end the following new subsection: (d) Deemed paid credit for taxes properly attributable to tested income (1) In general For purposes of subpart A of this part, 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 the product of— (A) such domestic corporation's inclusion percentage, multiplied by (B) the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations. (2) Inclusion percentage For purposes of paragraph (1), the term inclusion percentage means, with respect to any domestic corporation, the ratio (expressed as a percentage) of— (A) such corporation's global intangible low-taxed income (as defined in section 951A(b)), divided by (B) the aggregate amount described in 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 the tested income of such foreign corporation taken into account by such domestic corporation under section 951A. . (2) Application of foreign tax credit limitation (A) Separate basket for global intangible low-taxed income 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 (other than passive category income), . (B) Exclusion from general category income Section 904(d)(2)(A)(ii) is amended by inserting income described in paragraph (1)(A) and before passive category income . (C) No carryover or carryback 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). . (c) Clerical amendment 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. Global intangible low-taxed income 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. 14202. Deduction for foreign-derived intangible income and global intangible low-taxed income (a) In general Part VIII of subchapter B of chapter 1 is amended by adding at the end the following new section: 250. Foreign-derived intangible income and global intangible low-taxed income (a) Allowance of deduction (1) In general In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of— (A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus (B) 50 percent of— (i) the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and (ii) the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in clause (i). (2) Limitation based on taxable income (A) In general If, for any taxable year— (i) the sum of the foreign-derived intangible income and the global intangible low-taxed income amount otherwise taken into account by the domestic corporation under paragraph (1), exceeds (ii) the taxable income of the domestic corporation (determined without regard to this section), then the amount of the foreign-derived intangible income and the global intangible low-taxed income amount so taken into account shall be reduced as provided in subparagraph (B). (B) Reduction For purposes of subparagraph (A)— (i) foreign-derived intangible income shall be reduced by an amount which bears the same ratio to the excess described in subparagraph (A) as such foreign-derived intangible income bears to the sum described in subparagraph (A)(i), and (ii) the global intangible low-taxed income amount shall be reduced by the remainder of such excess. (3) Reduction in deduction for taxable years after 2025 In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied by substituting— (A) 21.875 percent for 37.5 percent in subparagraph (A), and (B) 37.5 percent for 50 percent in subparagraph (B). (b) Foreign-derived intangible income For purposes of this section— (1) In general The foreign-derived intangible income of any domestic corporation is the amount which bears the same ratio to the deemed intangible income of such corporation as— (A) the foreign-derived deduction eligible income of such corporation, bears to (B) the deduction eligible income of such corporation. (2) Deemed intangible income For purposes of this subsection— (A) In general The term deemed intangible income means the excess (if any) of— (i) the deduction eligible income of the domestic corporation, over (ii) the deemed tangible income return of the corporation. (B) Deemed tangible income return The term deemed tangible income return means, with respect to any corporation, an amount equal to 10 percent of the corporation's qualified business asset investment (as defined in section 951A(d), determined by substituting deduction eligible income for tested income in paragraph (2) thereof and without regard to whether the corporation is a controlled foreign corporation). (3) Deduction eligible income (A) In general The term deduction eligible income means, with respect to any domestic corporation, the excess (if any) of— (i) gross income of such corporation determined without regard to— (I) any amount included in the gross income of such corporation under section 951(a)(1), (II) the global intangible low-taxed income included in the gross income of such corporation under section 951A, (III) any financial services income (as defined in section 904(d)(2)(D)) of such corporation, (IV) any dividend received from a corporation which is a controlled foreign corporation of such domestic corporation, (V) any domestic oil and gas extraction income of such corporation, and (VI) any foreign branch income (as defined in section 904(d)(2)(J)), over (ii) the deductions (including taxes) properly allocable to such gross income. (B) Domestic oil and gas extraction income For purposes of subparagraph (A), the term domestic oil and gas extraction income means income described in section 907(c)(1), determined by substituting within the United States for without the United States . (4) Foreign-derived deduction eligible income The term foreign-derived deduction eligible income means, with respect to any taxpayer for any taxable year, any deduction eligible income of such taxpayer which is derived in connection with— (A) property— (i) which is sold by the taxpayer to any person who is not a United States person, and (ii) which the taxpayer establishes to the satisfaction of the Secretary is for a foreign use, or (B) services provided by the taxpayer which the taxpayer establishes to the satisfaction of the Secretary are provided to any person, or with respect to property, not located within the United States. (5) Rules relating to foreign use property or services For purposes of this subsection— (A) Foreign use The term foreign use means any use, consumption, or disposition which is not within the United States. (B) Property or services provided to domestic intermediaries (i) Property If a taxpayer sells property to another person (other than a related party) for further manufacture or other modification within the United States, such property shall not be treated as sold for a foreign use even if such other person subsequently uses such property for a foreign use. (ii) Services