[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1 Introduced in House (IH)]
113th CONGRESS
2d Session
H. R. 1
To amend the Internal Revenue Code of 1986 to provide for comprehensive
tax reform.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
December 10, 2014
Mr. Camp introduced the following bill; which was referred to the
Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide for comprehensive
tax reform.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Tax Reform Act of
2014''.
(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 of this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--TAX REFORM FOR INDIVIDUALS
Subtitle A--Individual Income Tax Rate Reform
Sec. 1001. Simplification of individual income tax rates.
Sec. 1002. Deduction for adjusted net capital gain.
Sec. 1003. Conforming amendments related to simplification of
individual income tax rates.
Subtitle B--Simplification of Tax Benefits for Families
Sec. 1101. Standard deduction.
Sec. 1102. Increase and expansion of child tax credit.
Sec. 1103. Modification of earned income tax credit.
Sec. 1104. Repeal of deduction for personal exemptions.
Subtitle C--Simplification of Education Incentives
Sec. 1201. American opportunity tax credit.
Sec. 1202. Expansion of Pell Grant exclusion from gross income.
Sec. 1203. Repeal of exclusion of income from United States savings
bonds used to pay higher education tuition
and fees.
Sec. 1204. Repeal of deduction for interest on education loans.
Sec. 1205. Repeal of deduction for qualified tuition and related
expenses.
Sec. 1206. No new contributions to Coverdell education savings
accounts.
Sec. 1207. Repeal of exclusion for discharge of student loan
indebtedness.
Sec. 1208. Repeal of exclusion for qualified tuition reductions.
Sec. 1209. Repeal of exclusion for education assistance programs.
Sec. 1210. Repeal of exception to 10-percent penalty for higher
education expenses.
Subtitle D--Repeal of Certain Credits for Individuals
Sec. 1301. Repeal of dependent care credit.
Sec. 1302. Repeal of credit for adoption expenses.
Sec. 1303. Repeal of credit for nonbusiness energy property.
Sec. 1304. Repeal of credit for residential energy efficient property.
Sec. 1305. Repeal of credit for qualified electric vehicles.
Sec. 1306. Repeal of alternative motor vehicle credit.
Sec. 1307. Repeal of alternative fuel vehicle refueling property
credit.
Sec. 1308. Repeal of credit for new qualified plug-in electric drive
motor vehicles.
Sec. 1309. Repeal of credit for health insurance costs of eligible
individuals.
Sec. 1310. Repeal of first-time homebuyer credit.
Subtitle E--Deductions, Exclusions, and Certain Other Provisions
Sec. 1401. Exclusion of gain from sale of a principal residence.
Sec. 1402. Mortgage interest.
Sec. 1403. Charitable contributions.
Sec. 1404. Denial of deduction for expenses attributable to the trade
or business of being an employee.
Sec. 1405. Repeal of deduction for taxes not paid or accrued in a trade
or business.
Sec. 1406. Repeal of deduction for personal casualty losses.
Sec. 1407. Limitation on wagering losses.
Sec. 1408. Repeal of deduction for tax preparation expenses.
Sec. 1409. Repeal of deduction for medical expenses.
Sec. 1410. Repeal of disqualification of expenses for over-the-counter
drugs under certain accounts and
arrangements.
Sec. 1411. Repeal of deduction for alimony payments and corresponding
inclusion in gross income.
Sec. 1412. Repeal of deduction for moving expenses.
Sec. 1413. Termination of deduction and exclusions for contributions to
medical savings accounts.
Sec. 1414. Repeal of 2-percent floor on miscellaneous itemized
deductions.
Sec. 1415. Repeal of overall limitation on itemized deductions.
Sec. 1416. Deduction for amortizable bond premium allowed in
determining adjusted gross income.
Sec. 1417. Repeal of exclusion, etc., for employee achievement awards.
Sec. 1418. Clarification of special rule for certain governmental
plans.
Sec. 1419. Limitation on exclusion for employer-provided housing.
Sec. 1420. Fringe benefits.
Sec. 1421. Repeal of exclusion of net unrealized appreciation in
employer securities.
Sec. 1422. Consistent basis reporting between estate and person
acquiring property from decedent.
Subtitle F--Employment Tax Modifications
Sec. 1501. Modifications of deduction for Social Security taxes in
computing net earnings from self-
employment.
Sec. 1502. Determination of net earnings from self-employment.
Sec. 1503. Repeal of exemption from FICA taxes for certain foreign
workers.
Sec. 1504. Repeal of exemption from FICA taxes for certain students.
Sec. 1505. Override of Treasury guidance providing that certain
employer-provided supplemental unemployment
benefits are not subject to employment
taxes.
Sec. 1506. Certified professional employer organizations.
Subtitle G--Pensions and Retirement
Part 1--Individual Retirement Plans
Sec. 1601. Elimination of income limits on contributions to Roth IRAs.
Sec. 1602. No new contributions to traditional IRAs.
Sec. 1603. Inflation adjustment for Roth IRA contributions.
Sec. 1604. Repeal of special rule permitting recharacterization of Roth
IRA contributions as traditional IRA
contributions.
Sec. 1605. Repeal of exception to 10-percent penalty for first home
purchases.
Part 2--Employer-Provided Plans
Sec. 1611. Termination for new SEPs.
Sec. 1612. Termination for new SIMPLE 401(k)s.
Sec. 1613. Rules related to designated Roth contributions.
Sec. 1614. Modifications of required distribution rules for pension
plans.
Sec. 1615. Reduction in minimum age for allowable in-service
distributions.
Sec. 1616. Modification of rules governing hardship distributions.
Sec. 1617. Extended rollover period for the rollover of plan loan
offset amounts in certain cases.
Sec. 1618. Coordination of contribution limitations for 403(b) plans
and governmental 457(b) plans.
Sec. 1619. Application of 10-percent early distribution tax to
governmental 457 plans.
Sec. 1620. Inflation adjustments for qualified plan benefit and
contribution limitations.
Sec. 1621. Inflation adjustments for qualified plan elective deferral
limitations.
Sec. 1622. Inflation adjustments for SIMPLE retirement accounts.
Sec. 1623. Inflation adjustments for catch-up contributions for certain
employer plans.
Sec. 1624. Inflation adjustments for governmental and tax-exempt
organization plans.
Subtitle H--Certain Provisions Related to Members of Indian Tribes
Sec. 1701. Indian general welfare benefits.
Sec. 1702. Tribal Advisory Committee.
Sec. 1703. Other relief for Indian tribes.
TITLE II--ALTERNATIVE MINIMUM TAX REPEAL
Sec. 2001. Repeal of alternative minimum tax.
TITLE III--BUSINESS TAX REFORM
Subtitle A--Tax Rates
Sec. 3001. 25-percent corporate tax rate.
Subtitle B--Reform of Business-Related Exclusions and Deductions
Sec. 3101. Revision of treatment of contributions to capital.
Sec. 3102. Repeal of deduction for local lobbying expenses.
Sec. 3103. Expenditures for repairs in connection with casualty losses.
Sec. 3104. Reform of accelerated cost recovery system.
Sec. 3105. Repeal of amortization of pollution control facilities.
Sec. 3106. Net operating loss deduction.
Sec. 3107. Circulation expenditures.
Sec. 3108. Amortization of research and experimental expenditures.
Sec. 3109. Repeal of deductions for soil and water conservation
expenditures and endangered species
recovery expenditures.
Sec. 3110. Amortization of certain advertising expenses.
Sec. 3111. Expensing certain depreciable business assets for small
business.
Sec. 3112. Repeal of election to expense certain refineries.
Sec. 3113. Repeal of deduction for energy efficient commercial
buildings.
Sec. 3114. Repeal of election to expense advanced mine safety
equipment.
Sec. 3115. Repeal of deduction for expenditures by farmers for
fertilizer, etc.
Sec. 3116. Repeal of special treatment of certain qualified film and
television productions.
Sec. 3117. Repeal of special rules for recoveries of damages of
antitrust violations, etc.
Sec. 3118. Treatment of reforestation expenditures.
Sec. 3119. 20-year amortization of goodwill and certain other
intangibles.
Sec. 3120. Treatment of environmental remediation costs.
Sec. 3121. Repeal of expensing of qualified disaster expenses.
Sec. 3122. Phaseout and repeal of deduction for income attributable to
domestic production activities.
Sec. 3123. Unification of deduction for organizational expenditures.
Sec. 3124. Prevention of arbitrage of deductible interest expense and
tax-exempt interest income.
Sec. 3125. Prevention of transfer of certain losses from tax
indifferent parties.
Sec. 3126. Entertainment, etc. expenses.
Sec. 3127. Repeal of limitation on corporate acquisition indebtedness.
Sec. 3128. Denial of deductions and credits for expenditures in illegal
businesses.
Sec. 3129. Limitation on deduction for FDIC premiums.
Sec. 3130. Repeal of percentage depletion.
Sec. 3131. Repeal of passive activity exception for working interests
in oil and gas property.
Sec. 3132. Repeal of special rules for gain or loss on timber, coal, or
domestic iron ore.
Sec. 3133. Repeal of like-kind exchanges.
Sec. 3134. Restriction on trade or business property treated as similar
or related in service to involuntarily
converted property in disaster areas.
Sec. 3135. Repeal of rollover of publicly traded securities gain into
specialized small business investment
companies.
Sec. 3136. Termination of special rules for gain from certain small
business stock.
Sec. 3137. Certain self-created property not treated as a capital
asset.
Sec. 3138. Repeal of special rule for sale or exchange of patents.
Sec. 3139. Depreciation recapture on gain from disposition of certain
depreciable realty.
Sec. 3140. Common deduction conforming amendments.
Subtitle C--Reform of Business Credits
Sec. 3201. Repeal of credit for alcohol, etc., used as fuel.
Sec. 3202. Repeal of credit for biodiesel and renewable diesel used as
fuel.
Sec. 3203. Research credit modified and made permanent.
Sec. 3204. Low-income housing tax credit.
Sec. 3205. Repeal of enhanced oil recovery credit.
Sec. 3206. Phaseout and repeal of credit for electricity produced from
certain renewable resources.
Sec. 3207. Repeal of Indian employment credit.
Sec. 3208. Repeal of credit for portion of employer Social Security
taxes paid with respect to employee cash
tips.
Sec. 3209. Repeal of credit for clinical testing expenses for certain
drugs for rare diseases or conditions.
Sec. 3210. Repeal of credit for small employer pension plan startup
costs.
Sec. 3211. Repeal of employer-provided child care credit.
Sec. 3212. Repeal of railroad track maintenance credit.
Sec. 3213. Repeal of credit for production of low sulfur diesel fuel.
Sec. 3214. Repeal of credit for producing oil and gas from marginal
wells.
Sec. 3215. Repeal of credit for production from advanced nuclear power
facilities.
Sec. 3216. Repeal of credit for producing fuel from a nonconventional
source.
Sec. 3217. Repeal of new energy efficient home credit.
Sec. 3218. Repeal of energy efficient appliance credit.
Sec. 3219. Repeal of mine rescue team training credit.
Sec. 3220. Repeal of agricultural chemicals security credit.
Sec. 3221. Repeal of credit for carbon dioxide sequestration.
Sec. 3222. Repeal of credit for employee health insurance expenses of
small employers.
Sec. 3223. Repeal of rehabilitation credit.
Sec. 3224. Repeal of energy credit.
Sec. 3225. Repeal of qualifying advanced coal project credit.
Sec. 3226. Repeal of qualifying gasification project credit.
Sec. 3227. Repeal of qualifying advanced energy project credit.
Sec. 3228. Repeal of qualifying therapeutic discovery project credit.
Sec. 3229. Repeal of work opportunity tax credit.
Sec. 3230. Repeal of deduction for certain unused business credits.
Subtitle D--Accounting Methods
Sec. 3301. Limitation on use of cash method of accounting.
Sec. 3302. Rules for determining whether taxpayer has adopted a method
of accounting.
Sec. 3303. Certain special rules for taxable year of inclusion.
Sec. 3304. Installment sales.
Sec. 3305. Repeal of special rule for prepaid subscription income.
Sec. 3306. Repeal of special rule for prepaid dues income of certain
membership organizations.
Sec. 3307. Repeal of special rule for magazines, paperbacks, and
records returned after close of the taxable
year.
Sec. 3308. Modification of rules for long-term contracts.
Sec. 3309. Nuclear decommissioning reserve funds.
Sec. 3310. Repeal of last-in, first-out method of inventory.
Sec. 3311. Repeal of lower of cost or market method of inventory.
Sec. 3312. Modification of rules for capitalization and inclusion in
inventory costs of certain expenses.
Sec. 3313. Modification of income forecast method.
Sec. 3314. Repeal of averaging of farm income.
Sec. 3315. Treatment of patent or trademark infringement awards.
Sec. 3316. Repeal of redundant rules with respect to carrying charges.
Sec. 3317. Repeal of recurring item exception for spudding of oil or
gas wells.
Subtitle E--Financial Instruments
Part 1--Derivatives and Hedges
Sec. 3401. Treatment of certain derivatives.
Sec. 3402. Modification of certain rules related to hedges.
Part 2--Treatment of Debt Instruments
Sec. 3411. Current inclusion in income of market discount.
Sec. 3412. Treatment of certain exchanges of debt instruments.
Sec. 3413. Coordination with rules for inclusion not later than for
financial accounting purposes.
Sec. 3414. Rules regarding certain government debt.
Part 3--Certain Rules for Determining Gain and Loss
Sec. 3421. Cost basis of specified securities determined without regard
to identification.
Sec. 3422. Wash sales by related parties.
Sec. 3423. Nonrecognition for derivative transactions by a corporation
with respect to its stock.
Part 4--Tax Favored Bonds
Sec. 3431. Termination of private activity bonds.
Sec. 3432. Termination of credit for interest on certain home
mortgages.
Sec. 3433. Repeal of advance refunding bonds.
Sec. 3434. Repeal of tax credit bond rules.
Subtitle F--Insurance Reforms
Sec. 3501. Exception to pro rata interest expense disallowance for
corporate-owned life insurance restricted
to 20-percent owners.
Sec. 3502. Net operating losses of life insurance companies.
Sec. 3503. Repeal of small life insurance company deduction.
Sec. 3504. Computation of life insurance tax reserves.
Sec. 3505. Adjustment for change in computing reserves.
Sec. 3506. Modification of rules for life insurance proration for
purposes of determining the dividends
received deduction.
Sec. 3507. Repeal of special rule for distributions to shareholders
from pre-1984 policyholders surplus
account.
Sec. 3508. Modification of proration rules for property and casualty
insurance companies.
Sec. 3509. Repeal of special treatment of Blue Cross and Blue Shield
organizations, etc.
Sec. 3510. Modification of discounting rules for property and casualty
insurance companies.
Sec. 3511. Repeal of special estimated tax payments.
Sec. 3512. Capitalization of certain policy acquisition expenses.
Sec. 3513. Tax reporting for life settlement transactions.
Sec. 3514. Clarification of tax basis of life insurance contracts.
Sec. 3515. Exception to transfer for valuable consideration rules.
Subtitle G--Pass-Thru and Certain Other Entities
Part 1--S Corporations
Sec. 3601. Reduced recognition period for built-in gains made
permanent.
Sec. 3602. Modifications to S corporation passive investment income
rules.
Sec. 3603. Expansion of qualifying beneficiaries of an electing small
business trust.
Sec. 3604. Charitable contribution deduction for electing small
business trusts.
Sec. 3605. Permanent rule regarding basis adjustment to stock of S
corporations making charitable
contributions of property.
Sec. 3606. Extension of time for making S corporation elections.
Sec. 3607. Relocation of C corporation definition.
Part 2--Partnerships
Sec. 3611. Repeal of rules relating to guaranteed payments and
liquidating distributions.
Sec. 3612. Mandatory adjustments to basis of partnership property in
case of transfer of partnership interests.
Sec. 3613. Mandatory adjustments to basis of undistributed partnership
property.
Sec. 3614. Corresponding adjustments to basis of properties held by
partnership where partnership basis
adjusted.
Sec. 3615. Charitable contributions and foreign taxes taken into
account in determining limitation on
allowance of partner's share of loss.
Sec. 3616. Revisions related to unrealized receivables and inventory
items.
Sec. 3617. Repeal of time limitation on taxing precontribution gain.
Sec. 3618. Partnership interests created by gift.
Sec. 3619. Repeal of technical termination.
Sec. 3620. Publicly traded partnership exception restricted to mining
and natural resources partnerships.
Sec. 3621. Ordinary income treatment in the case of partnership
interests held in connection with
performance of services.
Sec. 3622. Partnership audits and adjustments.
Part 3--REITs and RICs
Sec. 3631. Prevention of tax-free spinoffs involving REITs.
Sec. 3632. Extension of period for prevention of REIT election
following revocation or termination.
Sec. 3633. Certain short-life property not treated as real property for
purposes of REIT provisions.
Sec. 3634. Repeal of special rules for timber held by REITs.
Sec. 3635. Limitation on fixed percentage rent and interest exceptions
for REIT income tests.
Sec. 3636. Repeal of preferential dividend rule for publicly offered
REITs.
Sec. 3637. Authority for alternative remedies to address certain REIT
distribution failures.
Sec. 3638. Limitations on designation of dividends by REITs.
Sec. 3639. Non-REIT earnings and profits required to be distributed by
REIT in cash.
Sec. 3640. Debt instruments of publicly offered REITs and mortgages
treated as real estate assets.
Sec. 3641. Asset and income test clarification regarding ancillary
personal property.
Sec. 3642. Hedging provisions.
Sec. 3643. Modification of REIT earnings and profits calculation to
avoid duplicate taxation.
Sec. 3644. Reduction in percentage limitation on assets of REIT which
may be taxable REIT subsidiaries.
Sec. 3645. Treatment of certain services provided by taxable REIT
subsidiaries.
Sec. 3646. Study relating to taxable REIT subsidiaries.
Sec. 3647. C corporation election to become, or transfer assets to, a
RIC or REIT.
Sec. 3648. Interests in RICs and REITs not excluded from definition of
United States real property interests.