If a taxpayer provides services to another person (other than a related party) located within the United States, such services shall not be treated as described in paragraph (4)(B) even if such other person uses such services in providing services which are so described. (C) Special rules with respect to related party transactions (i) Sales to related parties If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless— (I) such property is ultimately sold by a related party, or used by a related party in connection with property which is sold or the provision of services, to another person who is an unrelated party who is not a United States person, and (II) the taxpayer establishes to the satisfaction of the Secretary that such property is for a foreign use. For purposes of this clause, a sale of property shall be treated as a sale of each of the components thereof. (ii) Service provided to related parties If a service is provided to a related party who is not located in the United States, such service shall not be treated described in subparagraph (A)(ii) unless the taxpayer established to the satisfaction of the Secretary that such service is not substantially similar to services provided by such related party to persons located within the United States. (D) Related party For purposes of this paragraph, the term related party means any member of 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). Any person (other than a corporation) shall be treated as a member of such group if such person is controlled by members of such group (including any entity treated as a member of such group by reason of this sentence) or controls any such member. For purposes of the preceding sentence, control shall be determined under the rules of section 954(d)(3). (E) Sold For purposes of this subsection, the terms sold , sells , and sale shall include any lease, license, exchange, or other disposition. (c) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section. . (b) Conforming amendments (1) Section 172(d), as amended by this Act, is amended by adding at the end the following new paragraph: (9) Deduction for foreign-derived intangible income The deduction under section 250 shall not be allowed. . (2) Section 246(b)(1) is amended— (A) by striking and subsection (a) and (b) of section 245 the first place it appears and inserting , subsection (a) and (b) of section 245, and section 250 , (B) by striking and subsection (a) and (b) of section 245 the second place it appears and inserting subsection (a) and (b) of section 245, and 250 . (3) Section 469(i)(3)(F)(iii) is amended by striking and 222 and inserting 222, and 250 . (4) The table of sections for part VIII of subchapter B of chapter 1 is amended by adding at the end the following new item: Sec. 250. Foreign-derived intangible income and global intangible low-taxed income. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 2 Other modifications of subpart f provisions 14211. Elimination of inclusion of foreign base company oil related income (a) Repeal Subsection (a) of section 954 is amended— (1) by inserting and at the end of paragraph (2), (2) by striking the comma at the end of paragraph (3) and inserting a period, and (3) by striking paragraph (5). (b) Conforming amendments (1) Section 952(c)(1)(B)(iii) is amended by striking subclause (I) and redesignating subclauses (II) through (V) as subclauses (I) through (IV), respectively. (2) Section 954(b) is amended— (A) by striking the second sentence of paragraph (4), (B) by striking the foreign base company services income, and the foreign base company oil related income in paragraph (5) and inserting and the foreign base company services income , and (C) by striking paragraph (6). (3) 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 with or within which such taxable years of foreign corporations end. 14212. 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) 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. 14213. 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) Effective date The amendments made by this section shall apply to— (1) the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent taxable year of such foreign corporations, and (2) taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. 14214. Modification of definition of united states shareholder (a) In general Section 951(b) is amended by inserting , or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation after such foreign corporation . (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. 14215. 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. 3 Prevention of base erosion 14221. Limitations on income shifting through intangible property transfers (a) Definition of intangible asset Section 936(h)(3)(B) is amended— (1) by striking or at the end of clause (v), (2) by striking clause (vi) and inserting the following: (vi) any goodwill, going concern value, or workforce in place (including its composition and terms and conditions (contractual or otherwise) of its employment); or (vii) any other item the value or potential value of which is not attributable to tangible property or the services of any individual. , and (3) by striking the flush language after clause (vii), as added by paragraph (2). (b) Clarification of allowable valuation methods (1) Foreign corporations Section 367(d)(2) is amended by adding at the end the following new subparagraph: (D) Regulatory authority For purposes of the last sentence of subparagraph (A), the Secretary shall require— (i) the valuation of transfers of intangible property, including intangible property transferred with other property or services, on an aggregate basis, or (ii) the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (2) Allocation among taxpayers Section 482 is amended by adding at the end the following: For purposes of this section, the Secretary shall require the valuation of transfers of intangible property (including intangible property transferred with other property or services) on an aggregate basis or the valuation of such a transfer on the basis of the realistic alternatives to such a transfer, if the Secretary determines that such basis is the most reliable means of valuation of such transfers. . (c) Effective date (1) In general The amendments made by this section shall apply to transfers in taxable years beginning after December 31, 2017. (2) No inference Nothing in the amendment made by subsection (a) shall be construed to create any inference with respect to the application of section 936(h)(3) of the Internal Revenue Code of 1986, or the authority of the Secretary of the Treasury to provide regulations for such application, with respect to taxable years beginning before January 1, 2018. 14222. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (a) In general Part IX of subchapter B of chapter 1 is amended by inserting after section 267 the following: 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (a) In general No deduction shall be allowed under this chapter for any disqualified related party amount paid or accrued pursuant to a hybrid transaction or by, or to, a hybrid entity. (b) Disqualified related party amount For purposes of this section— (1) Disqualified related party amount The term disqualified related party amount means any interest or royalty paid or accrued to a related party to the extent that— (A) such amount is not included in the income of such related party under the tax law of the country of which such related party is a resident for tax purposes or is subject to tax, or (B) such related party is allowed a deduction with respect to such amount under the tax law of such country. Such term shall not include any payment to the extent such payment is included in the gross income of a United States shareholder under section 951(a). (2) Related party The term related party means a related person as defined in section 954(d)(3), except that such section shall be applied with respect to the person making the payment described in paragraph (1) in lieu of the controlled foreign corporation otherwise referred to in such section. (c) Hybrid transaction For purposes of this section, the term hybrid transaction means any transaction, series of transactions, agreement, or instrument one or more payments with respect to which are treated as interest or royalties for purposes of this chapter and which are not so treated for purposes the tax law of the foreign country of which the recipient of such payment is resident for tax purposes or is subject to tax. (d) Hybrid entity For purposes of this section, the term hybrid entity means any entity which is either— (1) treated as fiscally transparent for purposes of this chapter but not so treated for purposes of the tax law of the foreign country of which the entity is resident for tax purposes or is subject to tax, or (2) treated as fiscally transparent for purposes of such tax law but not so treated for purposes of this chapter. (e) Regulations The Secretary shall 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 providing for— (1) rules for treating certain conduit arrangements which involve a hybrid transaction or a hybrid entity as subject to subsection (a), (2) rules for the application of this section to branches or domestic entities, (3) rules for treating certain structured transactions as subject to subsection (a), (4) rules for treating a tax preference as an exclusion from income for purposes of applying subsection (b)(1) if such tax preference has the effect of reducing the generally applicable statutory rate by 25 percent or more, (5) rules for treating the entire amount of interest or royalty paid or accrued to a related party as a disqualified related party amount if such amount is subject to a participation exemption system or other system which provides for the exclusion or deduction of a substantial portion of such amount, (6) rules for determining the tax residence of a foreign entity if the entity is otherwise considered a resident of more than one country or of no country, (7) exceptions from subsection (a) with respect to— (A) cases in which the disqualified related party amount is taxed under the laws of a foreign country other than the country of which the related party is a resident for tax purposes, and (B) other cases which the Secretary determines do not present a risk of eroding the Federal tax base, (8) requirements for record keeping and information reporting in addition to any requirements imposed by section 6038A. . (b) Conforming amendment The table of sections for part IX of subchapter B of chapter 1 is amended by inserting after the item relating to section 267 the following new item: Sec. 267A. Certain related party amounts paid or accrued in hybrid transactions or with hybrid entities. . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14223. Shareholders of surrogate foreign corporations not eligible for reduced rate on dividends (a) In general Section 1(h)(11)(C)(iii) is amended— (1) by striking shall not include any foreign corporation and inserting shall not include— (I) any foreign corporation , (2) by striking the period at the end and inserting , and , and (3) by adding at the end the following new subclause: (II) any corporation which first becomes a surrogate foreign corporation (as defined in section 7874(a)(2)(B)) after the date of the enactment of this subclause, other than a foreign corporation which is treated as a domestic corporation under section 7874(b). . (b) Effective date The amendments made by this section shall apply to dividends received after the date of the enactment of this Act. C Modifications related to foreign tax credit system 14301. 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 , as amended by section 14201, 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 subpart A of this part, 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 subpart A of this part— (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 (d) (as added by section 14201) the following new subsections: (e) 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. (f) Regulations The Secretary shall 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), (b), and (d) of section 960 (determined without regard to the phrase 80 percent of in subsection (d)(1) thereof) for such taxable year shall be treated for purposes of this title (other than sections 245 and 245A) as a dividend received by such domestic corporation from the foreign corporation. . (2) Paragraph (4) of section 245(a) is amended to read as follows: (4) Post-1986 undistributed earnings The term post-1986 undistributed earnings means the amount of 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— (A) as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and (B) without diminution by reason of dividends distributed during such taxable year. . (3) Section 245(a)(10)(C) is amended by striking 902, 907, and 960 and inserting 907 and 960 . (4) Sections 535(b)(1) and 545(b)(1) are each amended by striking section 902(a) or 960(a)(1) and inserting section 960 . (5) 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 . (6) Section 865(h)(1)(B) is amended by striking 902, 907, and inserting 907 . (7) Section 