Sec. 3649. Dividends derived from RICs and REITs ineligible for
deduction for United States source portion
of dividends from certain foreign
corporations.
Part 4--Personal Holding Companies
Sec. 3661. Exclusion of dividends from controlled foreign corporations
from the definition of personal holding
company income for purposes of the personal
holding company rules.
Subtitle H--Taxation of Foreign Persons
Sec. 3701. Prevention of avoidance of tax through reinsurance with non-
taxed affiliates.
Sec. 3702. Taxation of passenger cruise gross income of foreign
corporations and nonresident alien
individuals.
Sec. 3703. Restriction on insurance business exception to passive
foreign investment company rules.
Sec. 3704. Modification of limitation on earnings stripping.
Sec. 3705. Limitation on treaty benefits for certain deductible
payments.
Subtitle I--Provisions Related to Compensation
Part 1--Executive 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.
Sec. 3804. Denial of deduction as research expenditure for stock
transferred pursuant to an incentive stock
option.
Part 2--Worker Classification
Sec. 3811. Determination of worker classification.
Subtitle J--Zones and Short-Term Regional Benefits
Sec. 3821. Repeal of provisions relating to Empowerment Zones and
Enterprise Communities.
Sec. 3822. Repeal of DC Zone provisions.
Sec. 3823. Repeal of provisions relating to renewal communities.
Sec. 3824. Repeal of various short-term regional benefits.
TITLE IV--PARTICIPATION EXEMPTION SYSTEM FOR THE TAXATION OF FOREIGN
INCOME
Subtitle A--Establishment of Exemption System
Sec. 4001. Deduction for dividends received by domestic corporations
from certain foreign corporations.
Sec. 4002. Limitation on losses with respect to specified 10-percent
owned foreign corporations.
Sec. 4003. Treatment of deferred foreign income upon transition to
participation exemption system of taxation.
Sec. 4004. Look-thru rule for related controlled foreign corporations
made permanent.
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. Foreign tax credit limitation applied by allocating only
directly allocable deductions to foreign
source income.
Sec. 4103. Passive category income expanded to include other mobile
income.
Sec. 4104. Source of income from sales of inventory determined solely
on basis of production activities.
Subtitle C--Rules Related to Passive and Mobile Income
Part 1--Modification of Subpart F Provisions
Sec. 4201. Subpart F income to only include low-taxed foreign income.
Sec. 4202. Foreign base company sales income.
Sec. 4203. Inflation adjustment of de minimis exception for foreign
base company income.
Sec. 4204. Active financing exception extended with limitation for low-
taxed foreign income.
Sec. 4205. Repeal of inclusion based on withdrawal of previously
excluded subpart F income from qualified
investment.
Part 2--Prevention of Base Erosion
Sec. 4211. Foreign intangible income subject to taxation at reduced
rate; intangible income treated as subpart
F income.
Sec. 4212. Denial of deduction for interest expense of United States
shareholders which are members of worldwide
affiliated groups with excess domestic
indebtedness.
TITLE V--TAX EXEMPT ENTITIES
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. Name and logo royalties treated as unrelated business
taxable income.
Sec. 5003. Unrelated business taxable income separately computed for
each trade or business activity.
Sec. 5004. Exclusion of research income limited to publicly available
research.
Sec. 5005. Parity of charitable contribution limitation between trusts
and corporations.
Sec. 5006. Increased specific deduction.
Sec. 5007. Repeal of exclusion of gain or loss from disposition of
distressed property.
Sec. 5008. Qualified sponsorship payments.
Subtitle B--Penalties
Sec. 5101. Increase in information return penalties.
Sec. 5102. Manager-level accuracy-related penalty on underpayment of
unrelated business income tax.
Subtitle C--Excise Taxes
Sec. 5201. Modification of intermediate sanctions.
Sec. 5202. Modification of taxes on self-dealing.
Sec. 5203. Excise tax on failure to distribute within 5 years
contribution to donor advised fund.
Sec. 5204. Simplification of excise tax on private foundation
investment income.
Sec. 5205. Repeal of exception for private operating foundation failure
to distribute income.
Sec. 5206. Excise tax based on investment income of private colleges
and universities.
Subtitle D--Requirements for Organizations Exempt From Tax
Sec. 5301. Repeal of tax-exempt status for professional sports leagues.
Sec. 5302. Repeal of exemption from tax for certain insurance companies
and co-op health insurance issuers.
Sec. 5303. In-State requirement for workmen's compensation insurance
organization.
Sec. 5304. Repeal of Type II and Type III supporting organizations.
TITLE VI--TAX ADMINISTRATION AND COMPLIANCE
Subtitle A--IRS Investigation-Related Reforms
Sec. 6001. Organizations required to notify Secretary of intent to
operate as 501(c)(4).
Sec. 6002. Declaratory judgments for 501(c)(4) organizations.
Sec. 6003. Restriction on donation reporting for certain 501(c)(4)
organizations.
Sec. 6004. Mandatory electronic filing for annual returns of exempt
organizations.
Sec. 6005. Duty to ensure that IRS employees are familiar with and act
in accord with certain taxpayer rights.
Sec. 6006. Termination of employment of IRS employees for taking
official actions for political purposes.
Sec. 6007. Release of information regarding the status of certain
investigations.
Sec. 6008. Review of IRS examination selection procedures.
Sec. 6009. IRS employees prohibited from using personal email accounts
for official business.
Sec. 6010. Moratorium on IRS conferences.
Sec. 6011. Applicable standard for determinations of whether an
organization is operated exclusively for
the promotion of social welfare.
Subtitle B--Taxpayer Protection and Service Reforms
Sec. 6101. Extension of IRS authority to require truncated Social
Security numbers on Form W-2.
Sec. 6102. Free electronic filing.
Sec. 6103. Pre-populated returns prohibited.
Sec. 6104. Form 1040SR for seniors.
Sec. 6105. Increased refund and credit threshold for Joint Committee on
Taxation review of C corporation return.
Subtitle C--Tax Return Due Date Simplification
Sec. 6201. Due dates for returns of partnerships, S corporations, and C
corporations.
Sec. 6202. Modification of due dates by regulation.
Sec. 6203. Corporations permitted statutory automatic 6-month extension
of income tax returns.
Subtitle D--Compliance Reforms
Sec. 6301. Penalty for failure to file.
Sec. 6302. Penalty for failure to file correct information returns and
provide payee statements.
Sec. 6303. Clarification of 6-year statute of limitations in case of
overstatement of basis.
Sec. 6304. Reform of rules related to qualified tax collection
contracts.
Sec. 6305. 100 percent continuous levy on payments to Medicare
providers and suppliers.
Sec. 6306. Treatment of refundable credits for purposes of certain
penalties.
TITLE VII--EXCISE TAXES
Sec. 7001. Repeal of medical device excise tax.
Sec. 7002. Modifications relating to oil spill liability trust fund.
Sec. 7003. Modification relating to inland waterways trust fund
financing rate.
Sec. 7004. Excise tax on systemically important financial institutions.
Sec. 7005. Clarification of orphan drug exception to annual fee on
branded prescription pharmaceutical
manufacturers and importers.
TITLE VIII--DEADWOOD AND TECHNICAL PROVISIONS
Subtitle A--Repeal of Deadwood
Sec. 8001. Repeal of Puerto Rico economic activity credit.
Sec. 8002. Repeal of making work pay credit.
Sec. 8003. General business credit.
Sec. 8004. Environmental tax.
Sec. 8005. Annuities; certain proceeds of endowment and life insurance
contracts.
Sec. 8006. Unemployment compensation.
Sec. 8007. Flexible spending arrangements.
Sec. 8008. Certain combat zone compensation of members of the armed
forces.
Sec. 8009. Qualified group legal services plans.
Sec. 8010. Certain reduced uniformed services retirement pay.
Sec. 8011. Great plains conservation program.
Sec. 8012. State legislators' travel expenses away from home.
Sec. 8013. Treble damage payments under the antitrust law.
Sec. 8014. Phase-in of limitation on investment interest.
Sec. 8015. Charitable, etc., contributions and gifts.
Sec. 8016. Amortizable bond premium.
Sec. 8017. Repeal of deduction for clean-fuel vehicles and certain
refueling property.
Sec. 8018. Repeal of deduction for capital costs incurred in complying
with environmental protection agency sulfur
regulations.
Sec. 8019. Activities not engaged in for profit.
Sec. 8020. Dividends received on certain preferred stock; and dividends
paid on certain preferred stock of public
utilities.
Sec. 8021. Acquisitions made to evade or avoid income tax.
Sec. 8022. Distributions of property.
Sec. 8023. Effect on earnings and profits.
Sec. 8024. Basis to corporations.
Sec. 8025. Tax credit employee stock ownership plans.
Sec. 8026. Employee stock purchase plans.
Sec. 8027. Transition rules.
Sec. 8028. Limitation on deductions for certain farming.
Sec. 8029. Deductions limited to amount at risk.
Sec. 8030. Passive activity losses and credits limited.
Sec. 8031. Adjustments required by changes in method of accounting.
Sec. 8032. Exemption from tax on corporations, certain trusts, etc.
Sec. 8033. Requirements for exemption.
Sec. 8034. Repeal of special treatment for religious broadcasting
company.
Sec. 8035. Repeal of exclusion of gain or loss from disposition of
brownfield property.
Sec. 8036. Accumulated taxable income.
Sec. 8037. Certain provisions related to depletion.
Sec. 8038. Amounts received by surviving annuitant under joint and
survivor annuity contract.
Sec. 8039. Income taxes of members of armed forces on death.
Sec. 8040. Special rules for computing reserves.
Sec. 8041. Insurance company taxable income.
Sec. 8042. Capitalization of certain policy acquisition expenses.
Sec. 8043. Repeal of provision on expatriation to avoid tax.
Sec. 8044. Repeal of certain transition rules on income from sources
without United States.
Sec. 8045. Repeal of Puerto Rico and possession tax credit.
Sec. 8046. Basis of property acquired from decedent.
Sec. 8047. Property on which lessee has made improvements.
Sec. 8048. Involuntary conversion.
Sec. 8049. Property acquired during affiliation.
Sec. 8050. Repeal of special holding period rules for certain commodity
futures transactions.
Sec. 8051. Holding period of property.
Sec. 8052. Property used in the trade or business and involuntary
conversions.
Sec. 8053. Sale of patents.
Sec. 8054. Gain from disposition of farmland.
Sec. 8055. Transition rules related to the treatment of amounts
received on retirement or sale or exchange
of debt instruments.
Sec. 8056. Certain rules with respect to debt instruments issued before
July 2, 1982.
Sec. 8057. Certain rules with respect to stripped bonds purchased
before July 2, 1982.
Sec. 8058. Amount and method of adjustment.
Sec. 8059. Old-age, survivors, and disability insurance.
Sec. 8060. Hospital insurance.
Sec. 8061. Ministers, members of religious orders, and christian
science practitioners.
Sec. 8062. Affiliated group defined.
Sec. 8063. Credit for state death taxes.
Sec. 8064. Family-owned business interest.
Sec. 8065. Property within the united states.
Sec. 8066. Repeal of deadwood provisions relating to employment taxes.
Sec. 8067. Luxury passenger automobiles.
Sec. 8068. Transportation by air.
Sec. 8069. Taxes on failure to distribute income.
Sec. 8070. Taxes on taxable expenditures.
Sec. 8071. Definitions and special rules.
Sec. 8072. Returns.
Sec. 8073. Information returns.
Sec. 8074. Abatements.
Sec. 8075. Failure by corporation to pay estimated income tax.
Sec. 8076. Repeal of 2008 recovery rebates.
Sec. 8077. Repeal of advance payment of portion of increased child
credit for 2003.
Sec. 8078. Repeal of provisions related to COBRA premium assistance.
Sec. 8079. Retirement.
Sec. 8080. Annuities to surviving spouses and dependent children of
judges.
Sec. 8081. Merchant marine capital construction funds.
Sec. 8082. Valuation tables.
Sec. 8083. Definition of employee.
Sec. 8084. Effective date.
Subtitle B--Conforming Amendments Related to Multiple Sections
Sec. 8101. Conforming amendments related to multiple sections.
TITLE I--TAX REFORM FOR INDIVIDUALS
Subtitle A--Individual Income Tax Rate Reform
SEC. 1001. SIMPLIFICATION OF INDIVIDUAL INCOME TAX RATES.
(a) In General.--Section 1 is amended to read as follows:
``SEC. 1. TAX IMPOSED.
``(a) In General.--There is hereby imposed on the income of every
individual a tax equal to the sum of--
``(1) 10 percent bracket.--10 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, plus
``(3) 35 percent bracket.--10 percent of so much of the
modified adjusted gross income (as defined in section 2) as
exceeds the 35-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, $71,200,
``(B) in the case of any other individual (other
than an estate or trust), one-half of the dollar amount
in effect under subparagraph (A), and
``(C) in the case of an estate or trust, zero.
``(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, $450,000,
``(B) in the case of any other individual (other
than an estate or trust), $400,000, and
``(C) in the case of an estate or trust, $12,000.
``(c) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year
beginning after 2014, each dollar amount in subsections
(b)(1)(A), (b)(2)(A), (b)(2)(B), (b)(2)(C), (e)(3)(A), and
(e)(3)(B) 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.
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
2012.
``(B) Special rule for adjustments with a base year
after 2012.--For purposes of any provision which
provides for the substitution of a year after 2012 for
`2012' 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 2013, by
``(B) the CPI for calendar year 2013.
``(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)(C) for the taxable year.
``(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 7705(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 7705(c)(1)(D)
after the application of section 7705(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)(4)(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 10-Percent Rate.--
``(1) In general.--The amount of tax imposed by this
section (determined without regard to this subsection) shall be
increased by 5 percent of the excess (if any) of--
``(A) modified 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 15 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, $300,000,
``(B) in the case of any other individual,
$250,000.
``(4) Estates and trusts.--Paragraph (1) shall not apply in
the case of an estate or trust.
``(f) Determination of Highest Rate.--For purposes of any provision
of law which refers to the highest rate of tax specified in this
section (or any subsection of this section), such highest rate shall be
treated as being 35 percent.''.
(b) Modified Adjusted Gross Income.--Section 2 is amended by
striking subsection (b), by redesignating subsections (c), (d), and
(e), as subsections (d), (e), and (f), respectively, and by inserting
after subsection (a) the following new subsections:
``(b) Modified Adjusted Gross Income.--For purposes of section 1--
``(1) In general.--The term `modified adjusted gross
income' means adjusted gross income--
``(A) increased by--
``(i) any amount excluded from gross income
under sections 911, 931, and 933,
``(ii) the excess (if any) of--
``(I) amounts of interest received
or accrued by the taxpayer during the
taxable year which are exempt from tax,
over
``(II) amounts disallowed as a
deduction by reason of section
163(d)(1)(A) or 171(a)(2),
``(iii) any exclusion from gross income
with respect to the cost described in section
6051(a)(14) (without regard to subparagraphs
(A) and (B) thereof),
``(iv) any deduction allowable under
section 162(l) (relating to special rules for
health insurance costs of self-employed
individuals),
``(v) any annual addition (as defined in
section 415(c)(2)) to a defined contribution
plan which is not includible in, or which is
deductible from, the gross income of the
individual for the taxable year,
``(vi) any deduction allowable under
section 223, and
``(vii) the excess (if any) of--
``(I) the social security benefits
of the individual for the taxable year
(as defined in section 86(d)), over
``(II) the amount included in the
gross income of such individual for
such taxable year under section 86, and
``(B) decreased by--
``(i) any deduction allowed under section
170 (and in the case of an estate or trust, any
deduction allowed under section 642(c)), and
``(ii) qualified domestic manufacturing
income.
``(2) Determination of adjusted gross income in case of
estates and trusts.--For purposes of this subsection, the
adjusted gross income of an estate or trust shall be computed
in the same manner as in the case of an individual, except
that--
``(A) the deductions for costs which are paid or
incurred in connection with the administration of the
estate or trust and which would not have been incurred
if the property were not held in such trust or estate,
and
``(B) the deductions allowable under sections
642(b), 651, and 661,
shall be treated as allowable in arriving at adjusted gross
income. Under regulations, appropriate adjustments shall be
made in the application of part I of subchapter J of this
chapter to take into account the application of this paragraph.
``(c) Qualified Domestic Manufacturing Income.--
``(1) In general.--For purposes of subsection (b), the term
`qualified domestic manufacturing income' for any taxable year
means an amount equal to the excess (if any) of--
``(A) the taxpayer's domestic manufacturing gross
receipts for such taxable year, over
``(B) the sum of--
``(i) the cost of goods sold that are
allocable to such receipts, and
``(ii) other expenses, losses, or
deductions, which are properly allocable to
such receipts.
``(2) Allocation method.--The Secretary shall prescribe
rules for the proper allocation of items described in paragraph
(1) for purposes of determining qualified domestic
manufacturing income. Such rules shall provide for the proper
allocation of items whether or not such items are directly
allocable to domestic manufacturing gross receipts.
``(3) Special rules for determining costs.--
``(A) In general.--For purposes of determining
costs under clause (i) of paragraph (1)(B), any item or
service brought into the United States shall be treated
as acquired by purchase, and its cost shall be treated
as not less than its value immediately after it entered
the United States. A similar rule shall apply in
determining the adjusted basis of leased or rented
property where the lease or rental gives rise to
domestic manufacturing gross receipts.
``(B) Exports for further manufacture.--In the case
of any property described in subparagraph (A) that had
been exported by the taxpayer for further manufacture,
the increase in cost or adjusted basis under
subparagraph (A) shall not exceed the difference
between the value of the property when exported and the
value of the property when brought back into the United
States after the further manufacture.
``(4) Domestic manufacturing gross receipts.--For purposes
of this subsection--
``(A) In general.--The term `domestic manufacturing
gross receipts' means the gross receipts of the
taxpayer which are derived from--
``(i) any lease, rental, license, sale,
exchange, or other disposition of tangible
personal property which was manufactured,
produced, grown, or extracted by the taxpayer
in whole or in significant part within the
United States, or
``(ii) in the case of a taxpayer engaged in
the active conduct of a construction trade or
business, construction of real property
performed in the United States by the taxpayer
in the ordinary course of such trade or
business if such real property is placed in
service after December 31, 2014.