901(a) is amended by striking sections 902 and 960 and inserting section 960 . (8) 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 . (9) Section 901(f) is amended by striking sections 902 and 960 and inserting section 960 . (10) Section 901(j)(1)(A) is amended by striking 902 or . (11) Section 901(j)(1)(B) is amended by striking sections 902 and 960 and inserting section 960 . (12) Section 901(k)(2) is amended by striking , 902, . (13) Section 901(k)(6) is amended by striking 902 or . (14) Section 901(m)(1)(B) is amended to read as follows: (B) in the case of a foreign income tax paid by a foreign corporation, shall not be taken into account for purposes of section 960. . (15) Section 904(d)(2)(E) is amended— (A) by amending clause (i) to read as follows: (i) Noncontrolled 10-percent owned foreign corporation The term noncontrolled 10-percent owned foreign corporation means any foreign corporation which is— (I) a specified 10-percent owned foreign corporation (as defined in section 245A(b)), or (II) a passive foreign investment company (as defined in section 1297(a)) with respect to which the taxpayer meets the stock ownership requirements of section 902(a) (or, for purposes of applying paragraphs (3) and (4), the requirements of section 902(b)). A controlled foreign corporation shall not be treated as a noncontrolled 10-percent owned foreign corporation with respect to any distribution out of its earnings and profits for periods during which it was a controlled foreign corporation. Any reference to section 902 in this clause shall be treated as a reference to such section as in effect before its repeal. , and (B) by striking non-controlled section 902 corporation in clause (ii) and inserting noncontrolled 10-percent owned foreign corporation . (16) Section 904(d)(4) is amended— (A) by striking noncontrolled section 902 corporation each place it appears and inserting noncontrolled 10-percent owned foreign corporation , (B) by striking noncontrolled section 902 corporations in the heading thereof and inserting noncontrolled 10-percent owned foreign corporations . (17) Section 904(d)(6)(A) is amended by striking 902, 907, and inserting 907 . (18) Section 904(h)(10)(A) is amended by striking sections 902, 907, and 960 and inserting sections 907 and 960 . (19) Section 904(k) is amended to read as follows: (k) Cross references 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(c). . (20) Section 905(c)(1) is amended by striking the last sentence. (21) 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 . (22) Section 906(a) is amended by striking (or deemed, under section 902, paid or accrued during the taxable year) . (23) Section 906(b) is amended by striking paragraphs (4) and (5). (24) Section 907(b)(2)(B) is amended by striking 902 or . (25) Section 907(c)(3)(A) is amended— (A) by striking subparagraph (A) and inserting the following: (A) interest, to the extent the category of income of such interest is determined under section 904(d)(3), , and (B) by striking section 960(a) in subparagraph (B) and inserting section 960 . (26) Section 907(c)(5) is amended by striking 902 or . (27) Section 907(f)(2)(B)(i) is amended by striking 902 or . (28) Section 908(a) is amended by striking 902 or . (29) Section 909(b) is amended— (A) by striking section 902 corporation in the matter preceding paragraph (1) and inserting specified 10-percent owned foreign corporation (as defined in section 245A(b) without regard to paragraph (2) thereof) , (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 specified 10-percent owned foreign corporation or a domestic corporation which is a United States shareholder with respect to such specified 10-percent owned foreign corporation. , and (D) by striking Section 902 Corporations in the heading thereof and inserting Specified 10-percent Owned Foreign Corporations . (30) Section 909(d) is amended by striking paragraph (5). (31) Section 958(a)(1) is amended by striking 960(a)(1) and inserting 960 . (32) Section 959(d) is amended by striking Except as provided in section 960(a)(3), any and inserting Any . (33) Section 959(e) is amended by striking section 960(b) and inserting section 960(c) . (34) 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 . (35) Section 1293(f) is amended by striking and at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , and , and by adding at the end the following new paragraph: (3) a domestic corporation which owns (or is treated under section 1298(a) as owning) stock of a qualified electing fund shall be treated in the same manner as a United States shareholder of a controlled foreign corporation (and such qualified electing fund shall be treated in the same manner as such controlled foreign corporation) if such domestic corporation meets the stock ownership requirements of subsection (a) or (b) of section 902 (as in effect before its repeal) with respect to such qualified electing fund. . (36) 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 . (37) Section 6038(c)(4) is amended by striking subparagraph (C). (38) 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. (39) 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 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. 14302. Separate foreign tax credit limitation basket for foreign branch income (a) In general Section 904(d)(1), as amended by section 14201, is amended by redesignating subparagraphs (B) and (C) as subparagraphs (C) and (D), respectively, and by inserting after subparagraph (A) the following new subparagraph: (B) foreign branch income, . (b) Foreign branch income (1) In general Section 904(d)(2) is amended by inserting after subparagraph (I) the following new subparagraph: (J) Foreign branch income (i) In general The term foreign branch income means the business profits of such United States person which are attributable to 1 or more qualified business units (as defined in section 989(a)) in 1 or more foreign countries. For purposes of the preceding sentence, the amount of business profits attributable to a qualified business unit shall be determined under rules established by the Secretary. (ii) Exception Such term shall not include any income which is passive category income. . (2) Conforming amendment Section 904(d)(2)(A)(ii), as amended by section 14201, is amended by striking income described in paragraph (1)(A) and and inserting income described in paragraph (1)(A), foreign branch income, and . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 14303. 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. 