``(B) Exceptions.--Such term shall not include
gross receipts of the taxpayer which are derived from--
``(i) the sale of food and beverages
prepared by the taxpayer at a retail
establishment,
``(ii) the transmission or distribution of
electricity, natural gas, or potable water, and
``(iii) the lease, rental, license, sale,
exchange, or other disposition of land.
``(C) Special rule for certain government
contracts.--Gross receipts derived from the manufacture
or production of any property described in subparagraph
(A)(i) shall be treated as meeting the requirements of
subparagraph (A)(i) if--
``(i) such property is manufactured or
produced by the taxpayer pursuant to a contract
with the Federal Government, and
``(ii) the Federal Acquisition Regulation
requires that title or risk of loss with
respect to such property be transferred to the
Federal Government before the manufacture or
production of such property is complete.
``(D) Treatment of activities in puerto rico.--In
the case of any taxpayer with gross receipts for any
taxable year from sources within the Commonwealth of
Puerto Rico, if all of such receipts are taxable under
section 1 for such taxable year, then this paragraph
shall be applied by treating each reference in
subparagraph (A) to the United States as including the
Commonwealth of Puerto Rico.
``(E) Tangible personal property.--The term
`tangible personal property' shall not include computer
software or any property described in paragraph (3) or
(4) of section 168(f).
``(F) Related persons.--
``(i) In general.--The term `domestic
manufacturing gross receipts' shall not include
any gross receipts of the taxpayer derived from
property leased, licensed, or rented by the
taxpayer for use by any related person.
``(ii) Related person.--For purposes of
clause (i), a person shall be treated as
related to another person if such persons are
treated as a single employer under subsection
(a) or (b) of section 52 or subsection (m) or
(o) of section 414, except that determinations
under subsections (a) and (b) of section 52
shall be made without regard to section
1563(b).
``(5) Certain income not qualified.--
``(A) Net earnings from self employment.--Domestic
manufacturing gross receipts shall not include any
amount which is properly allocable to the taxpayer's
net earnings from self employment (determined after any
reduction provided under section 1402(m)).
``(B) Certain accounting method adjustments.--
Domestic manufacturing gross receipts shall not include
any amount attributable to--
``(i) a qualified change in method of
accounting (as defined in section 3301(d)(2) of
the Tax Reform Act of 2014), or
``(ii) any other change in method of
accounting which is required by the amendments
made by such Act.
``(6) Application of section to pass-through entities.--
``(A) Partnerships and s corporations.--Except as
provided in subparagraph (B), in the case of a
partnership or S corporation, each partner or
shareholder shall take into account such person's
allocable share of each item described in subparagraph
(A) or (B) of paragraph (1) (determined without regard
to whether the items described in such subparagraph (A)
exceed the items described in such subparagraph (B)).
``(B) Publicly traded partnerships.--In the case of
a publicly traded partnership described in section
7704(c), each partner shall not take into account any
allocable share of any item referred to in subparagraph
(A).
``(C) Trusts and estates.--In the case of a trust
or estate, the items referred to in subparagraph (A)
(as determined therein) shall be apportioned between
the beneficiaries and the fiduciary (and among the
beneficiaries) under regulations prescribed by the
Secretary.
``(7) Regulations.--The Secretary shall prescribe such
regulations or other guidance as may be necessary or
appropriate to carry out the purposes of this section,
including regulations or other guidance--
``(A) which prevent more than 1 taxpayer from
taking into account the same qualified domestic
manufacturing income, and
``(B) which require or restrict the allocation of
items under paragraph (6) and require such reporting
for purposes of carrying out such paragraph as the
Secretary determines appropriate.
``(8) Phase-in of exclusion.--In the case of any taxable
year beginning before January 1, 2017, the term `qualified
domestic manufacturing income' shall be an amount equal to the
product of the qualified domestic manufacturing income
determined without regard to this paragraph, multiplied by--
``(A) in the case of any taxable year beginning in
2015, 33 percent, and
``(B) in the case of any taxable year beginning in
2016, 67 percent.''.
(c) Application of Section 15.--
(1) In general.--Subsection (a) of section 15 is amended by
striking ``this chapter'' and inserting ``section 11''.
(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) Subchapter A of chapter 1 is amended--
(i) by redesignating section 12 as section
13,
(ii) by redesignating section 15 (as
amended by this subsection) as section 12 and
moving such section from part III of such
subchapter to after section 11 in part II of
such subchapter,
(iii) by striking part III, and
(iv) by amending the table of sections for
part II of such subchapter by redesignating the
item relating to section 12 as an item relating
to section 13 and by inserting after the item
relating to section 11 the following new item:
``Sec. 12. Effect of changes.''.
(D) Section 6013(c) is amended by striking
``sections 15, 443, and 7851(a)(1)(A)'' and inserting
``sections 443 and 7851(a)(1)(A)''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1002. DEDUCTION FOR ADJUSTED NET CAPITAL GAIN.
(a) In General.--Part VI of subchapter B of chapter 1, as amended
by section 3105, is amended by inserting after section 168 the
following new section:
``SEC. 169. ADJUSTED NET CAPITAL GAIN.
``(a) In General.--If for any taxable year a taxpayer other than a
corporation has an adjusted net capital gain, 40 percent of the amount
of the adjusted net capital gain shall be allowed as a deduction from
gross income.
``(b) Adjusted Net Capital Gain.--For purposes of this section, the
term `adjusted net capital gain' means the sum of--
``(1) net capital gain reduced (but not below zero) by the
net collectibles gain, plus
``(2) qualified dividend income.
``(c) Net Capital Gain Reduced by Amounts Taken Into Account as
Investment Income.--For purposes of this section, the net capital gain
for any taxable year shall be reduced (but not below zero) by the
amount which the taxpayer takes into account as investment income under
section 163(d)(4)(B)(iii).
``(d) Net Collectibles Gain.--For purposes of this section--
``(1) In general.--The term `net collectibles gain' means
the excess (if any) of--
``(A) collectibles gain, over
``(B) collectibles loss.
``(2) Collectibles gain and loss.--The terms `collectibles
gain' and `collectibles loss' mean gain or loss (respectively)
from the sale or exchange of a collectible (as defined in
section 408(m) without regard to paragraph (3) thereof) which
is a capital asset held for more than 1 year but only to the
extent such gain is taken into account in computing gross
income and such loss is taken into account in computing taxable
income.
``(3) Partnerships, etc.--For purposes of paragraph (2),
any gain from the sale of an interest in a partnership, S
corporation, or trust which is attributable to unrealized
appreciation in the value of collectibles shall be treated as
gain from the sale or exchange of a collectible. Rules similar
to the rules of section 751 shall apply for purposes of the
preceding sentence.
``(e) Qualified Dividend Income.--For purposes of this section--
``(1) In general.--The term `qualified dividend income'
means dividends received during the taxable year from--
``(A) domestic corporations, and
``(B) qualified foreign corporations.
``(2) Certain dividends excluded.--Such term shall not
include--
``(A) any dividend from a corporation which for the
taxable year of the corporation in which the
distribution is made, or the preceding taxable year, is
a corporation exempt from tax under section 501 or 521,
``(B) any amount allowed as a deduction under
section 591 (relating to deduction for dividends paid
by mutual savings banks, etc.), and
``(C) any dividend described in section 404(k).
``(3) Coordination with section 246(c).--Such term shall
not include any dividend on any share of stock--
``(A) with respect to which the holding period
requirements of section 246(c) are not met (determined
without regard to paragraph (5) of section 246(c) and
by substituting in section 246(c) `60 days' for `45
days' each place it appears and by substituting `121-
day period' for `91-day period'), or
``(B) to the extent that the taxpayer is under an
obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to
positions in substantially similar or related property.
``(4) Qualified foreign corporations.--
``(A) In general.--Except as otherwise provided in
this subparagraph, the term `qualified foreign
corporation' means any foreign corporation if--
``(i) such corporation is incorporated in a
possession of the United States, or
``(ii) such corporation is eligible as a
qualified resident for all of the benefits
provided under a comprehensive income tax
treaty with the United States which the
Secretary determines is satisfactory for
purposes of this paragraph and which includes
an exchange of information program.
``(B) Dividends on stock readily tradable on united
states securities market.--A foreign corporation not
otherwise treated as a qualified foreign corporation
under subparagraph (A) shall be so treated with respect
to any dividend paid by such corporation if the stock
with respect to which such dividend is paid is readily
tradable on an established securities market in the
United States.
``(C) Exclusion of dividends of certain foreign
corporations.--The term `qualified foreign corporation'
shall not include any foreign corporation which for the
taxable year of the corporation in which the dividend
was paid, or the preceding taxable year, is a passive
foreign investment company (as defined in section
1297).
``(5) Treatment of dividends from regulated investment
companies and real estate investment trusts.--A dividend
received from a regulated investment company or a real estate
investment trust shall be subject to the limitations prescribed
in sections 854 and 857.''.
(b) Deduction Allowed Whether or Not Individual Itemizes
Deductions.--Section 62(a) is amended by inserting after paragraph (7)
the following new paragraph:
``(8) Adjusted net capital gain.--The deduction allowed by
section 169.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1003. CONFORMING AMENDMENTS RELATED TO SIMPLIFICATION OF
INDIVIDUAL INCOME TAX RATES.
(a) Amendments Related to Modification of Inflation Adjustment.--
(1) Section 25B(b)(3)(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 2012' in clause (ii) thereof''.
(2) Subclause (II) of section 36B(b)(3)(A)(ii) is amended
by striking ``consumer price index'' and inserting ``C-CPI-U
(as defined in section 1(c))''.
(3) 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 2012' 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.''.
(4) 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''.
(5) Section 137(f) is amended--
(A) by striking ``section 1(f)(3) for the calendar
year in which the taxable year begins, determined by
substituting `calendar year 2001' for `calendar year
1992' in subparagraph (B) thereof'' in paragraph (2)
and inserting ``section 1(c)(2)(A) for the calendar
year in which the taxable year begins, determined by
substituting `calendar year 2001' for `calendar year
2012' in clause (ii) thereof'', and
(B) in the last sentence thereof--
(i) by striking ``$10'' the first place it
appears and inserting ``$100'', and
(ii) by striking ``nearest multiple of
$10'' and inserting ``next lowest multiple of
$100''.
(6) Section 162(o)(3) is amended by inserting ``as in
effect before enactment of the Tax Reform Act of 2014'' after
``section 1(f)(5)''.
(7) 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 2012' in clause (ii) thereof''.
(8) 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
2012' 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.''.
(9) 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 2012' in clause (ii) thereof''.
(10) 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 2012' in clause (ii) thereof''.
(11) 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 2012' in clause (ii) thereof''.
(12) 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 2012' in clause (ii) thereof''.
(13) 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 2012' in clause (ii) thereof''.
(14) 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 2014, 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 2013' for `calendar year 2012'
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 2014.
``(C) Rounding.--Any increase under subparagraph
(A) shall be rounded to the nearest multiple of
$100.''.
(15) 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 2012' in clause (ii) thereof''.
(16) 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 2012' in clause (ii) thereof''.
(17) 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 2012' in clause (ii) thereof''.
(18) 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 2012' in clause (ii) thereof''.
(19) 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
2012' in clause (ii) thereof''.
(20) 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 ``2012''.
(21) 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 ``2012''.
(22) 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''.
(23) 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 2012' in clause (ii) thereof''.
(24) 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 2012' in clause (ii) thereof''.
(25) 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 ``2012''.
(26) 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 ``2012''.
(27) 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 2012' in clause (ii) thereof''.
(28) 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 2014 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 2013' for `calendar year 2012'
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 2014.
``(C) Rounding.--Any increase under subparagraph
(A) shall be rounded to the nearest multiple of
$100.''.
(b) Amendments Related to Deduction for Adjusted Net Capital
Gain.--
(1) Section 163(d)(4)(B) is amended by striking ``section
1(h)(11)(B)'' and inserting ``section 169(e)''.
(2) Section 172(d)(2)(B) is amended by inserting ``the
deduction allowable under section 169 and'' before ``the
exclusion''.
(3) Section 301(f)(4) is amended by striking ``section
1(h)(11)'' and inserting ``section 169(e)''.
(4) Section 306(a)(1)(D) is amended by striking ``section
1(h)(11)'' and inserting ``section 169(e)''.
(5) The last sentence of section 453A(c)(3) is amended by
striking ``capital gain'' and all that follows and inserting
``capital gain, the deduction under section 169 shall be taken
into account.''.
(6) Sections 531 and 541 are each amended by striking ``20
percent'' and inserting ``21 percent''.
(7) Section 584(c) is amended by striking ``and to which
section 1(h)(11) applies'' in the last sentence and inserting
``which is qualified dividend income (as defined in section
169(e)) in the hands of such common trust fund''.
(8) Section 641(c)(2)(C) (prior to redesignation by title
II) is amended by adding at the end the following new clause:
``(v) The deduction allowed by section
169.''.
(9) The first sentence of section 642(c)(4) is amended by
striking ``consists of'' and all that follows and inserting
``consists of long-term capital gain or gain described in
section 1202(a), proper adjustments shall be made for any
deduction allowable to the trust or estate under section 169
and for any exclusion allowable under section 1202.''.
(10) The last sentence of section 643(a)(3) is amended to
read as follows: ``The deduction under section 169 and the
exclusion under section 1202 shall not be taken into
account.''.
(11) Section 691(c)(4) is amended by striking ``1(h)'' and
inserting ``169''.
(12) Section 702(a)(5) is amended by striking ``section
1(h)(11)'' and inserting ``section 169''.
(13) Section 854 is amended--
(A) by striking ``section 1(h)(11) (relating to
maximum rate of tax on dividends)'' in subsection (a)
and inserting ``section 169 (relating to adjusted net
capital gain)'',
(B) by striking ``Maximum rate under section 1(h)''
in the heading of subsection (b)(1)(B) and inserting
``Determination of adjusted net capital gain'', and
(C) by striking ``section 1(h)(11)(B)'' in
subsection (b)(4) and inserting ``section 169(e)''.
(14) Section 857(c)(2) is amended--
(A) by striking ``section 1(h)(11)(B)'' in
subparagraph (D) and inserting ``section 169(e)'', and
(B) by striking ``Section 1(h)(11)'' in the heading
and inserting ``Section 169(e)''.
(15) Section 904(b) is amended--
(A) by amending paragraph (2) to read as follows:
``(2) Capital gains.--For purposes of this section, taxable
income from sources outside the United States shall include
gain from the sale or exchange of capital assets (including
gain so treated under section 1231) only to the extent of the
lesser of--
``(A) capital gain net income from sources without
the United States, or
``(B) capital gain net income.'', and
(B) by striking paragraph (3).
(16) Section 1260(a) is amended by striking ``long-term
capital gain'' the first place such term appears and all that
follows and inserting ``long-term capital gain, such gain shall
be treated as ordinary income to the extent such gain exceeds
the net underlying long-term capital gain.''.
(17) Section 1411(c)(1)(B) is amended by inserting ``(other
than section 169)'' after ``this subtitle''.
(18) Section 4985(a)(1) is amended by striking ``the rate
of tax specified in section 1(h)(1)(C)'' and inserting ``21
percent''.
(19) Section 7518(g)(6)(A) is amended by striking all that
follows clause (i) and inserting the following:
``(ii) by increasing the tax imposed by
chapter 1 by the product of the amount of such
withdrawal, multiplied by--
``(I) in the case of a taxpayer
other than a corporation, 60 percent of
the highest rate of tax specified in
section 1, and
``(II) in the case of a
corporation, the highest rate of tax
specified in section 11.''.
(20) Section 53511(f) of title 46, United States Code, is
amended by--
(A) by amending paragraph (1)(B) to read as
follows:
``(B) increasing the tax imposed by chapter 1 of
such Code by the product of the amount of such
withdrawal, multiplied by--
``(i) in the case of a taxpayer other than
a corporation, the highest rate of tax
specified in section 1 (60 percent of such
highest rate in the case of so much of such
withdrawal as is made from the capital gain
account), and
``(ii) in the case of a corporation, the
highest rate of tax specified in section 11.'',
and
(B) by striking paragraph (2) and by redesignating
paragraphs (3) and (4) as paragraphs (2) and (3),
respectively.
(21) The table of sections for part VI of subchapter B of
chapter 1 is amended by inserting after the item relating to
section 168 the following new item:
``Sec. 169. Adjusted net capital gain.''.
(c) Other Conforming Amendments.--
(1) Section 25B(b)(2) is amended by striking ``In the case
of--'' and all that follows through ``any taxpayer not
described in paragraph (1) or subparagraph (A),'' and inserting
``In the case of any taxpayer not described in paragraph
(1),''.
(2) 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,''.
(3) 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''.
(4) Section 511(b)(1) is amended to read as follows:
``(1) Imposition of tax.--There is hereby imposed for each
taxable year on the unrelated business taxable income of every
trust described in paragraph (2) a tax computed as provided in
section 1. In making such computation for purposes of this
section, the terms `taxable income' and `modified adjusted
gross income' as used in section 1 shall both be read as
`unrelated business taxable income' as defined in section
512.''.
(5) Section 641(a) is amended by striking ``section 1(e)
shall apply to the taxable income'' and inserting ``section 1
shall apply to the income''.
(6) Section 641(c)(2)(A) is amended to read as follows:
``(A) The dollar amount in effect under section
1(b)(2)(C) shall be treated as being zero.''.
(7) 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.''.
(8) Section 685(c) is amended by striking ``Section 1(e)''
and inserting ``Section 1''.
(9) Section 1398(c) is amended by striking paragraphs (1)
and (2), by redesignating paragraph (3) as paragraph (2), and
by inserting before paragraph (2) as so redesignated the
following new paragraph:
``(1) Computation and payment of tax.--Except as otherwise
provided in this section or part I of subchapter A, the taxable
income and modified adjusted gross income of the estate shall
be computed in the same manner as for an individual. The tax
shall be computed under section 1 and shall be paid by the
trustee.''.
(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 ``10 percent, 25
percent, 35 percent,''.
(11) Section 3402(q)(1) is amended by striking ``the third
lowest rate of tax applicable under section 1(c)'' and
inserting ``the highest rate of tax specified in section 1''.
(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 the highest rate of tax specified in section 1
multiplied by''.
(13) Section 3406(a)(1) is amended by striking ``the fourth
lowest rate of tax applicable under section 1(c)'' and
inserting ``the highest rate of tax specified in section 1''.
(14) Section 6103(e)(1)(A)(iii) is amended by striking
``section 1(g)'' and inserting ``section 1(d)''.
(d) Withholding From Supplemental Wage Payments.--
(1) In general.--If an employer elects under Treasury
Regulation section 31.3402(g)-1 to determine the amount to be
deducted and withheld from any supplemental wage payment by
using a flat percentage rate, the rate to be used in
determining such amount shall not be less than 35 percent.
(2) Repeal of superceded provision.--The American Jobs
Creation Act of 2004 is amended by striking section 904.
(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, 2014.
(2) Withholding from supplemental wage payments.--The
provisions of, and amendments made by, subsection (d) shall
apply to payments made after December 31, 2014.
Subtitle B--Simplification of Tax Benefits for Families
SEC. 1101. STANDARD DEDUCTION.
(a) Increase in Standard Deduction.--Subsection (c) of section 63
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) $22,000, in the case of a joint return, and
``(B) one-half of the amount in effect under
subparagraph (A) for the taxable year, in any other
case.
``(2) Phaseout of standard deduction.--The amount of the
standard deduction determined under this subsection (without
regard to this paragraph and after the application of paragraph
(4)) shall be reduced (but not below zero) by an amount equal
to 20 percent of the excess (if any) of--
``(A) the taxpayer's modified adjusted gross income
(as defined in section 2(b)) for the taxable year, over
``(B)(i) the joint return standard deduction
phaseout threshold for the taxable year, in the case of
a taxpayer described in paragraph (1)(A), and
``(ii) the non-joint return standard deduction
phaseout threshold for the taxable year, in any other
case.
``(3) Standard deduction phaseout thresholds.--
``(A) Joint return standard deduction phaseout
threshold.--The term `joint return standard deduction
phaseout threshold' means, with respect to any taxable
year--
``(i) the dollar amount in effect under
section 1(e)(3)(A) for such taxable year, plus
``(ii) the product of--
``(I) the dollar amount in effect
under section 1(b)(1)(A) for such
taxable year, multiplied by
``(II) 3.
``(B) Non-joint return standard deduction phaseout
threshold.--The term `non-joint return standard
deduction phaseout threshold' means, with respect to
any taxable year--
``(i) the dollar amount in effect under
section 1(e)(3)(B) for such taxable year, plus
``(ii) the product of--
``(I) the dollar amount in effect
under section 1(b)(1)(B) for such
taxable year, multiplied by
``(II) 3.
``(4) 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 (as defined in section 24(d)(2)).
``(5) Certain individuals, etc., not eligible for standard
deduction.--In the case of--
``(A) a married individual filing a separate return
where such individual's spouse elects to itemize
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.
``(6) Inflation adjustments.--In the case of any taxable
year beginning after 2014, each of the dollar amounts in
paragraphs (1)(A) and (4) shall be increased by an amount equal
to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined--
``(i) in the case of the dollar amount in
paragraph (1)(A), under section 1(c)(2)(A) for
the calendar year in which the taxable year
begins,
``(ii) in the case of the dollar amount in
paragraph (4)(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 2012' in clause
(ii) thereof, and
``(iii) in the case of the dollar amount in
paragraph (4)(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 2012' 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.''.
(b) Additional Deduction for Unmarried Individuals With at Least
One Qualifying Child.--
(1) In general.--Part VII of subchapter B of chapter 1 is
amended by redesignating section 224 as section 225 and by
inserting after section 223 the following new section:
``SEC. 224. DEDUCTION FOR UNMARRIED INDIVIDUALS WITH AT LEAST ONE
QUALIFYING CHILD.
``(a) In General.--In the case of an unmarried individual with at
least one qualifying child (within the meaning of section 7705), there
shall be allowed as a deduction an amount equal to $5,500.
``(b) Phaseout of Deduction.--The amount of the deduction
determined under subsection (a) (without regard to this subsection)
shall be reduced (but not below zero) by an amount equal to the excess
(if any) of--
``(1) the taxpayer's adjusted gross income (determined
without regard to this section) for the taxable year, over
``(2) $30,000.
``(c) Unmarried Individual.--For purposes of this section, the term
`unmarried individual' means any individual who--
``(1) is not married as of the close of the taxable year
(as determined by applying section 7703),
``(2) is not a surviving spouse (as defined in section
2(a)) for the taxable year, and
``(3) is not a dependent of another taxpayer for a taxable
year beginning in the calendar year in which the individual's
taxable year begins.
``(d) Inflation Adjustments.--
``(1) Deduction amount.--In the case of any taxable year
beginning after 2014, the dollar amount in subsection (a) 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 the calendar year in which
the taxable year begins.
``(2) Phaseout threshold.--In the case of any taxable year
beginning after 2015, the dollar amount in subsection (b)(2)
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 the calendar year in which
the taxable year begins determined by substituting
`calendar year 2014' for `calendar year 2012' in clause
(ii) thereof.
``(3) Rounding.--If any increase determined under paragraph
(1) or (2) is not a multiple of $100, such increase shall be
rounded to the next lowest multiple of $100.''.
(2) Deduction allowed whether or not taxpayer itemizes
deductions.--Section 62(a) is amended by adding at the end the
following new paragraph:
``(22) Deduction for unmarried individuals with at least
one qualifying child.--The deduction allowed by section 224.''.
(c) Application of Standard Deduction Phaseout to Itemized
Deductions.--Subsection (f) of section 63 is amended to read as
follows:
``(f) Application of Phaseout of Standard Deduction to Itemized
Deductions.--
``(1) In general.--In the case of an individual whose
modified adjusted gross income (as defined in section 2(b))
exceeds the amount in effect under subsection (c)(2)(B) with
respect to the taxpayer for the taxable year, the amount of the
itemized deductions otherwise allowable for the taxable year
shall be reduced by the lesser of--
``(A) 20 percent of the excess described in
subsection (c)(2) with respect to such taxpayer for
such taxable year, or
``(B) the amount of the taxpayer's standard
deduction for such taxable year (determined without
regard to subsection (c)(2) and without regard to any
election to itemize deductions).
``(2) Coordination with other limitations.--This subsection
shall be applied after the application of any other limitation
on the allowance of any itemized deduction.
``(3) Exception for estates and trusts.--This subsection
shall not apply to any estate or trust.''.
(d) Conforming Amendments.--
(1) Sections 86(b)(2)(A) and 137(b)(3)(A) are each amended
by inserting ``224,'' before ``911,''.
(2) Section 199(d)(2)(B) is amended by inserting ``section
224 and'' before ``this section''.
(3) Section 469(i)(3)(F)(iii) is amended by inserting ``and
224'' after ``219,''.
(4) Section 1398(c), as amended by section 1003(c), is
amended--
(A) by striking ``Basic'' in the heading thereof,
(B) by striking ``Basic standard'' in the heading
of paragraph (2) and inserting ``Standard'', and
(C) by striking ``basic'' in paragraph (2).
(5) Section 3402(m)(3) is amended by striking ``(including
the additional standard deduction under section 63(c)(3) for
the aged and blind)''.
(6) Section 6014(b)(4) is amended by striking ``section
63(c)(5)'' and inserting ``section 63(c)(4)''.
(7) The table of sections for part VII of subchapter B of
chapter 1 is amended by redesignating the item relating to
section 224 as an item relating to section 225 and by inserting
after the item relating to section 223 the following new item:
``Sec. 224. Deduction for unmarried individuals with at least one
qualifying child.''.
(e) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 1102. INCREASE AND EXPANSION OF CHILD TAX CREDIT.
(a) In General.--Section 24 is amended to read as follows:
``SEC. 24. CHILD AND DEPENDENT TAX CREDIT.
``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year with
respect to each dependent of the taxpayer an amount equal to $500
($1,500 in the case of a qualifying child).
``(b) Phaseout of Credit.--
``(1) In general.--The credit allowed under subsection (a)
(determined without regard to this subsection) shall be reduced
(but not below zero) by 5 percent of the excess (if any) of--
``(A) the taxpayer's modified adjusted gross income
(as defined in section 2(b)), over
``(B)(i) the joint return child credit phaseout
threshold, in the case of a joint return or a surviving
spouse (as defined in section 2(a)), or
``(ii) the non-joint return child credit phaseout
threshold, in any other case.
``(2) Joint return child credit phaseout threshold.--For
purposes of this section, the term `joint return child credit
phaseout threshold' means, with respect to any taxable year,
the sum of--
``(A) the joint return standard deduction phaseout
threshold (as defined in section 63(c)(3)(A)), plus
``(B) an amount equal to--
``(i) the dollar amount in effect under
section 63(c)(1)(A) for such taxable year,
divided by
``(ii) 0.2.
``(3) Non-joint return child credit phaseout threshold.--
For purposes of this section, the term `non-joint return child
credit phaseout threshold' means, with respect to any taxable
year, the sum of--
``(A) the non-joint return standard deduction
phaseout threshold (as defined in section 63(c)(3)(B)),
plus
``(B) an amount equal to--
``(i) the dollar amount in effect under
section 63(c)(1)(B) for such taxable year,
divided by
``(ii) 0.2.
``(c) Qualifying Child.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
term `qualifying child' has the meaning given such term by
section 7705.
``(2) Exception for certain noncitizens.--The term
`qualifying child' shall not include any individual who would
not be a dependent if subparagraph (A) of section 7705(b)(3)
were applied without regard to all that follows `resident of
the United States'.
``(d) Portion of Credit Refundable.--
``(1) In general.--The aggregate credits allowed under
subpart C shall be increased by the lesser of--
``(A) the credit which would be allowed under this
section without regard to this subsection and the
limitation under section 26(a), or
``(B) the amount by which the aggregate amount of
credits allowed under the subpart (determined without
regard to this subsection) would increase if the
limitation under section 26(a) were increased by 25
percent of the taxpayer's earned income for the taxable
year.
The amount of the credit allowed under this subsection shall
not be treated as a credit allowed under this subpart and shall
reduce the amount of credit otherwise allowable under
subsection (a) without regard to section 26(a).
``(2) Earned income.--For purposes of this subsection--
``(A) In general.--The term `earned income' means--
``(i) the taxpayer's wages, salaries, tips,
and other employee compensation, but only if
such amounts are includible in gross income for
the taxable year, plus
``(ii) the taxpayer's net earnings from
self-employment for the taxable year (within
the meaning of section 1402(a)) determined with
regard to the deduction allowed to the taxpayer
by section 164(f).
``(B) Special rules.--For purposes of subparagraph
(A)--
``(i) the earned income of an individual
shall be computed without regard to any
community property laws,
``(ii) no amount received as a pension or
annuity shall be taken into account,
``(iii) no amount to which section 871(a)
applies (relating to income of nonresident
alien individuals not connected with United
States business) shall be taken into account,
``(iv) no amount received for services
provided by an individual while the individual
is an inmate at a penal institution shall be
taken into account,
``(v) no amount described in subparagraph
(A) received for service performed in work
activities as defined in paragraph (4) or (7)
of section 407(d) of the Social Security Act to
which the taxpayer is assigned under any State
program under part A of title IV of such Act
shall be taken into account, but only to the
extent such amount is subsidized under such
State program, and
``(vi) amounts excluded from gross income
by reason of section 112 shall be taken into
account as earned income.
``(C) Special rule for taxable years beginning
before 2018.--In the case of any taxable year beginning
before January 1, 2018, the earned income of the
taxpayer taken into account under paragraph (1) shall
be reduced (but not below zero) by $3,000.
``(3) Exception for taxpayers excluding foreign earned
income.--Paragraph (1) shall not apply to any taxpayer for any
taxable year if such taxpayer elects to exclude any amount from
gross income under section 911 for such taxable year.
``(e) Inflation Adjustment.--In the case of any taxable year
beginning after 2014, each dollar amount in subsection (a) shall be
increased by an amount equal to--
``(1) such dollar amount, multiplied by
``(2) the cost-of-living adjustment determined under
section 1(c)(2)(A) for the calendar year in which the taxable
year begins.
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.
``(f) Identification Requirements.--
``(1) In general.--No credit shall be allowed under this
section to a taxpayer with respect to any dependent unless the
taxpayer includes the name and taxpayer identification number
of such dependent on the return of tax for the taxable year.
``(2) Additional identification requirement with respect to
refundable credit.--
``(A) In general.--Subsection (d) 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.
``(g) Taxable Year Must Be Full Taxable Year.--Except in the case
of a taxable year closed by reason of the death of the taxpayer, no
credit shall be allowable under this section in the case of a taxable
year covering a period of less than 12 months.''.
(b) Omission of Identification Information Treated as Mathematical
or Clerical Error.--Subparagraph (I) of section 6213(g)(2) of such Code
is amended to read as follows:
``(I) an omission of a correct TIN under section
24(f)(1) (relating to the child and dependent tax
credit), or a correct Social Security number under
section 24(f)(2) (relating to the refundable portion of
child and dependent tax credit), to be included on a
return,''.
(c) Application of Rule for Short Taxable Years.--Section 443(c) is
amended to read as follows:
``(c) Adjustment in Child and Dependent Tax Credit.--If a return is
made for a short period by reason of subsection (a)(1) and if the tax
is not computed under subsection (b)(2), then the credit allowed under
section 24 shall be reduced to an amount which bears the same ratio to
the full amount of such credit as the number of months in the short
period bears to 12.''.
(d) Clerical Amendment.--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.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1103. MODIFICATION OF EARNED INCOME TAX CREDIT.
(a) In General.--Section 32 is amended to read as follows:
``SEC. 32. EARNED INCOME.
``(a) In General.--In the case of an individual who is an eligible
individual for any taxable year, there shall be allowed as a credit
against the tax imposed by this subtitle for such taxable year an
amount equal to the taxpayer's employment-related taxes for such
taxable year.
``(b) Limitations.--
``(1) Dollar limitation.--The credit allowed under
subsection (a) shall not exceed--
``(A) in the case of a taxpayer with 2 or more
qualifying children, $3,000 ($4,000 in the case of a
joint return), and
``(B) in the case of a taxpayer with 1 qualifying
child, $2,400.
``(2) Phase-out of credit.--The credit allowed under
subsection (a) (determined after application of paragraph (1))
shall be reduced (but not below zero) by the sum of--
``(A) 19 percent of so much of the taxpayer's
adjusted gross income (reduced by the amount of any
excess described in subparagraph (B)) as exceeds
$20,000 ($27,000 in the case of a joint return), plus
``(B) so much of the taxpayer's investment income
for the taxable year as exceeds $3,300.
``(c) Definitions.--For purposes of this section--
``(1) Eligible individual.--
``(A) In general.--The term `eligible individual'
means any individual who has a qualifying child for the
taxable year.
``(B) Qualifying child ineligible.--If an
individual is the qualifying child of a taxpayer for
any taxable year of such taxpayer beginning in a
calendar year, such individual shall not be treated as
an eligible individual for any taxable year of such
individual beginning in such calendar year.
``(C) Exception for individual claiming benefits
under section 911.--The term `eligible individual' does
not include any individual who claims the benefits of
section 911 (relating to citizens or residents living
abroad) for the taxable year.
``(D) Limitation on eligibility of nonresident
aliens.--The term `eligible individual' shall not
include any individual who is a nonresident alien
individual for any portion of the taxable year unless
such individual is treated for such taxable year as a
resident of the United States for purposes of this
chapter by reason of an election under subsection (g)
or (h) of section 6013.
``(2) Employment-related taxes.--The term `employment-
related taxes' means, with respect to any taxpayer for any
taxable year, the sum of--
``(A) any tax imposed under sections 3101 or 3111
on the wages (as defined in section 3121(a)) received
by the taxpayer during the calendar year in which the
taxable year begins,
``(B) any tax imposed under sections 3201(a),
3211(a), or 3221(a) on the compensation (as defined in
section 3231(e)) received by the taxpayer during the
calendar year in which the taxable year begins, and
``(C) any tax imposed under section 1401 on the
self-employment income of the taxpayer for the taxable
year.
``(3) Qualifying child.--
``(A) In general.--The term `qualifying child'
means a qualifying child of the taxpayer (within the
meaning of section 7705, determined without regard to
subsections (c)(1)(D) and (e) thereof).
``(B) Place of abode.--For purposes of subparagraph
(A), the requirements of section 7705(c)(1)(B) shall be
met only if the principal place of abode is in the
United States.
``(C) Treatment of military personnel stationed
outside the united states.--For purposes of
subparagraph (B), the principal place of abode of a
member of the Armed Forces of the United States shall
be treated as in the United States during any period
during which such member is stationed outside the
United States while serving on extended active duty
with the Armed Forces of the United States. For
purposes of the preceding sentence, the term `extended
active duty' means any period of active duty pursuant
to a call or order to such duty for a period in excess
of 90 days or for an indefinite period.
``(4) Investment income.--For purposes of paragraph (1),
the term `investment income' means--
``(A) interest or dividends to the extent
includible in gross income for the taxable year,
``(B) interest received or accrued during the
taxable year which is exempt from tax imposed by this
chapter,
``(C) the excess (if any) of--
``(i) gross income from rents or royalties
not derived in the ordinary course of a trade
or business, over
``(ii) the sum of--
``(I) the deductions (other than
interest) which are clearly and
directly allocable to such gross
income, plus
``(II) interest deductions properly
allocable to such gross income,
``(D) the capital gain net income (as defined in
section 1222) of the taxpayer for such taxable year,
and
``(E) the excess (if any) of--
``(i) the aggregate income from all passive
activities for the taxable year (determined
without regard to any amount with respect to
which a tax described in subsection (c)(2) is
imposed or an amount described in a preceding
subparagraph), over
``(ii) the aggregate losses from all
passive activities for the taxable year (as so
determined).