14304. Election to increase percentage of domestic taxable income offset by overall domestic loss treated as foreign source (a) In general Section 904(g) is amended by adding at the end the following new paragraph: (5) Election to increase percentage of taxable income treated as foreign source (A) In general If any pre-2018 unused overall domestic loss is taken into account under paragraph (1) for any applicable taxable year, the taxpayer may elect to have such paragraph applied to such loss by substituting a percentage greater than 50 percent (but not greater than 100 percent) for 50 percent in subparagraph (B) thereof. (B) Pre-2018 unused overall domestic loss For purposes of this paragraph, the term pre-2018 unused overall domestic loss means any overall domestic loss which— (i) arises in a qualified taxable year beginning before January 1, 2018, and (ii) has not been used under paragraph (1) for any taxable year beginning before such date. (C) Applicable taxable year For purposes of this paragraph, the term applicable taxable year means any taxable year of the taxpayer beginning after December 31, 2017, and before January 1, 2028. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. II Inbound transactions 14401. Base erosion and anti-abuse tax (a) Imposition of tax Subchapter A of chapter 1 is amended by adding at the end the following new part: VII Base erosion and anti-abuse tax Sec. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts. 59A. Tax on base erosion payments of taxpayers with substantial gross receipts (a) Imposition of tax There is hereby imposed on each applicable taxpayer for any taxable year a tax equal to the base erosion minimum tax amount for the taxable year. Such tax shall be in addition to any other tax imposed by this subtitle. (b) Base erosion minimum tax amount For purposes of this section— (1) In general Except as provided in paragraphs (2) and (3), the term base erosion minimum tax amount means, with respect to any applicable taxpayer for any taxable year, the excess (if any) of— (A) an amount equal to 10 percent (5 percent in the case of taxable years beginning in calendar year 2018) of the modified taxable income of such taxpayer for the taxable year, over (B) an amount equal to the regular tax liability (as defined in section 26(b)) of the taxpayer for the taxable year, reduced (but not below zero) by the excess (if any) of— (i) the credits allowed under this chapter against such regular tax liability, over (ii) the sum of— (I) the credit allowed under section 38 for the taxable year which is properly allocable to the research credit determined under section 41(a), plus (II) the portion of the applicable section 38 credits not in excess of 80 percent of the lesser of the amount of such credits or the base erosion minimum tax amount (determined without regard to this subclause). (2) Modifications for taxable years beginning after 2025 In the case of any taxable year beginning after December 31, 2025, paragraph (1) shall be applied— (A) by substituting 12.5 percent for 10 percent in subparagraph (A) thereof, and (B) by reducing (but not below zero) the regular tax liability (as defined in section 26(b)) for purposes of subparagraph (B) thereof by the aggregate amount of the credits allowed under this chapter against such regular tax liability rather than the excess described in such subparagraph. (3) Increased rate for certain banks and securities dealers (A) In general In the case of a taxpayer described in subparagraph (B) who is an applicable taxpayer for any taxable year, the percentage otherwise in effect under paragraphs (1)(A) and (2)(A) shall each be increased by one percentage point. (B) Taxpayer described A taxpayer is described in this subparagraph if such taxpayer is a member of an affiliated group (as defined in section 1504(a)(1)) which includes— (i) a bank (as defined in section 581), or (ii) a registered securities dealer under section 15(a) of the Securities Exchange Act of 1934 . (4) Applicable section 38 credits For purposes of paragraph (1)(B)(ii)(II), the term applicable section 38 credits means the credit allowed under section 38 for the taxable year which is properly allocable to— (A) the low-income housing credit determined under section 42(a), (B) the renewable electricity production credit determined under section 45(a), and (C) the investment credit determined under section 46, but only to the extent properly allocable to the energy credit determined under section 48. (c) Modified taxable income For purposes of this section— (1) In general The term modified taxable income means the taxable income of the taxpayer computed under this chapter for the taxable year, determined without regard to— (A) any base erosion tax benefit with respect to any base erosion payment, or (B) the base erosion percentage of any net operating loss deduction allowed under section 172 for the taxable year. (2) Base erosion tax benefit (A) In general The term base erosion tax benefit means— (i) any deduction described in subsection (d)(1) which is allowed under this chapter for the taxable year with respect to any base erosion payment, (ii) in the case of a base erosion payment described in subsection (d)(2), any deduction allowed under this chapter for the taxable year for depreciation (or amortization in lieu of depreciation) with respect to the property acquired with such payment, (iii) in the case of a base erosion payment described in subsection (d)(3)— (I) any reduction under section 803(a)(1)(B) in the gross amount of premiums and other consideration on insurance and annuity contracts for premiums and other consideration arising out of indemnity insurance, and (II) any deduction under section 832(b)(4)(A) from the amount of gross premiums written on insurance contracts during the taxable year for premiums paid for reinsurance, and (iv) in the case of a base erosion payment described in subsection (d)(4), any reduction in gross receipts with respect to such payment in computing gross income of the taxpayer for the taxable year for purposes of this chapter. (B) Tax benefits disregarded if tax withheld on base erosion payment (i) In general Except as provided in clause (ii), any base erosion tax benefit attributable to any base erosion payment— (I) on which tax is imposed by section 871 or 881, and (II) with respect to which tax has been deducted and withheld under section 1441 or 1442, shall not be taken into account in computing modified taxable income under paragraph (1)(A) or the base erosion percentage under paragraph (4). (ii) Exception The amount not taken into account in computing modified taxable income by reason of clause (i) shall be reduced under rules similar to the rules under section 163(j)(5)(B) (as in effect before the date of the enactment of the Tax Cuts and Jobs Act). (3) Special rules for determining interest for which deduction allowed For purposes of applying paragraph (1), in the case of a taxpayer to which section 163(j) applies for the taxable year, the reduction in the amount of interest for which a deduction is allowed by reason of such subsection shall be treated as allocable first to interest paid or accrued to persons who are not related parties with respect to the taxpayer and then to such related parties. (4) Base erosion percentage For purposes of paragraph (1)(B)— (A) In general The term base erosion percentage means, for any taxable year, the percentage determined by dividing— (i) the aggregate amount of base erosion tax benefits of the taxpayer for the taxable year, by (ii) the sum of— (I) the aggregate amount of the deductions (including deductions described in clauses (i) and (ii) of paragraph (2)(A)) allowable to the taxpayer under this chapter for the taxable year, plus (II) the base erosion tax benefits described in clauses (iii) and (iv) of paragraph (2)(A) allowable to the taxpayer for the taxable year. (B) Certain items not taken into account The amount under subparagraph (A)(ii) shall be determined by not taking into account— (i) any deduction allowed under section 172, 245A, or 250 for the taxable year, (ii) any deduction for amounts paid or accrued for services to which the exception under subsection (d)(5) applies, and (iii) any deduction for qualified derivative payments which are not treated as a base erosion payment by reason of subsection (h). (d) Base erosion payment For purposes of this section— (1) In general The term base erosion payment means any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer and with respect to which a deduction is allowable under this chapter. (2) Purchase of depreciable property Such term shall also include any amount paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer in connection with the acquisition by the taxpayer from such person of property of a character subject to the allowance for depreciation (or amortization in lieu of depreciation). (3) Reinsurance payments Such term shall also include any premium or other consideration paid or accrued by the taxpayer to a foreign person which is a related party of the taxpayer for any reinsurance payments which are taken into account under sections 803(a)(1)(B) or 832(b)(4)(A). (4) Certain payments to expatriated entities (A) In general Such term shall also include any amount paid or accrued by the taxpayer with respect to a person described in subparagraph (B) which results in a reduction of the gross receipts of the taxpayer. (B) Person described A person is described in this subparagraph if such person is a— (i) surrogate foreign corporation which is a related party of the taxpayer, but only if such person first became a surrogate foreign corporation after November 9, 2017, or (ii) foreign person which is a member of the same expanded affiliated group as the surrogate foreign corporation. (C) Definitions For purposes of this paragraph— (i) Surrogate foreign corporation The term surrogate foreign corporation has the meaning given such term by section 7874(a)(2)(B) but does not include a foreign corporation treated as a domestic corporation under section 7874(b). (ii) Expanded affiliated group The term expanded affiliated group has the meaning given such term by section 7874(c)(1). (5) Exception for certain amounts with respect to services Paragraph (1) shall not apply to any amount paid or accrued by a taxpayer for services if— (A) such services are services which meet the requirements for eligibility for use of the services cost method under section 482 (determined without regard to the requirement that the services not contribute significantly to fundamental risks of business success or failure), and (B) such amount constitutes the total services cost with no markup component. (e) Applicable taxpayer For purposes of this section— (1) In general The term applicable taxpayer means, with respect to any taxable year, a taxpayer— (A) which is a corporation other than a regulated investment company, a real estate investment trust, or an S corporation, (B) the average annual gross receipts of which for the 3-taxable-year period ending with the preceding taxable year are at least $500,000,000, and (C) the base erosion percentage (as determined under subsection (c)(4)) of which for the taxable year is 3 percent (2 percent in the case of a taxpayer described in subsection (b)(3)(B)) or higher. (2) Gross receipts (A) Special rule for foreign persons In the case of a foreign person the gross receipts of which are taken into account for purposes of paragraph (1)(B), only gross receipts which are taken into account in determining income which is effectively connected with the conduct of a trade or business within the United States shall be taken into account. In the case of a taxpayer which is a foreign person, the preceding sentence shall not apply to the gross receipts of any United States person which are aggregated with the taxpayer's gross receipts by reason of paragraph (3). (B) Other rules made applicable Rules similar to the rules of subparagraphs (B), (C), and (D) of section 448(c)(3) shall apply in determining gross receipts for purposes of this section. (3) Aggregation rules All persons treated as a single employer under subsection (a) of section 52 shall be treated as 1 person for purposes of this subsection and subsection (c)(4), except that in applying section 1563 for purposes of section 52, the exception for foreign corporations under section 1563(b)(2)(C) shall be disregarded. (f) Foreign person For purposes of this section, the term foreign person has the meaning given such term by section 6038A(c)(3). (g) Related party For purposes of this section— (1) In general The term related party means, with respect to any applicable taxpayer— (A) any 25-percent owner of the taxpayer, (B) any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or any 25-percent owner of the taxpayer, and (C) any other person who is related (within the meaning of section 482) to the taxpayer. (2) 25-percent owner The term 25-percent owner means, with respect to any corporation, any person who owns at least 25 percent of— (A) the total voting power of all classes of stock of a corporation entitled to vote, or (B) the total value of all classes of stock of such corporation. (3) Section 318 to apply Section 318 shall apply for purposes