For purposes of subparagraph (E), the term `passive
activity' has the meaning given such term by section
469.
``(d) Identification Requirements.--
``(1) In general.--No credit shall be allowed under this
section unless the taxpayer includes on the return of tax for
the taxable year--
``(A) the taxpayer's Social Security number, and
``(B) the name, age, and Social Security number of
each qualifying child taken into account under
subsection (b)(1).
``(2) Joint returns.--In the case of a joint return, the
requirement of paragraph (1)(A) shall be treated as met if the
Social Security number of either spouse is included on such
return.
``(3) Other methods of providing children's information.--
The Secretary may prescribe other methods for providing the
information described in paragraph (1)(B).
``(e) Restrictions on Taxpayers Who Improperly Claimed Credit in
Prior Year.--
``(1) Taxpayers making prior fraudulent or reckless
claims.--
``(A) In general.--No credit shall be allowed under
this section for any taxable year in the disallowance
period.
``(B) Disallowance period.--For purposes of
paragraph (1), 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).
``(2) 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.
``(f) Other Special Rules.--For purposes of this section--
``(1) Married individuals.--In the case of an individual
who is married (within the meaning of section 7703), this
section shall apply only if a joint return is filed for the
taxable year under section 6013.
``(2) Taxable year must be full taxable year.--Except in
the case of a taxable year closed by reason of the death of the
taxpayer, no credit shall be allowable under this section in
the case of a taxable year covering a period of less than 12
months.
``(3) Coordination with certain means-tested programs.--For
purposes of--
``(A) the United States Housing Act of 1937,
``(B) title V of the Housing Act of 1949,
``(C) section 101 of the Housing and Urban
Development Act of 1965,
``(D) sections 221(d)(3), 235, and 236 of the
National Housing Act, and
``(E) the Food and Nutrition Act of 2008,
any refund made to an individual (or the spouse of an
individual) by reason of this section, and any payment made to
such individual (or such spouse) by an employer under section
3507, shall not be treated as income (and shall not be taken
into account in determining resources for the month of its
receipt and the following month).
``(4) Coordination with payroll tax credits.--The credit
allowed under subsection (a) with respect to any taxpayer for
any taxable year shall be reduced by the sum of the credits
allowed under sections 3103 and 3203 with respect to such
taxpayer for such taxable year.
``(g) Application to Certain Individuals Without Qualifying
Children.--For purposes of this section and sections 3103 and 3203--
``(1) In general.--In the case of an individual described
in paragraph (2)--
``(A) such individual shall be treated as an
eligible individual,
``(B) notwithstanding subsection (i), the dollar
limitation applicable to such individual under
subsection (b)(1) shall be $100 (twice such amount in
the case of a joint return),
``(C) subsection (b)(2)(A) shall be applied by
substituting `$8,000 ($13,000' for `$20,000 ($27,000',
and
``(D) subsection (i)(1) shall not apply and the
employment-related taxes with respect to such
individual for any taxable year shall not exceed the
sum of--
``(i) any tax imposed under section 3101 on
the wages (as defined in section 3121(a))
received by the taxpayer during the calendar
year in which the taxable year begins,
``(ii) any tax imposed under sections
3201(a) (and so much of the tax imposed by
section 3211(a) as is attributable to the rates
of tax under subsections (a) and (b) of section
3101) on the compensation (as defined in
section 3231(e)) received by the taxpayer
during the calendar year in which the taxable
year begins, and
``(iii) 50 percent of any tax imposed under
section 1401 on the self-employment income of
the taxpayer for the taxable year.
``(2) Individual to whom subsection applies.--An individual
is described in this paragraph for any taxable year if--
``(A) such individual does not have a qualifying
child for the taxable year,
``(B) such individual's principal place of abode is
in the United States for more than one-half of such
taxable year,
``(C) such individual (or, if the individual is
married (within the meaning of section 7703), either
the individual or the individual's spouse) has attained
age 25 but not attained age 65 before the close of the
taxable year, and
``(D) such individual is not a dependent of another
taxpayer for any taxable year beginning in the same
calendar year as such taxable year.
``(h) Inflation Adjustment.--In the case of any taxable year
beginning after 2014, both dollar amounts in subsection (b)(1)(A), the
dollar amount in subsection (b)(1)(B), both dollar amounts in
subsection (b)(2)(A), the dollar amount in subsection (b)(2)(B), the
$100 amount in subsection (g)(1)(B), the $8,000 and $13,000 amounts in
subsection (g)(1)(C), the $4,000 amount in subsection (i)(2), and the
$3,000 amount in subsection (i)(3), shall each be increased by an
amount equal to--
``(1) such dollar amount, multiplied by
``(2) the cost-of-living adjustment determined under
section 1(c)(2)(A) for the calendar year in which the taxable
year begins.
If any increase determined under the preceding sentence is not a
multiple of $100 ($10 in the case of the $100 amount in subsection
(g)(1)(B)), such increase shall be rounded to the next lowest multiple
of $100 ($10 in the case of the $100 amount in subsection (g)(1)(B)).
``(i) Special Rules for Taxable Years Beginning Before 2018.--In
the case of any taxable year beginning before January 1, 2018--
``(1) subsection (a) shall be applied by substituting `200
percent of the taxpayer's employment-related taxes' for `the
taxpayer's employment-related taxes',
``(2) subsection (b)(1)(A) shall be applied by substituting
`$4,000' for `$3,000 ($4,000 in the case of a joint return)',
and
``(3) subsection (b)(1)(B) shall be applied by substituting
`$3,000' for `$2,400'.''.
(b) Credit Allowed Against Payroll Taxes.--
(1) FICA tax.--Subchapter A of chapter 21 is amended by
adding at the end the following new section:
``SEC. 3103. CREDIT AGAINST TAX.
``(a) In General.--In the case of an individual who is allowed a
credit under section 32 (determined without regard to subsection (f)(4)
thereof) for a taxable year, there shall be allowed as a credit against
the tax imposed by section 3101 with respect to wages received by such
individual during the calendar year ending with or within such taxable
year the lesser of--
``(1) the amount of tax so imposed, or
``(2) the amount of the credit allowed under section 32 (as
so determined) for such taxable year.
``(b) Application of Credit.--The credit determined under
subsection (a) shall be taken into account under this title in the same
manner as a credit or refund to which the taxpayer is entitled under
section 6413(c)(1). Such credit shall not be taken into account for
purposes of determining any amount deducted and withheld under section
3102.''.
(2) Railroad retirement tax.--Subchapter A of chapter 22 is
amended by adding at the end the following new section:
``SEC. 3203. CREDIT AGAINST TAX.
``(a) In General.--In the case of an individual who is allowed a
credit under section 32 (determined without regard to subsection (f)(4)
thereof) for a taxable year, there shall be allowed as a credit against
the tax imposed by section 3201(a) (and so much of the tax imposed by
section 3211(a) as is attributable to the rates of tax under
subsections (a) and (b) of section 3101) with respect to compensation
received by such individual during the calendar year ending with or
within such taxable year the lesser of--
``(1) the amount of tax so imposed, or
``(2) the excess of--
``(A) the amount of the credit allowed under
section 32 (as so determined) for such taxable year,
over
``(B) the amount of the credit allowed under
section 3103.
``(b) Application of Credit.--The credit determined under
subsection (a) shall be taken into account under this title in the same
manner as a credit or refund to which the taxpayer is entitled under
section 6413(c)(1). Such credit shall not be taken into account for
purposes of determining any amount deducted and withheld under section
3202.''.
(c) Conforming Amendments.--
(1) Section 86(f)(2) is amended by striking ``section
32(c)(2)'' and inserting ``section 24(d)(2)''.
(2) Section 129(e)(2) is amended by striking ``section
32(c)(2)'' and inserting ``section 24(d)(2)''
(3) Section 6051(a)(10) is amended by striking ``for
purposes of section 32 (relating to earned income credit)'' and
inserting ``under section 24(d)(2)''.
(4) Section 6211(b)(4)(A) is amended by inserting
``(determined without regard to subsection (f)(4) thereof)''
after ``32''.
(5) Section 6213(g)(2)(F) is amended by striking ``taxpayer
identification number'' and inserting ``Social Security
number''.
(6) Section 6213(g)(2)(G) is amended by striking ``with
respect to'' and all that follows and inserting ``with respect
to the tax imposed under section 1401 (relating to self-
employment tax) to the extent such tax has not been paid,''.
(7) Section 6213(g)(2)(K) is amended by striking ``section
32(k)(2)'' and inserting ``section 32(e)(2)''.
(8) Section 7705(f)(6)(B), as redesignated by this Act, is
amended by striking clause (iv), by striking ``, and'' at the
end of clause (iii) and inserting a period, and by inserting
``and'' at the end of clause (ii).
(9) The table of sections for subchapter A of chapter 21 is
amended by adding at the end the following new item:
``Sec. 3103. Credit against tax.''.
(10) The table of sections for subchapter A of chapter 22
is amended by adding at the end the following new item:
``Sec. 3203. Credit against tax.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(e) Treatment of Taxpayers Who Improperly Claimed Credit in Prior
Years.--A claim of credit under section 32 of the Internal Revenue Code
of 1986 (as in effect before the amendments made by this section) shall
not fail to be taken into account under subsection (e) of such section
(as amended by this section) merely because such claim is for a taxable
year beginning before January 1, 2015.
(f) Treasury Report on Making Credit Advanceable.--Not later than
the date which is 180 days after the date of the enactment of this Act,
the Secretary of the Treasury (or the Secretary's designee) shall
submit a report to Congress making recommendations regarding the best
method for providing for advance payment of the credits established by
the amendments made by this section. The recommendations in such report
shall seek to--
(1) provide for the payment of such credits to taxpayers as
promptly as is feasible, including on a weekly, biweekly, or
monthly basis, and
(2) minimize any administrative burdens on employers and
the Internal Revenue Service.
SEC. 1104. 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.--
(1) In general.--Section 152, prior to repeal by subsection
(a), is hereby redesignated as section 7705 and moved to the
end of chapter 79.
(2) Modification of age requirements.--Section
7705(c)(3)(A), as redesignated by paragraph (1), is amended by
striking ``as a qualifying child and--'' and all that follows
and inserting ``is a qualifying child and has not attained the
age of 18 as of the close of the calendar year in which the
taxable year of the taxpayer begins.''.
(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)(2) is amended by striking
``the amount of one personal exemption provided in section
151(b)'' and inserting ``$3,900''.
(2) Inflation adjustment.--Section 3402(a) is amended by
adding at the end the following new paragraph:
``(3) Inflation adjustment.--In the case of any calendar
year beginning after 2014, the $3,900 amount in paragraph (2)
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.
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.''.
(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)(4) who has income (other than
earned income) in excess of the amount in
effect under section 63(c)(4)(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
7705, 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 7705''.
(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 7705'', and
(B) by striking the period at the end and inserting
a comma.
(8) Section 63(b) is amended by striking ``minus--'' and
all that follows and inserting ``minus the standard
deduction.''.
(9) Section 63(d) is amended by striking ``other than--''
and all that follows and inserting ``other than the deductions
allowable in arriving at adjusted gross income.''.
(10) Section 72(t)(2)(D)(i)(III) is amended by striking
``section 152'' and inserting ``section 7705''.
(11) Section 72(t)(7)(A)(iii) is amended by striking
``section 152(f)(1)'' and inserting ``section 7705(f)(1)''.
(12) Section 105(b) is amended--
(A) by striking ``as defined in section 152'' and
inserting ``as defined in section 7705'',
(B) by striking ``section 152(f)(1)'' and inserting
``section 7705(f)(1)'' and
(C) by striking ``section 152(e)'' and inserting
``section 7705(e)''.
(13) Section 105(c)(1) is amended by striking ``section
152'' and inserting ``section 7705''.
(14) Section 125(e)(1)(D) is amended by striking ``section
152'' and inserting ``section 7705''.
(15) Section 129(c) is amended--
(A) by striking ``with respect to whom, for such
taxable year, a deduction is allowable under section
151(c) (relating to personal exemptions for dependents)
to'' in paragraph (1) and inserting ``who is a
dependent of'', and
(B) by striking ``section 152(f)(1)'' in paragraph
(2) and inserting ``section 7705(f)(1)''.
(16) Section 132(h)(2)(B) is amended--
(A) by striking ``section 152(f)(1)'' and inserting
``section 7705(f)(1)'', and
(B) by striking ``section 152(e)'' and inserting
``section 7705(e)''.
(17) Section 139D(c)(5) is amended by striking ``section
152'' and inserting ``section 7705''.
(18) Section 162(l)(1)(D) is amended by striking ``section
152(f)(1)'' and inserting ``section 7705(f)(1)''.
(19) Section 170(g)(1) is amended by striking ``section
152'' and inserting ``section 7705''.
(20) Section 170(g)(3) is amended by striking ``section
152(d)(2)'' and inserting ``section 7705(d)(2)''.
(21) Section 172(d) is amended by striking paragraph (3).
(22) 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''.
(23) Section 220(d)(2)(A) is amended by striking ``section
152'' and inserting ``section 7705''.
(24) 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''.
(25) Section 223(d)(2)(A) is amended by striking ``section
152'' and inserting ``section 7705''.
(26) Section 401(h) is amended by striking ``section
152(f)(1)'' in the last sentence and inserting ``section
7705(f)(1)''.
(27) Section 402(l)(4)(D) is amended by striking ``section
152'' and inserting ``section 7705''.
(28) Section 409A(a)(2)(B)(ii)(I) is amended by striking
``section 152(a)'' and inserting ``section 7705(a)''.
(29) Section 501(c)(9) is amended by striking ``section
152(f)(1)'' and inserting ``section 7705(f)(1)''.
(30) Section 529(e)(2)(B) is amended by striking ``section
152(d)(2)'' and inserting ``section 7705(d)(2)''.
(31) Section 703(a)(2) is amended by striking subparagraph
(A) and by redesignating subparagraphs (B) through (F) as
subparagraphs (A) through (E), respectively.
(32) Section 874 is amended by striking subsection (b) and
by redesignating subsection (c) as subsection (b).
(33) Section 891 is amended by striking ``under section 151
and''.
(34) Section 904(b) is amended by striking paragraph (1).
(35) Section 931(b)(1) is amended by striking ``(other than
the deduction under section 151, relating to personal
exemptions)''.
(36) 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).
(37) 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).''.
(38) Section 1361(c)(1)(C) is amended by striking ``section
152(f)(1)(C)'' and inserting ``section 7705(f)(1)(C)''.
(39) Section 1402(a) is amended by striking paragraph (7).
(40) Section 2032A(c)(7)(D) is amended by striking
``section 152(f)(2)'' and inserting ``section 7705(f)(2)''.
(41) Section 3402(m)(1) is amended by striking ``other than
the deductions referred to in section 151 and''.
(42) 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).''.
(43) Section 5000A(b)(3)(A) is amended by striking
``section 152'' and inserting ``section 7705''.
(44) 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''.
(45) 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).
(46) Section 6103(l)(21)(A)(iii) is amended to read as
follows:
``(iii) the number of the taxpayer's
dependents,''.
(47) Section 6213(g)(2) is amended by striking subparagraph
(H).
(48) 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 sum of the standard deduction and
the personal exemption amount, divided by
``(ii) 52.
``(B) Personal exemption amount.--For purposes of
subparagraph (A), the personal exemption amount is
$3,900 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 2014, the $3,900 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(c)(2)(A) for the
calendar year in which the taxable year begins.
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.''.
(49) Section 7702B(f)(2)(C)(iii) is amended by striking
``section 152(d)(2)'' and inserting ``section 7705(d)(2)''.
(50) Section 7703(a) is amended by striking ``part V of
subchapter B of chapter 1 and''.
(51) Section 7703(b)(1) is amended by striking ``section
152(f)(1)'' and all that follows and inserting ``section
7705(f)(1),''.
(52) Section 7705(a), as redesignated by this section, is
amended by striking ``this subtitle'' and inserting ``subtitle
A''.
(53)(A) Section 7705(d)(1)(B), as redesignated by this
section, is amended by striking ``the exemption amount (as
defined in section 151(d))'' and inserting ``$3,900''.
(B) Section 7705(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 2014, the $3,900 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.
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.''.
(54) The table of sections for chapter 79 is amended by
adding at the end the following new item:
``Sec. 7705. Dependent defined.''.
(h) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
Subtitle C--Simplification of Education Incentives
SEC. 1201. AMERICAN OPPORTUNITY TAX CREDIT.
(a) In General.--Section 25A is amended to read as follows:
``SEC. 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.--So much of the credit
allowable under subsection (a) (determined without regard to this
subsection and section 26(a) and after application of all other
provisions of this section) as does not exceed $1,500 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) $43,000 (twice such amount in the
case of a joint return), bears to
``(B) $20,000 (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 4 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 4 prior
taxable years.
``(2) Credit allowed only for first 4 years of
postsecondary education.--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 4 years of postsecondary education at an
eligible educational institution.
``(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 \1/2\ 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 requirement.--No credit shall be
allowed under subsection (a) to a taxpayer with respect to the
qualified tuition and related expenses of an individual unless
the taxpayer includes the name and taxpayer identification
number of such individual, and the employer identification
number of any institution to which such expenses were paid, on
the return of tax for the taxable year.
``(2) Adjustment for certain scholarships, etc.--
``(A) In general.--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--
``(i) a qualified scholarship which is
excludable from gross income under section 117,
``(ii) 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
``(iii) 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.
``(B) Coordination with pell grants not used for
qualified tuition and related expenses.--For purposes
of subparagraph (A), the amount of any Federal Pell
Grant under section 401 of the Higher Education Act of
1965 (20 U.S.C. 1070a) shall be reduced (but not below
zero) by the amount of expenses (other than qualified
tuition and related expenses) which are taken into
account in determining the cost of attendance (as
defined in section 472 of the Higher Education Act of
1965, as in effect on the date of the enactment of this
paragraph) of such individual at an eligible
educational institution for the academic period for
which the credit under this section is being
determined.
``(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.