of paragraphs (1) and (2), except that— (A) 10 percent shall be substituted for 50 percent in section 318(a)(2)(C), and (B) subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person. (h) Exception for certain payments made in the ordinary course of trade or business For purposes of this section— (1) In general Except as provided in paragraph (3), any qualified derivative payment shall not be treated as a base erosion payment. (2) Qualified derivative payment (A) In general The term qualified derivative payment means any payment made by a taxpayer pursuant to a derivative with respect to which the taxpayer— (i) recognizes gain or loss as if such derivative were sold for its fair market value on the last business day of the taxable year (and such additional times as required by this title or the taxpayer's method of accounting), (ii) treats any gain or loss so recognized as ordinary, and (iii) treats the character of all items of income, deduction, gain, or loss with respect to a payment pursuant to the derivative as ordinary. (B) Reporting requirement No payments shall be treated as qualified derivative payments under subparagraph (A) for any taxable year unless the taxpayer includes in the information required to be reported under section 6038B(b)(2) with respect to such taxable year such information as is necessary to identify the payments to be so treated and such other information as the Secretary determines necessary to carry out the provisions of this subsection. (3) Exceptions for payments otherwise treated as base erosion payments This subsection shall not apply to any qualified derivative payment if— (A) the payment would be treated as a base erosion payment if it were not made pursuant to a derivative, including any interest, royalty, or service payment, or (B) in the case of a contract which has derivative and nonderivative components, the payment is properly allocable to the nonderivative component. (4) Derivative defined For purposes of this subsection— (A) In general The term derivative means any contract (including any option, forward contract, futures contract, short position, swap, or similar contract) the value of which, or any payment or other transfer with respect to which, is (directly or indirectly) determined by reference to one or more of the following: (i) Any share of stock in a corporation. (ii) Any evidence of indebtedness. (iii) Any commodity which is actively traded. (iv) Any currency. (v) Any rate, price, amount, index, formula, or algorithm. Such term shall not include any item described in clauses (i) through (v). (B) Treatment of American depository receipts and similar instruments Except as otherwise provided by the Secretary, for purposes of this part, American depository receipts (and similar instruments) with respect to shares of stock in foreign corporations shall be treated as shares of stock in such foreign corporations. (C) Exception for certain contracts Such term shall not include any insurance, annuity, or endowment contract issued by an insurance company to which subchapter L applies (or issued by any foreign corporation to which such subchapter would apply if such foreign corporation were a domestic corporation). (i) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including regulations— (1) providing for such adjustments to the application of this section as are necessary to prevent the avoidance of the purposes of this section, including through— (A) the use of unrelated persons, conduit transactions, or other intermediaries, or (B) transactions or arrangements designed, in whole or in part— (i) to characterize payments otherwise subject to this section as payments not subject to this section, or (ii) to substitute payments not subject to this section for payments otherwise subject to this section and (2) for the application of subsection (g), including rules to prevent the avoidance of the exceptions under subsection (g)(3). . (b) Reporting requirements and penalties (1) In general Subsection (b) of section 6038A is amended to read as follows: (b) Required information (1) In general For purposes of subsection (a), the information described in this subsection is such information as the Secretary prescribes by regulations relating to— (A) the name, principal place of business, nature of business, and country or countries in which organized or resident, of each person which— (i) is a related party to the reporting corporation, and (ii) had any transaction with the reporting corporation during its taxable year, (B) the manner in which the reporting corporation is related to each person referred to in subparagraph (A), and (C) transactions between the reporting corporation and each foreign person which is a related party to the reporting corporation. (2) Additional information regarding base erosion payments For purposes of subsection (a) and section 6038C, if the reporting corporation or the foreign corporation to whom section 6038C applies is an applicable taxpayer, the information described in this subsection shall include— (A) such information as the Secretary determines necessary to determine the base erosion minimum tax amount, base erosion payments, and base erosion tax benefits of the taxpayer for purposes of section 59A for the taxable year, and (B) such other information as the Secretary determines necessary to carry out such section. For purposes of this paragraph, any term used in this paragraph which is also used in section 59A shall have the same meaning as when used in such section. . (2) Increase in penalty Paragraphs (1) and (2) of section 6038A(d) are each amended by striking $10,000 and inserting $25,000 . (c) Disallowance of credits against base erosion tax Paragraph (2) of section 26(b) is amended by inserting after subparagraph (A) the following new subparagraph: (B) section 59A (relating to base erosion and anti-abuse tax), . (d) Conforming amendments (1) The table of parts for subchapter A of chapter 1 is amended by adding after the item relating to part VI the following new item: Part VII. Base Erosion and Anti-abuse Tax . (2) Paragraph (1) of section 882(a), as amended by this Act, is amended by inserting or 59A, after section 11, . (3) Subparagraph (A) of section 6425(c)(1), as amended by section 13001, is amended to read as follows: (A) the sum of— (i) the tax imposed by section 11, or subchapter L of chapter 1, whichever is applicable, plus (ii) the tax imposed by section 59A, over . (4) (A) Subparagraph (A) of section 6655(g)(1), as amended by sections 12001 and 13001, is amended by striking plus at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause: (ii) the tax imposed by section 59A, plus . (B) Subparagraphs (A)(i) and (B)(i) of section 6655(e)(2), as amended by sections 12001 and 13001, are each amended by inserting and modified taxable income after taxable income . (C) Subparagraph (B) of section 6655(e)(2) is amended by adding at the end the following new clause: (iii) Modified taxable income The term modified taxable income has the meaning given such term by section 59A(c)(1). . (e) Effective date The amendments made by this section shall apply to base erosion payments (as defined in section 59A(d) of the Internal Revenue Code of 1986, as added by this section) paid or accrued in taxable years beginning after December 31, 2017. III Other provisions 14501. 