``(g) Inflation Adjustment.--
``(1) In general.--In the case of a taxable year beginning
after 2018, the $2,000 amount in subsection (a)(1), the $1,500
amount in subsection (b), and the $43,000 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 2012' in clause
(ii) thereof.
``(2) Rounding.--If any amount as adjusted under paragraph
(1) is not a multiple of $100 ($1,000 in the case of the amount
in subsection (c)(1)(A)(ii)), such amount shall be rounded to
the next lowest multiple of $100 ($1,000 in the case of the
amount in subsection (c)(1)(A)(ii)).
``(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) Requirement To Report Tuition Paid Rather Than Tuition
Billed.--Section 6050S(b)(2)(B)(i) is amended by striking ``or the
aggregate amount billed''.
(c) Conforming Amendments.--
(1) Section 72(t)(7)(B) of such Code is amended by striking
``section 25A(g)(2)'' and inserting ``section 25A(f)(2)''.
(2) Section 529(c)(3)(B)(v)(I) of such Code is amended by
striking ``section 25A(g)(2)'' and inserting ``section
25A(f)(2)''.
(3) Section 529(e)(3)(B)(i) of such Code is amended by
striking ``section 25A(b)(3)'' and inserting ``section
25A(d)''.
(4) Section 530(d)(2)(C) of such Code 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) of such Code is amended by
striking ``section 25A(g)(2)'' and inserting ``section
25A(d)(4)(B)''.
(6) Section 6050S(e) of such Code is amended by striking
``subsection (g)(2)'' and inserting ``subsection (f)(2)''.
(7) Section 6211(b)(4)(A) of such Code is amended by
striking ``subsection (i)(6)'' and inserting ``subsection
(b)''.
(8) Section 6213(g)(2)(J) of such Code 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 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)''.
(10) The table of sections for subpart A of part IV of
subchapter A of chapter 1 of the Internal Revenue Code of 1986
is amended by striking the item relating to section 25A and
inserting the following new item:
``Sec. 25A. American opportunity tax credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1202. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.
(a) In General.--Paragraph (1) of section 117(b) of the Internal
Revenue Code of 1986 is amended--
(1) by striking the period at the end and inserting ``,
or'',
(2) by striking ``received by an individual as a
scholarship'' and inserting the following: ``received by an
individual--
``(A) as a scholarship'', and
(3) by adding at the end the following new subparagraph:
``(B) as a Federal Pell Grant under section 401 of
the Higher Education Act of 1965 (20 U.S.C. 1070a).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1203. REPEAL OF EXCLUSION OF INCOME FROM UNITED STATES SAVINGS
BONDS USED TO PAY HIGHER EDUCATION TUITION AND FEES.
(a) In General.--Part III of subchapter B of chapter 1 is amended
by striking section 135 (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, 2014.
SEC. 1204. REPEAL OF DEDUCTION FOR INTEREST ON EDUCATION LOANS.
(a) In General.--Part VII of subchapter B of chapter 1 is amended
by striking section 221 (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendment.--Section 62(a) is amended by striking
paragraph (17).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1205. REPEAL OF DEDUCTION FOR QUALIFIED TUITION AND RELATED
EXPENSES.
(a) In General.--Part VII of subchapter B of chapter 1 is amended
by striking section 222 (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendment.--Section 62(a) is amended by striking
paragraph (18).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2013.
SEC. 1206. NO NEW CONTRIBUTIONS TO COVERDELL EDUCATION SAVINGS
ACCOUNTS.
(a) In General.--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,
2014.''.
(b) 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''.
(c) 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, 2014.
(2) Rollovers to qualified tuition programs.--The
amendments made by subsection (b) shall apply to distributions
after December 31, 2014.
SEC. 1207. REPEAL OF EXCLUSION FOR DISCHARGE OF STUDENT LOAN
INDEBTEDNESS.
(a) In General.--Section 108 is amended by striking subsection (f).
(b) Conforming Amendments.--
(1) Section 3121(a)(20) is amended by striking
``108(f)(4),''.
(2) Section 209(a)(17) of the Social Security Act is
amended by striking ``108(f)(4),''.
(3) Section 3231(e)(5) is amended by striking
``108(f)(4),''.
(4) Section 3306(b)(16) is amended by striking
``108(f)(4),''.
(5) Section 3401(a)(19) is amended by striking
``108(f)(4),''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts discharged after December 31, 2014.
SEC. 1208. REPEAL OF EXCLUSION FOR QUALIFIED TUITION REDUCTIONS.
(a) In General.--Section 117 is amended by striking subsection (d).
(b) Conforming Amendments.--
(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),''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1209. REPEAL OF EXCLUSION FOR EDUCATION ASSISTANCE PROGRAMS.
(a) In General.--Part III of subchapter B of chapter 1 is amended
by striking section 127 (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendments.--
(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 137(c) is amended to read as follows:
``(c) Adoption Assistance Program.--
``(1) In general.--For purposes of this section, an
adoption assistance program is a separate written plan of an
employer for the exclusive benefit of such employer's employees
under which the employer provides such employees with adoption
assistance. Except as provided in paragraph (6), such program
must meet the requirements of paragraphs (2), (3), and (4).
``(2) Eligibility.--The program shall benefit employees who
qualify under a classification set up by the employer and found
by the Secretary not to be discriminatory in favor of employees
who are highly compensated employees (within the meaning of
section 414(q)) or their dependents. For purposes of this
paragraph, there shall be excluded from consideration employees
not included in the program who are included in a unit of
employees covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement between employee
representatives and one or more employers, if there is evidence
that adoption assistance benefits were the subject of good
faith bargaining between such employee representatives and such
employer or employers.
``(3) Principal shareholders or owners.--Not more than 5
percent of the amounts paid or incurred by the employer for
adoption assistance during the year may be provided for the
class of individuals who are shareholders or owners (or their
spouses or dependents), each of whom (on any day of the year)
owns more than 5 percent of the stock or of the capital or
profits interest in the employer.
``(4) Notification of employees.--Reasonable notification
of the availability and terms of the program must be provided
to eligible employees.
``(5) No funding required.--A program referred to in
paragraph (1) is not required to be funded.
``(6) Certain federal programs.--An adoption reimbursement
program operated under section 1052 of title 10, United States
Code (relating to armed forces) or section 514 of title 14,
United States Code (relating to members of the Coast Guard)
shall be treated as an adoption assistance program for purposes
of this section.''.
(4) Section 414(n)(3)(C) is amended by striking ``127,''.
(5) Section 414(t)(2) is amended by striking ``127,''.
(6) Section 3121(a)(18) is amended by striking ``127,''.
(7) Section 209(a)(15) of the Social Security Act is
amended by striking ``127 or''.
(8) Section 3231(e) is amended by striking paragraph (6).
(9) Section 3306(b)(13) is amended by striking ``127,''.
(10) Section 3401(a)(18) is amended by striking ``127,''.
(11) Section 6039D(d)(1) is amended by striking ``127,''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2014.
SEC. 1210. REPEAL OF EXCEPTION TO 10-PERCENT PENALTY FOR HIGHER
EDUCATION EXPENSES.
(a) In General.--Section 72(t)(2) is amended by striking
subparagraph (E).
(b) Conforming Amendment.--Section 72(t) is amended by striking
paragraph (7).
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2014.
Subtitle D--Repeal of Certain Credits for Individuals
SEC. 1301. REPEAL OF DEPENDENT CARE CREDIT.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
is amended by striking section 21 (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendments.--
(1)(A) Section 129(a)(2) is amended by striking
subparagraph (C).
(B) Section 129(e) is amended by adding at the end the
following new paragraph:
``(10) Marital status.--Rules similar to the rules of
subsections (a) and (b) of section 7703 shall apply for
purposes of this section.''.
(2) Section 129(e)(1) is amended to read as follows:
``(1) Dependent care assistance.--
``(A) In general.--The term `dependent care
assistance' means employment-related expenses and the
provision of services which constitute employment-
related expenses.
``(B) Employment-related expenses.--The term
`employment-related expenses' means amounts paid for
the following expenses, but only if such expenses are
incurred to enable the employee to be gainfully
employed for any period for which there are 1 or more
qualifying individuals with respect to the employee:
``(i) expenses for household services, and
``(ii) expenses for the care of a
qualifying individual.
Such term shall not include any amount paid for
services outside the employee's household at a camp
where the qualifying individual stays overnight.
``(C) Exception.--Employment-related expenses
described in subparagraph (A) which are incurred for
services outside the employee's household shall be
taken into account only if incurred for the care of--
``(i) a qualifying individual described in
subparagraph (D)(i), or
``(ii) a qualifying individual (not
described in subparagraph (D)(i)) who regularly
spends at least 8 hours each day in the
employee's household.
``(D) Qualifying individual.--The term `qualifying
individual' means--
``(i) a dependent of the taxpayer (as
defined in section 7705(a)(1)) who has not
attained age 13,
``(ii) a dependent of the taxpayer (as
defined in section 7705, determined without
regard to subsections (b)(1), (b)(2), and
(d)(1)(B)) who is physically or mentally
incapable of caring for himself or herself and
who has the same principal place of abode as
the taxpayer for more than one-half of such
taxable year, or
``(iii) the spouse of the taxpayer, if the
spouse is physically or mentally incapable of
caring for himself or herself and who has the
same principal place of abode as the taxpayer
for more than one-half of such taxable year.
``(E) Dependent care centers.--Employment-related
expenses described in subparagraph (A) which are
incurred for services provided outside the employee's
household by a dependent care center shall be taken
into account only if--
``(i) such center complies with all
applicable laws and regulations of a State or
unit of local government, and
``(ii) the requirements of subparagraph (B)
are met.
``(F) Dependent care center defined.--For purposes
of this paragraph, the term `dependent care center'
means any facility which--
``(i) provides care for more than six
individuals (other than individuals who reside
at the facility), and
``(ii) receives a fee, payment, or grant
for providing services for any of the
individuals (regardless of whether such
facility is operated for profit).
``(G) Place of abode.--For purposes of this
paragraph, an individual shall not be treated as having
the same principal place of abode as the taxpayer if at
any time during the taxable year of the taxpayer the
relationship between the individual and the taxpayer is
in violation of local law.
``(H) Special dependency test in case of divorced
parents, etc..--If--
``(i) section 7705(e) applies to any child
with respect to any calendar year, and
``(ii) such child is under the age of 13 or
is physically or mentally incapable of caring
for himself, in the case of any taxable year
beginning in such calendar year,
such child shall be treated as a qualifying individual
described in clause (i) or (ii) of subparagraph (D)
(whichever is appropriate) with respect to the
custodial parent (as defined in section 7705(e)(4)(A)),
and shall not be treated as a qualifying individual
with respect to the noncustodial parent.''.
(3) Section 6213(g)(2)(L) is amended by striking ``21,''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1302. REPEAL OF CREDIT FOR ADOPTION EXPENSES.
(a) In General.--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).
(b) Conforming Amendments.--
(1) Section 137 is amended by striking subsections (d) and
(e).
(2) Subsections (d) and (e) of section 23 (prior to being
stricken by subsection (a)) are each moved to section 137
(after amendment by paragraph (1)) and inserted after
subsection (c) as new subsections (d) and (e), respectively.
(3) Section 137(d)(1)(D), as amended by paragraphs (1) and
(2), is amended by inserting ``(determined without regard to
reimbursements under this section)'' before the period at the
end.
(4) Section 137(e), as amended by paragraphs (1) and (2),
is amended by striking ``(as defined in section 217(h)(3))''
and inserting ``(or any possession of the United States)''.
(5) Section 137 is amended by redesignating subsection (f)
as subsection (h), and by inserting before subsection (h) (as
so redesignated) the following new subsections:
``(f) Filing Requirements.--
``(1) Married couples must file joint return.--
``(A) In general.--If the taxpayer is married at
the close of the taxable year, subsection (a) shall
apply to the taxpayer only if the taxpayer and the
taxpayer's spouse file a joint return for the taxable
year.
``(B) Marital status.--Rules similar to the rules
of subsections (a) and (b) of section 7703 shall apply
for purposes of this section.
``(2) Taxpayer must include tin.--
``(A) In general.--Subsection (a) shall apply with
respect to any child only if the taxpayer includes (if
known) the name, age, and TIN of such child on the
return of tax for the taxable year.
``(B) Other methods.--The Secretary may, in lieu of
the information referred to in subparagraph (A),
require other information meeting the purposes of
subparagraph (A), including identification of an agent
assisting with the adoption.
``(g) Basis Adjustments.--For purposes of this subtitle, if the
amount of any expenditure with respect to any property is excluded from
gross income under this section, the increase in the basis of such
property which would (but for this subsection) result from such
expenditure shall be reduced by the amount of such expenditure which is
so excluded.''.
(6) Section 1016(a)(26) is amended by striking ``sections
23(g) and 137(e)'' and inserting ``section 137(g)''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2014.
(2) Special needs adoptions.--For purposes of paragraph
(1), any amount treated as paid by the taxpayer under section
23(a)(3) of the Internal Revenue Code of 1986 (as in effect
before its repeal by subsection (a)) shall be treated as paid
on the date that the adoption referred to in such section
becomes final.
SEC. 1303. REPEAL OF CREDIT FOR NONBUSINESS ENERGY PROPERTY.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
is amended by striking section 25C (and by striking the item relating
to such section in the table of sections of such subpart).
(b) Conforming Amendment.--Section 1016(a) is amended by striking
paragraph (33).
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2013.
SEC. 1304. REPEAL OF CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
is amended by striking section 25D (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Conforming Amendment.--Section 1016(a) is amended by striking
paragraph (34).
(c) Effective Date.--The amendment made by this section shall apply
to property placed in service after December 31, 2014.
SEC. 1305. REPEAL OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
is amended by striking section 30 (and by striking the item relating to
such section in the table of sections of such subpart).
(b) Conforming Amendments.--
(1) Section 1016(a) is amended by striking paragraph (25).
(2) Section 6501(m) is amended by striking ``section
30(e)(6),''.
(c) Effective Date.--The amendments made by this section shall
apply to vehicles acquired after December 31, 2011.
SEC. 1306. REPEAL OF ALTERNATIVE MOTOR VEHICLE CREDIT.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
is amended by striking section 30B (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 (25).
(2) Section 1016(a) is amended by striking paragraph (35).
(3) Section 6501(m) is amended by striking ``30B(h)(9),''.
(c) Effective Date.--The amendment made by this section shall apply
to property purchased after December 31, 2014.
SEC. 1307. REPEAL OF ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY
CREDIT.
(a) In General.--Subpart B of part IV of subchapter A of chapter 1
is amended by striking section 30C (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 (26).
(2) Section 1016(a) is amended by striking paragraph (36).
(3) Section 6501(m) is amended by striking ``30C(e)(5),''.
(c) Effective Date.--The amendment made by this section shall apply
to property placed in service after December 31, 2014.
SEC. 1308. REPEAL OF CREDIT FOR NEW QUALIFIED PLUG-IN ELECTRIC DRIVE
MOTOR VEHICLES.
(a) 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).
(b) Conforming Amendments.--
(1) Section 38(b) is amended by striking paragraph (35).
(2) Section 1016(a) is amended by striking paragraph (37).
(3) Section 6501(m) is amended by striking ``30D(e)(4),''.
(c) Effective Date.--The amendments made by this section shall
apply to vehicles acquired after December 31, 2014.
SEC. 1309. REPEAL OF CREDIT FOR HEALTH INSURANCE COSTS OF ELIGIBLE
INDIVIDUALS.
(a) In General.--Subpart C of part IV of subchapter A of chapter 1
is amended by striking section 35 (and by striking the item relating to
such section in the table of sections of such subpart).
(b) Conforming Amendments.--
(1) Chapter 77 is amended by striking section 7527 (and by
striking the item relating to such section in the table of
sections of such chapter).
(2) Section 4980B(f)(5)(C)(iv)(II) is amended by inserting
``as in effect before its repeal'' after ``section 35(c)''.
(3) Section 6211(b)(4)(A) is amended by striking ``35,''.
(c) Effective Date.--The amendments made by this section shall
apply to months beginning after December 31, 2013.
SEC. 1310. REPEAL OF FIRST-TIME HOMEBUYER CREDIT.
(a) In General.--Subpart C of part IV of subchapter A of chapter 1
is amended by striking section 36 (and by striking the item relating to
such section in the table of sections of such subpart).
(b) Conforming Amendments.--
(1) Section 26(b)(2) is amended by striking subparagraph
(W).
(2) Section 1400C(e) is amended by striking paragraph (4).
(3) Section 6211(b)(4)(A) is amended by striking ``36,''.
(4) Section 6213(g)(2) is amended by striking subparagraphs
(O) and (P).
(c) Effective Date.--The amendments made by this section shall
apply to residences purchased after June 30, 2011.
Subtitle E--Deductions, Exclusions, and Certain Other Provisions
SEC. 1401. 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 modified adjusted gross income of
the taxpayer for the taxable year 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' has the
meaning given such term by section 2 determined after the
application of this section but without regard to this
subsection.''.
(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, 2014.
SEC. 1402. MORTGAGE INTEREST.
(a) Modification of Limitations.--
(1) In general.--Paragraph (3) of section 163(h) 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).
``(ii) Phase-in of decreased limitation.--
For purposes of applying clause (i) with
respect to any indebtedness incurred during a
calendar year after 2014 and before 2018, the
$500,000 amount in clause (i) shall be
increased by the phase-in amount determined in
accordance with the following table:
----------------------------------------------------------------------------------------------------------------
``In the case of indebtedness incurred during: The phase-in amount is:
----------------------------------------------------------------------------------------------------------------
2015....................................................... $375,000
2016....................................................... $250,000
2017....................................................... $125,000
----------------------------------------------------------------------------------------------------------------
``(iii) Treatment of refinancings of
indebtedness incurred during phase-in period.--
In the case of any indebtedness which is
incurred to refinance indebtedness to which
clause (ii) applies (or to which this clause
applies), such refinanced indebtedness shall be
treated for purposes of clause (ii) 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.