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. 14502. Repeal of fair market value method of interest expense apportionment (a) In general Paragraph (2) of section 864(e) is amended to read as follows: (2) Gross income and fair market value methods may not be used for interest All allocations and apportionments of interest expense shall be determined using the adjusted bases of assets rather than on the basis of the fair market value of the assets or gross income. . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2017. II 20001. Oil and gas program (a) Definitions In this section: (1) Coastal Plain The term Coastal Plain means the area identified as the 1002 Area on the plates prepared by the United States Geological Survey entitled ANWR Map – Plate 1 and ANWR Map – Plate 2 , dated October 24, 2017, and on file with the United States Geological Survey and the Office of the Solicitor of the Department of the Interior. (2) Secretary The term Secretary means the Secretary of the Interior, acting through the Bureau of Land Management. (b) Oil and gas program (1) In general Section 1003 of the Alaska National Interest Lands Conservation Act ( 16 U.S.C. 3143 ) shall not apply to the Coastal Plain. (2) Establishment (A) In general The Secretary shall establish and administer a competitive oil and gas program for the leasing, development, production, and transportation of oil and gas in and from the Coastal Plain. (B) Purposes Section 303(2)(B) of the Alaska National Interest Lands Conservation Act ( Public Law 96–487 ; 94 Stat. 2390) is amended— (i) in clause (iii), by striking and at the end; (ii) in clause (iv), by striking the period at the end and inserting ; and ; and (iii) by adding at the end the following: (v) to provide for an oil and gas program on the Coastal Plain. . (3) Management Except as otherwise provided in this section, the Secretary shall manage the oil and gas program on the Coastal Plain in a manner similar to the administration of lease sales under the Naval Petroleum Reserves Production Act of 1976 ( 42 U.S.C. 6501 et seq.) (including regulations). (4) Royalties Notwithstanding the Mineral Leasing Act ( 30 U.S.C. 181 et seq.), the royalty rate for leases issued pursuant to this section shall be 16.67 percent. (5) Receipts Notwithstanding the Mineral Leasing Act ( 30 U.S.C. 181 et seq.), of the amount of adjusted bonus, rental, and royalty receipts derived from the oil and gas program and operations on Federal land authorized under this section— (A) 50 percent shall be paid to the State of Alaska; and (B) the balance shall be deposited into the Treasury as miscellaneous receipts. (c) 2 lease sales within 10 years (1) Requirement (A) In general Subject to subparagraph (B), the Secretary shall conduct not fewer than 2 lease sales area-wide under the oil and gas program under this section by not later than 10 years after the date of enactment of this Act. (B) Sale acreages; schedule (i) Acreages The Secretary shall offer for lease under the oil and gas program under this section— (I) not fewer than 400,000 acres area-wide in each lease sale; and (II) those areas that have the highest potential for the discovery of hydrocarbons. (ii) Schedule The Secretary shall offer— (I) the initial lease sale under the oil and gas program under this section not later than 4 years after the date of enactment of this Act; and (II) a second lease sale under the oil and gas program under this section not later than 7 years after the date of enactment of this Act. (2) Rights-of-way The Secretary shall issue any rights-of-way or easements across the Coastal Plain for the exploration, development, production, or transportation necessary to carry out this section. (3) Surface development In administering this section, the Secretary shall authorize up to 2,000 surface acres of Federal land on the Coastal Plain to be covered by production and support facilities (including airstrips and any area covered by gravel berms or piers for support of pipelines) during the term of the leases under the oil and gas program under this section. 20002. Limitations on amount of distributed qualified outer Continental Shelf revenues Section 105(f)(1) of the Gulf of Mexico Energy Security Act of 2006 ( 43 U.S.C. 1331 note; Public Law 109–432 ) is amended by striking exceed $500,000,000 for each of fiscal years 2016 through 2055. and inserting the following: “exceed— (A) $500,000,000 for each of fiscal years 2016 through 2019; (B) $650,000,000 for each of fiscal years 2020 and 2021; and (C) $500,000,000 for each of fiscal years 2022 through 2055. . 20003. Strategic Petroleum Reserve drawdown and sale (a) Drawdown and sale (1) In general Notwithstanding section 161 of the Energy Policy and Conservation Act ( 42 U.S.C. 6241 ), except as provided in subsections (b) and (c), the Secretary of Energy shall draw down and sell from the Strategic Petroleum Reserve 7,000,000 barrels of crude oil during the period of fiscal years 2026 through 2027. (2) Deposit of amounts received from sale Amounts received from a sale under paragraph (1) shall be deposited in the general fund of the Treasury during the fiscal year in which the sale occurs. (b) Emergency protection The Secretary of Energy shall not draw down and sell crude oil under subsection (a) in a quantity that would limit the authority to sell petroleum products under subsection (h) of section 161 of the Energy Policy and Conservation Act ( 42 U.S.C. 6241 ) in the full quantity authorized by that subsection. (c) Limitation The Secretary of Energy shall not drawdown or conduct sales of crude oil under subsection (a) after the date on which a total of $600,000,000 has been deposited in the general fund of the Treasury from sales authorized under that subsection.

Speaker of the House of Representatives. Vice President of the United States and President of the Senate.