``(C) Treatment of indebtedness incurred before
january 1, 2015.--
``(i) In general.--In the case of any pre-
January 1, 2015, indebtedness, this paragraph
shall apply as in effect immediately before the
enactment of the Tax Reform Act of 2014.
``(ii) Reduction in dollar limitation.--The
limitation of subparagraph (B) (after
application of clause (ii) thereof) shall be
reduced (but not below zero) by the aggregate
amount of outstanding pre-January 1, 2015,
indebtedness of the taxpayer with respect to
which interest is allowable as a deduction by
reason of this subparagraph.
``(iii) Pre-january 1, 2015,
indebtedness.--For purposes of this
subparagraph, the term `pre-January 1, 2015,
indebtedness' means--
``(I) any indebtedness incurred
before January 1, 2015, and
``(II) any indebtedness incurred on
or after such date to refinance
indebtedness described in subclause (I)
(or refinanced indebtedness meeting the
requirements of this subclause) to the
extent the amount of the indebtedness
resulting from such refinancing does
not exceed the amount of the refinanced
indebtedness.
``(D) Limitation on period of refinancing.--
Subparagraphs (B)(iii) and (C)(iii)(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).
``(E) Coordination with certain exclusions.--The
amount otherwise treated as qualified residence
interest (determined without regard to this
subparagraph) with respect to any residence of the
taxpayer for any taxable year shall be reduced by the
sum of the amounts excludable from the gross income of
such taxpayer under sections 107 and 119 with respect
to such residence.''.
(2) Conforming amendments.--
(A) Section 108(h)(2) is amended to read as
follows:
``(2) Qualified principal residence indebtedness.--For
purposes of this section, the term `qualified principal
residence indebtedness' means indebtedness described in section
163(h)(3) applied without regard to clauses (ii) and (iii) of
subparagraph (B) thereof and by substituting `$2,000,000' for
`$500,000' in subparagraph (B)(i) thereof.''.
(B) Section 163(h) is amended--
(i) by striking subparagraph (E) in
paragraph (3),
(ii) by striking subparagraphs (E) and (F)
in paragraph (4), and
(iii) by striking paragraph (5).
(C) Section 265(a)(6) is amended--
(i) by striking ``an amount as--'' and all
that follows and inserting ``an amount as a
military housing allowance.'', and
(ii) by striking ``parsonage and'' in the
heading thereof.
(b) Modification of Reporting Requirements.--
(1) Information return requirements.--Paragraph (2) of
section 6050H(b) is amended by striking ``and'' at the end of
subparagraph (C), by redesignating subparagraph (D) as
subparagraph (F) and by inserting after subparagraph (C) the
following new subparagraphs:
``(D) the amount of outstanding principal on the
mortgage as of the beginning of such calendar year,
``(E) the date of the origination of the mortgage,
and''.
(2) Statements to individuals.--Paragraph (2) of section
6050H(d) is amended by striking ``subsection (b)(2)(C)'' and
inserting ``subparagraphs (C), (D), and (E) of subsection
(b)(2)''.
(c) Effective Dates.--
(1) Modification of limitations.--
(A) In general.--The amendments made by subsection
(a) shall apply to interest paid or accrued in taxable
years beginning after December 31, 2014, with respect
to indebtedness incurred before, on, or after such
date.
(B) Treatment of grandfathered indebtedness.--For
application of the amendments made by subsection (a) to
grandfathered indebtedness, see section 163(h)(3)(C) of
the Internal Revenue Code of 1986 as amended by this
section.
(2) Modification of reporting requirements.--The amendments
made by subsection (b) shall apply to returns and statements
for calendar years after December 31, 2014.
SEC. 1403. CHARITABLE CONTRIBUTIONS.
(a) 2 Percent Floor on Charitable Deduction for Individuals.--
Paragraph (3) of section 170(b) is amended to read as follows:
``(3) 2 percent floor on charitable deduction for
individuals.--The amount of charitable contributions taken into
account under this section as made by any individual during a
taxable year (determined without regard to subsection (d))
shall be reduced by 2 percent of the taxpayer's contribution
base for such taxable year. Such reduction shall apply--
``(A) first, to charitable contributions to which
paragraph (1)(B) applies to the extent thereof,
``(B) second, to charitable contributions to which
paragraph (1)(C) applies to the extent thereof, and
``(C) third, to charitable contributions to which
paragraph (1)(A) applies to the extent thereof.''.
(b) Extension of Time for Making Charitable Contributions.--
Subsection (a) of section 170 is amended by redesignating paragraphs
(2) and (3) as paragraphs (3) and (4), respectively, and by inserting
after paragraph (1) the following new paragraph:
``(2) Treatment of charitable contributions made by
individuals before due date of return.--If any charitable
contribution is made by an individual after the close of a
taxable year but not later than the due date (determined
without regard to extensions) for the return of tax for such
taxable year, then the taxpayer may elect to treat such
charitable contribution as made in such taxable year. Such
election may be made only at the time of the filing of such
return of tax and shall be signified in such manner as the
Secretary may provide.''.
(c) Deduction for Contributions of Property Generally Limited to
Adjusted Basis.--
(1) In general.--Subsection (e) of section 170 is amended--
(A) by striking paragraphs (1) and (6),
(B) by redesignating paragraphs (2), (3), (4), and
(5) as paragraphs (3), (4), (5), and (6), respectively,
and
(C) by inserting before paragraph (3) (as so
redesignated) the following new paragraphs:
``(1) In general.--Except in the case of property to which
paragraph (2) applies, the amount of any charitable
contribution of property otherwise taken into account under
this section shall be reduced by the amount of gain which would
have been realized if the property contributed had been sold by
the taxpayer for its fair market value (determined at the time
of such contribution).
``(2) Special rule for certain property.--
``(A) In general.--In the case of property to which
this paragraph applies, the amount of any charitable
contribution of property otherwise taken into account
under this section shall be reduced by the amount of
gain which would not have been long-term capital gain
if the property contributed had been sold by the
taxpayer at its fair market value (determined at the
time of such contribution).
``(B) Property to which this paragraph applies.--
This paragraph shall apply to--
``(i) any contribution of tangible personal
property if the use of such property by the
donee is related to the purpose or function
constituting the basis for its exemption under
section 501 (or, in the case of a governmental
unit, to any purpose or function described in
subsection (c)),
``(ii) any qualified conservation
contribution (as defined in subsection (h)(1)),
``(iii) any qualified contribution (as
defined in paragraph (4)(A)),
``(iv) any qualified research contribution
(as defined in paragraph (5)(B)), and
``(v) any qualified appreciated stock (as
defined in subsection (e)(6)).
``(C) Special rules for determining long-term
capital gain.--
``(i) In general.--For purposes of applying
this paragraph (other than in the case of gain
to which section 1245(a), 1250(a), 1252(a), or
1254(a) applies), property which is property
used in the trade or business (as defined in
section 1231(b)) shall be treated as a capital
asset.
``(ii) Contributions of stock in s
corporations.--For purposes of applying this
paragraph in the case of a charitable
contribution of stock in an S corporation,
rules similar to the rules of section 751 shall
apply in determining whether gain on such stock
would have been long-term capital gain if such
stock were sold by the taxpayer.''.
(2) Repeal of special rules for food and book inventory.--
Paragraph (4) of section 170(e), as redesignated by paragraph
(1), is amended by striking subparagraphs (C) and (D) and by
redesignating subparagraph (E) as subparagraph (C).
(3) Conforming amendments.--
(A) Section 170(e)(3), as redesignated by paragraph
(1), is amended by striking ``paragraph (1)'' and
inserting ``paragraphs (1) and (2)''.
(B) Paragraphs (4) and (5) of section 170(e), as
redesignated by paragraph (1), are each amended by
striking ``paragraph (1)(A)'' each place it appears and
inserting ``paragraph (2)(A)''.
(C) Section 170(e)(6), as redesignated by paragraph
(1), is amended--
(i) by striking all that precedes ``for
purposes of this paragraph'' in subparagraph
(B) and inserting the following:
``(6) Qualified appreciated stock.--
``(A) In general.--Except as provided in
subparagraph (B),'',
(ii) by redesignating subparagraph (C) as
subparagraph (B), and
(iii) by striking ``in a contribution to
which paragraph (1)(B)(ii) applies (determined
without regard to this paragraph)'' in
subparagraph (B) as so redesignated.
(d) Modification of Income Based Contribution Limitations.--
(1) In general.--Section 170(b)(1) is amended--
(A) by striking ``30 percent'' in subparagraph
(B)(i) and inserting ``25 percent'', and
(B) by striking ``50 percent'' and inserting ``40
percent'' in--
(i) the flush matter at the end of
subparagraph (A),
(ii) subparagraph (B)(ii), and
(iii) clauses (i), (iv)(I), and (v) of
subparagraph (C) (as redesignated by paragraph
(2)).
(2) Repeal of special limitations for certain capital gain
property.--
(A) In general.--Paragraph (1) of section 170(b) is
amended by striking subparagraphs (C) and (D) and by
redesignating subparagraphs (E), (F), and (G) as
subparagraphs (C), (D), and (E), respectively.
(B) Conforming amendments.--
(i) Section 170(b)(1)(A)(vii) is amended by
striking ``subparagraph (F)'' and inserting
``subparagraph (D)''
(ii) Section 170(b)(1)(B)(ii) is amended by
striking ``(determined without regard to
subparagraph (C))''.
(iii) Section 170(b)(1)(C)(iii), as
redesignated by paragraph (1), is amended by
striking ``subparagraph (A), (B), (C) or (D)''
and inserting ``subparagraph (A) or (B)''.
(iv) Section 170(b)(2)(B)(i)(I) is amended
by striking ``paragraph (1)(E)(v)'' and
inserting ``paragraph (1)(C)(v)''.
(v) Section 545(b)(2) is amended by
striking ``(D), and (E)'' and inserting ``and
(C)''.
(e) Qualified Conservation Contributions.--
(1) Rules made permanent.--
(A) In general.--Subparagraph (C) of section
170(b)(1), as redesignated by subsection (d), is
amended by striking clause (vi).
(B) Corporate farmers and ranchers.--Subparagraph
(B) of section 170(b)(2) is amended by striking clause
(iii).
(2) Treatment of golf course easements.--Subsection (h) of
section 170 is amended by adding at the end the following new
paragraph:
``(7) Special rule with respect to golf courses.--An
interest in real property shall not be treated as a qualified
real property interest for purposes of this subsection if (at
the time of the contribution of such interest) such property
is, or is reasonably expected to be, used as a golf course.''.
(3) Conforming amendments.--
(A) Section 170(b)(1)(C)(iv)(II), as redesignated
by subsection (d), is amended by striking ``made after
the date of the enactment of this subparagraph''.
(B) Section 170(b)(2)(B)(i)(II) is amended by
striking ``, in the case of contributions made after
the date of the enactment of this subparagraph,''.
(f) Repeal of Special Rule for College Athletic Event Seating
Rights.--Section 170 is amended by striking subsection (l).
(g) Repeal of Special Rule Treating Donee Income From Intellectual
Property as an Additional Charitable Contribution.--
(1) In general.--Section 170 is amended by striking
subsection (m).
(2) Conforming amendments.--Section 6050L is amended--
(A) by striking subsection (b) and redesignating
subsection (c) as subsection (b), and
(B) by striking ``or (b)'' in subsection (b) (as
redesignated by subparagraph (A)).
(h) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
contributions made in taxable years beginning after December
31, 2014.
(2) Qualified conservation contributions.--The amendments
made by subsection (e) shall apply to contributions made in
taxable years beginning after December 31, 2013.
SEC. 1404. 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:
``SEC. 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.--Paragraph (2) of section 62(a) 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, 2014.
SEC. 1405. REPEAL OF DEDUCTION FOR TAXES NOT PAID OR ACCRUED IN A TRADE
OR BUSINESS.
(a) In General.--Subsection (b) of section 164 is amended by
striking paragraphs (5) and (6) and inserting the following new
paragraph:
``(5) Limitation in case of individuals.--In the case of a
taxpayer other than a corporation--
``(A) paragraphs (1) and (2) of subsection (a)
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
``(B) paragraph (3) of subsection (a) shall not
apply to State and local taxes.''.
(b) Conforming Amendments.--
(1) Section 164(a) is amended by striking paragraph (6).
(2)(A) Section 216(a) is amended by striking
``proportionate share of--'' and all that follows and inserting
``proportionate share of the interest allowable as a deduction
to the corporation under section 163 which is paid or incurred
by the corporation on its indebtedness contracted--
``(1) in the acquisition, construction, alteration,
rehabilitation, or maintenance of the houses or apartment
building, or
``(2) in the acquisition of the land on which the houses
(or apartment building) are situated.''.
(B) Section 216(b)(3)(B)(i) is amended--
(i) by striking ``a share of such corporation's
real estate taxes described in subsection (a)(1) or''
in subclause (I), and
(ii) by striking ``of such taxes, or of such
interest,'' in subclause (II) and inserting ``of such
interest''.
(C) Section 216(d) is amended by striking ``subsections
(a)(1) and (a)(2)'' and inserting ``subsection (a)''.
(3) Section 274(f) is amended by striking ``Taxes,'' in the
heading thereof.
(4) Section 280A(b) is amended by striking ``Taxes,'' in
the heading thereof.
(5) Section 911(c)(3)(A)(ii) is amended--
(A) by striking ``and taxes'', and
(B) by striking ``or 164''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1406. REPEAL OF DEDUCTION FOR PERSONAL CASUALTY LOSSES.
(a) In General.--Subsection (c) of section 165 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 is amended by striking subsections (h) and
(k).
(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)(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)(F)(ii), prior to redesignation under
title III, is amended--
(A) by striking subclause (I) and by redesignating
subclauses (II) and (III) as subclauses (I) and (II),
respectively, and
(B) by striking ``subsection (h)(3)(C)(i)'' and
inserting ``section 165(i)(5)''.
(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.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1407. 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, 2014.
SEC. 1408. 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, 2014.
SEC. 1409. REPEAL OF DEDUCTION FOR MEDICAL EXPENSES.
(a) In General.--Part VII of subchapter B of chapter 1 is amended
by striking section 213 (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendments.--
(1)(A) Section 223 is amended by redesignating subsections
(e), (f), (g), and (h) as subsections (f), (g), (h), and (i),
respectively, and by inserting after subsection (d) the
following new subsection:
``(e) 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 limitation is:
the taxable year of:
------------------------------------------------------------------------
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, 2014.
``(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
7705(d)(2). This paragraph shall not apply for purposes of
section 105(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
223(e)(1)(D)''.
(C) Section 104(a) is amended by striking ``section
213(d)(1)'' in the last sentence and inserting ``section
223(e)(1)''.
(D) Section 105(b) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(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 223(e)(7)''.
(G) Section 220(d)(2)(A) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(H) Section 223(d)(2)(A) is amended by striking ``section
213(d)'' and inserting ``subsection (e))''.
(I) Section 419A(f)(2) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(J) Section 501(c)(26)(A) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(K) Section 2503(e) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(L) Section 4980B(c)(4)(B)(i)(I) is amended by striking
``section 213(d)'' and inserting ``section 223(e)''.
(M) Section 6041(f) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(N) Section 7702B(a)(2) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(O) Section 7702B(a)(4) is amended by striking ``section
213(d)(1)(D)'' and inserting ``section 223(e)(1)(D)''.
(P) Section 7702B(d)(5) is amended by striking ``section
213(d)(10)'' and inserting ``section 223(e)(7)''.
(Q) Section 9832(d)(3) is amended by striking ``section
213(d)'' and inserting ``section 223(e)''.
(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 223(e)) of the taxpayer, his spouse,
or a dependent (as defined in section 7705,
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 105 is amended by striking subsection (f).
(4) Section 162(l) is amended by striking paragraph (3).
(5) Section 402(l) is amended by striking paragraph (7) and
redesignating paragraph (8) as paragraph (7).
(6) Section 220(f) is amended by striking paragraph (6).
(7) Section 223(f) is amended by striking paragraph (6).
(8) Section 7702B(e) is amended by striking paragraph (2).
(9) Section 7705(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, 2014.
SEC. 1410. REPEAL OF DISQUALIFICATION OF EXPENSES FOR OVER-THE-COUNTER
DRUGS UNDER CERTAIN ACCOUNTS AND ARRANGEMENTS.
(a) HSAs.--Subparagraph (A) of section 223(d)(2) is amended by
striking the last sentence.
(b) Archer MSAs.--Subparagraph (A) of section 220(d)(2) is amended
by striking the last sentence.
(c) Health Flexible Spending Arrangements and Health Reimbursement
Arrangements.--Section 106 is amended by striking subsection (f).
(d) Effective Date.--The amendments made by this section shall
apply to expenses incurred after December 31, 2014.
SEC. 1411. REPEAL OF DEDUCTION FOR ALIMONY PAYMENTS AND CORRESPONDING
INCLUSION IN GROSS INCOME.
(a) In General.--Part VII of subchapter B of chapter 1 is amended
by striking section 215 (and by striking the item relating to such
section in the table of sections for such part).
(b) Corresponding Repeal of Provisions Providing for Inclusion of
Alimony in Gross Income.--
(1) Subsection (a) of section 61 is amended by striking
paragraph (8) and by redesignating paragraphs (9) through (15)
as paragraphs (8) through (14), respectively.
(2) 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).
(3) 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).
(c) Conforming Amendments.--
(1) 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)''.
(2) 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)''.
(d) 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, 2014, 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.
SEC. 1412. REPEAL OF DEDUCTION FOR MOVING EXPENSES.
(a) In General.--Part VII of subchapter B of chapter 1 is amended
by striking section 217 (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendments.--
(1) Section 62(a) is amended by striking paragraph (15).
(2)(A) Section 132(a) is amended by striking paragraph (6).
(B) Section 82 is amended by striking ``Except as provided
in section 132(a)(6), there'' and inserting ``There''.
(3)(A) Section 132 is amended by striking subsection (g).
(B) Section 132(l) is amended by striking by striking
``subsections (e) and (g)'' and inserting ``subsection (e)''.
(4) Section 274(m)(3) is amended by striking ``(other than
section 217)''.
(5) Section 3121(a) is amended by striking paragraph (11).
(6) Section 209(a) of the Social Security Act is amended by
striking paragraph (9).
(7) Section 3306(b) is amended by striking paragraph (9).
(8) Section 3401(a) is amended by striking paragraph (15).
(9) 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, 2014.
SEC. 1413. 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,
2014.''.
(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) and by redesignating subparagraphs (B) and (C) as
subparagraphs (A) and (B), respectively.
(4) Section 3231(e) is amended by striking paragraph (10)
and by redesignating paragraphs (11) and (12) as paragraphs
(10) and (11), respectively.
(5) Section 3306(b) is amended by striking paragraph (17).
(6) Section 3401(a) is amended by striking paragraph (21).
(7) 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).
(8) Section 4980G is amended to read as follows:
``SEC. 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.''.
(9) Section 6051(a) is amended by striking paragraph (11).
(10) 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, 2014.
SEC. 1414. REPEAL OF 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED
DEDUCTIONS.
(a) In General.--Part 1 of subchapter B of chapter 1 is amended by
striking section 67 (and the item relating to such section in the table
of sections for such part).
(b) Conforming Amendments.--
(1) Section 642(b)(2)(C)(i)(II) is amended to read as
follows:
``(II) by determining the adjusted
gross income of the trust under the
rules of section 2(b)(2) (without the
reference to section 642(b)).''.
(2) Section 162(o) is amended by striking paragraph (2).
(3) Section 302(b)(5) is amended by striking ``section
67(c)(2)(B)'' and inserting ``section 562(c)(2)''.
(4) Section 562(c) is amended--
(A) by striking ``(as defined in section
67(c)(2)(B))'',
(B) by striking ``(as so defined)'',
(C) by striking ``Except in the case of'' and
inserting the following:
``(1) In general.--Except in the case of'', and
(D) by adding at the end the following new
paragraph:
``(2) Publicly offered regulated investment company.--For
purposes of this subsection--
``(A) In general.--The term `publicly offered
regulated investment company' means a regulated
investment company the shares of which are--
``(i) continuously offered pursuant to a
public offering (within the meaning of section
4 of the Securities Act of 1933, as amended (15
U.S.C. 77a to 77aa)),
``(ii) regularly traded on an established
securities market, or
``(iii) held by or for no fewer than 500
persons at all times during the taxable year.
``(B) Secretary may reduce 500 person
requirement.--The Secretary may by regulation decrease
the minimum shareholder requirement of clause (i)(III)
in the case of regulated investment companies which
experience a loss of shareholders through net
redemptions of their shares.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1415. 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, 2014.
SEC. 1416. DEDUCTION FOR AMORTIZABLE BOND PREMIUM ALLOWED IN
DETERMINING ADJUSTED GROSS INCOME.
(a) In General.--Subsection (a) of section 62, as amended by
section 1411, is amended by inserting after paragraph (9) the following
new paragraph:
``(10) Amortizable bond premium.--The deduction allowed
under section 171(a)(1).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1417. 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 209(a)(17) of the Social Security Act is
amended by striking ``74(c),''.
(6) Section 3231(e)(5) is amended by striking ``74(c),''.
(7) Section 3306(b)(16) is amended by striking ``74(c),''.
(8) 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, 2014.
SEC. 1418. CLARIFICATION OF SPECIAL RULE FOR CERTAIN GOVERNMENTAL
PLANS.
(a) Treatment of Beneficiaries.--Section 105(j)(1) is amended--
(1) by striking ``the taxpayer'' and inserting ``an
employee, spouse, dependent (as defined for purposes of
subsection (b)), or child (as so defined)'', and
(2) by striking ``deceased plan participant's beneficiary''
and inserting ``deceased employee's beneficiary who is not a
surviving spouse, dependent (as so defined), or child (as so
defined)''.
(b) Application to Political Subdivisions of States.--Section
105(j)(2) is amended--
(1) by inserting ``or established by or on behalf of a
State or political subdivision thereof'' after ``public
retirement system'', and
(2) by inserting ``or 501(c)(9)'' after ``section 115'' in
subparagraph (B) thereof.
(c) Effective Date.--The amendments made by this section shall
apply to payments after the date of the enactment of this Act.
SEC. 1419. 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.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 1420. FRINGE BENEFITS.
(a) Repeal of Special Rule for Air Transportation by Parent of
Employee.--Subsection (h) of section 132 is amended by striking
paragraph (3).
(b) Transportation and Parking.--
(1) Freeze at current levels.--
(A) In general.--Paragraph (2) of section 132(f) is
amended--
(i) in subparagraph (A) by striking
``$100'' and inserting ``$130'', and
(ii) in subparagraph (B) by striking
``$175'' and inserting ``$250''.
(B) Inflation adjustment.--Subsection (f) of such
section is amended by striking paragraph (6) and
redesignating paragraph (7) as paragraph (6).
(2) Repeal of bicycle benefit.--
(A) In general.--Paragraph (1) of section 132(f) is
amended by striking subparagraph (D).
(B) Conforming amendments.--
(i) Section 132(f)(2) is amended 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).
(ii) Section 132(f)(4) is amended by
striking ``(other than a qualified bicycle
commuting reimbursement)''.
(iii) Section 132(f)(5) is amended by
striking subparagraph (F).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1421. REPEAL OF EXCLUSION OF NET UNREALIZED APPRECIATION IN
EMPLOYER SECURITIES.
(a) In General.--Section 402(e) is amended by striking paragraph
(4).
(b) Conforming Amendments.--
(1) Section 401(k)(10) is amended by striking subparagraph
(B) and inserting the following new subparagraphs:
``(B) Distributions must be lump sum
distributions.--A termination shall not be treated as
described in subparagraph (A) with respect to any
employee unless the employee receives a lump sum
distribution by reason of the termination.
``(C) Lump-sum distribution defined.--For purposes
of this paragraph--
``(i) In general.--The term `lump sum
distribution' means the distribution or payment
within one taxable year of the recipient of the
balance to the credit of an employee which
becomes payable to the recipient from a trust
which forms a part of a plan described in
section 401(a) and which is exempt from tax
under section 501 or from a plan described in
section 403(a). Such term includes a
distribution of an annuity contract from--
``(I) a trust which forms a part of
a plan described in section 401(a) and
which is exempt from tax under section
501(a), or
``(II) an annuity plan described in
section 403(a).
For purposes of this clause, a distribution to
two or more trusts shall be treated as a
distribution to one recipient.
``(ii) Aggregation of certain trusts and
plans.--For purposes of determining the balance
to the credit of an employee under clause (i)--
``(I) all trusts which are part of
a plan shall be treated as a single
trust, all pension plans maintained by
the employer shall be treated as a
single plan, all profit-sharing plans
maintained by the employer shall be
treated as a single plan, and all stock
bonus plans maintained by the employer
shall be treated as a single plan, and
``(II) trusts which are not
qualified trusts under section 401(a)
and annuity contracts which do not
satisfy the requirements of section
404(a)(2) shall not be taken into
account.
``(iii) Community property laws.--The
provisions of this subparagraph shall be
applied without regard to community property
laws.
``(iv) Balance to credit of employee not to
include amounts payable under qualified
domestic relations order.--The balance to the
credit of an employee shall not include any
amount payable to an alternate payee under a
qualified domestic relations order (within the
meaning of section 414(p)).
``(v) Transfers to cost-of-living
arrangement not treated as distribution.--The
balance to the credit of an employee under a
defined contribution plan shall not include any
amount transferred from such defined
contribution plan to a qualified cost-of-living
arrangement (within the meaning of section
415(k)(2)) under a defined benefit plan. (vii)
``(vi) Lump-sum distributions of alternate
payees.--If any distribution or payment of the
balance to the credit of an employee would be
treated as a lump-sum distribution, then, for
purposes of this paragraph, the payment under a
qualified domestic relations order (within the
meaning of section 414(p)) of the balance to
the credit of an alternate payee who is the
spouse or former spouse of the employee shall
be treated as a lump-sum distribution. For
purposes of this clause, the balance to the
credit of the alternate payee shall not include
any amount payable to the employee.
``(vii) Exclusion of accumulate deductible
employee contributions.--For purposes of this
subparagraph, the balance to the credit of the
employee does not include the accumulated
deductible employee contributions under the
plan (within the meaning of section
72(o)(5)).''.
(2) Section 3405(e) is amended by striking paragraph (8).
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2014.
SEC. 1422. CONSISTENT BASIS REPORTING BETWEEN ESTATE AND PERSON
ACQUIRING PROPERTY FROM DECEDENT.
(a) Property Acquired From a Decedent.--Section 1014 is amended by
adding at the end the following new subsection:
``(f) Basis Must Be Consistent With Estate Tax Return.--For
purposes of this section--
``(1) In general.--The basis of any property to which
subsection (a) applies shall not exceed--
``(A) in the case of property the final value of
which has been determined for purposes of the tax
imposed by chapter 11 on the estate of such decedent,
such value, and
``(B) in the case of property not described in
subparagraph (A) and with respect to which a statement
has been furnished under section 6035(a) identifying
the value of such property, such value.
``(2) Exception.--Paragraph (1) shall only apply to any
property whose inclusion in the decedent's estate increased the
liability for the tax imposed by chapter 11 (reduced by credits
allowable against such tax) on such estate.
``(3) Regulations.--The Secretary may by regulations
provide exceptions to the application of this subsection.''.
(b) Information Reporting.--
(1) In general.--Subpart A of part III of subchapter A of
chapter 61 is amended by inserting after section 6034A the
following new section:
``SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING PROPERTY FROM
DECEDENT.
``(a) Information With Respect to Property Acquired From
Decedents.--
``(1) In general.--The executor of any estate required to
file a return under section 6018(a) shall furnish to the
Secretary and to each person acquiring any interest in property
included in the decedent's gross estate for Federal estate tax
purposes a statement identifying the value of each interest in
such property as reported on such return and such other
information with respect to such interest as the Secretary may
prescribe.
``(2) Statements by beneficiaries.--Each person required to
file a return under section 6018(b) shall furnish to the
Secretary and to each other person who holds a legal or
beneficial interest in the property to which such return
relates a statement identifying the information described in
paragraph (1).
``(3) Time for furnishing statement.--
``(A) In general.--Each statement required to be
furnished under paragraph (1) or (2) shall be furnished
at such time as the Secretary may prescribe, but in no
case at a time later than the earlier of--
``(i) the date which is 30 days after the
date on which the return under section 6018 was
required to be filed (including extensions, if
any), or
``(ii) the date which is 30 days after the
date such return is filed.
``(B) Adjustments.--In any case in which there is
an adjustment to the information required to be
included on a statement filed under paragraph (1) or
(2) after such statement has been filed, a supplemental
statement under such paragraph shall be filed not later
than the date which is 30 days after such adjustment is
made.
``(b) Regulations.--The Secretary shall prescribe such regulations
as necessary to carry out this section, including regulations relating
to--
``(1) the application of this section to property with
regard to which no estate tax return is required to be filed,
and
``(2) situations in which the surviving joint tenant or
other recipient may have better information than the executor
regarding the basis or fair market value of the property.''.
(2) Penalty for failure to file.--
(A) Return.--Section 6724(d)(1) 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) any statement required to be filed with the
Secretary under section 6035.''.
(B) Statement.--Section 6724(d)(2) is amended by
striking ``or'' at the end of subparagraph (GG), by
striking the period at the end of subparagraph (HH) and
inserting ``, or'', and by adding at the end the
following new subparagraph:
``(II) section 6035 (other than a statement
described in paragraph (1)(D)).''.
(3) 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 6034A the
following new item:
``Sec. 6035. Basis information to persons acquiring property from
decedent.''.
(c) Penalty for Inconsistent Reporting.--
(1) In general.--Subsection (b) of section 6662 is amended
by inserting after paragraph (7) the following new paragraph:
``(8) Any inconsistent estate basis.''.
(2) Inconsistent basis reporting.--Section 6662 is amended
by adding at the end the following new subsection:
``(k) Inconsistent Estate Basis Reporting.--For purposes of this
section, the term `inconsistent estate basis' means the portion of the
understatement which is attributable to in the case of property
acquired from a decedent, a basis determination with respect to such
property which is not consistent with the value of such property as
determined under section 1014(f).''.
(d) Effective Date.--The amendments made by this section shall
apply to transfers for which an estate tax return is filed after the
date of the enactment of this Act.
Subtitle F--Employment Tax Modifications
SEC. 1501. MODIFICATIONS OF DEDUCTION FOR SOCIAL SECURITY TAXES IN
COMPUTING NET EARNINGS FROM SELF-EMPLOYMENT.
(a) In General.--Paragraph (12) of section 1402(a) is amended to
read as follows:
``(12) in lieu of the deduction allowable under section
164(f) (relating to deduction for one-half of self-employment
taxes), there shall be allowed as a deduction an amount equal
to the sum of--
``(A) 7.1064 percent of so much of the individual's
net earnings from self-employment for the taxable year
(determined without regard to this paragraph) as does
not exceed an amount equal to the product of 1.0765 and
the excess (if any) of--
``(i) the contribution and benefit base (as
determined under section 230 of the Social
Security Act) in effect for the calendar year
in which the taxable year begins, over
``(ii) the wages (within the meaning of
subsection (b)(1)) paid to the individual
during such taxable year, plus
``(B) 1.4293 percent of the excess (if any) of the
individual's net earnings from self-employment for the
taxable year (determined without regard to this
paragraph) over the amount of such net earnings taken
into account under subparagraph (A);''.
(b) Coordination With Benefits.--Paragraph (11) of section 211(a)
of the Social Security Act is amended to read as follows:
``(11) in lieu of the deduction allowable under section
164(f) of the Internal Revenue Code of 1986 (relating to
deduction for one-half of self-employment taxes), there shall
be allowed as a deduction an amount equal to the sum of--
``(A) 7.1064 percent of so much of the individual's
net-earnings from self-employment for the taxable year
(determined without regard to this paragraph) as does
not exceed an amount equal to the product of 1.0765 and
the excess (if any) of--
``(i) the contribution and benefit base (as
determined under section 230) in effect for the
calendar year in which the taxable year begins,
``(ii) the wages (within the meaning of
section 1402(b)(1) of the Internal Revenue Code
of 1986) paid to the individual during such
taxable year, plus
``(B) 1.4293 percent of the excess (if any) of such
net earnings over the amount of such net earnings taken
into account under subparagraph (A);''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1502. DETERMINATION OF NET EARNINGS FROM SELF-EMPLOYMENT.
(a) Pro Rata Share of S Corporation Items Included as Net Earnings
From Self-Employment.--
(1) In general.--Section 1402(a) is amended by inserting
``, plus (notwithstanding subsection (c)(2)) his pro rata share
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 he is a shareholder'' before ``; except
that'' in the matter preceding paragraph (1).
(2) Application of adjustments.--Section 1402(a) is amended
by inserting ``and such pro rata share of S corporation
nonseparately computed income or loss'' after ``such
distributive share of partnership ordinary income or loss'' in
the matter preceding paragraph (1).
(3) Conforming amendments.--Section 211(a) of the Social
Security Act is amended in the matter preceding paragraph (1)--
(A) by inserting ``, plus (notwithstanding
subsection (c)(2)) his pro rata share of nonseparately
computed income or loss (as defined in section
1366(a)(2) of the Internal Revenue Code of 1986)from
any trade or business carried on by an S corporation in
which he is a shareholder'' before ``; except that'',
and
(B) by inserting ``and such pro rata share of S
corporation nonseparately computed income or loss''
after ``such distributive share of partnership ordinary
income or loss''.
(b) Repeal of Exception for Limited Partners.--
(1) In general.--Section 1402(a) is amended by striking
paragraph (13).
(2) Conforming amendment.--Section 211(a) of the Social
Security Act is amended by striking paragraph (12).
(c) Deduction for Return on Invested Capital.--
(1) In general.--Section 1402 is amended by adding at the
end the following new subsection:
``(m) Deduction for Return on Invested Capital.--
``(1) In general.--An individual's net earnings from self-
employment shall be reduced (but not below zero) by the lesser
of--
``(A) 30 percent of the sum of--
``(i) such individual's pass-through net
earnings from self-employment, and
``(ii) such individual's wages (as defined
in section 3121) paid with respect to any trade
or business carried on by an S corporation in
which he is a shareholder, or
``(B) such individual's pass-through net earnings
from self-employment.
``(2) Pass-through net earnings from self-employment.--For
purposes of this subsection, the term `pass-through net
earnings from self-employment' means net earnings from self-
employment (as computed under subsection (a) without regard to
this subsection) determined without regard to any trade or
business carried on by the individual.
``(3) 100 percent deduction where no material
participation.--
``(A) In general.--If an individual does not have
material participation with respect to an entity (as
determined under subparagraph (B)), in lieu of the
reduction provided under paragraph (1) such
individual's net earnings from self-employment shall be
reduced (but not below zero) by the sum of--
``(i) the reduction determined under
paragraph (1) applied--
``(I) by substituting `100 percent'
for `30 percent' in subparagraph (A)
thereof, and
``(II) by determining pass-through
net earnings from self-employment by
only taking into account distributive
and pro rata shares from non-
participation entities, and
``(III) by only taking into account
under subparagraph (A)(ii) thereof
wages paid with respect to trades or
businesses carried on by S corporations
which are non-participation entities,
plus
``(ii) the reduction determined under
paragraph (1) applied--
``(I) by determining pass-through
net earnings from self-employment by
not taking into account any
distributive or pro rata share from a
non-participation entity, and
``(II) by not taking into account
under subparagraph (A)(ii) thereof any
wages paid with respect to trades or
businesses carried on by an S
corporation which is a non-
participation entity.
``(B) Material participation.--For purposes of this
paragraph--
``(i) In general.--An individual does not
have material participation with respect to an
entity (hereafter referred to as the top-tier
entity) if such individual demonstrates to the
satisfaction of the Secretary that such
individual--
``(I) does not materially
participate (as determined under
section 469(h) without regard to
paragraph (2) thereof) in any activity
carried on by such top-tier entity, and
``(II) does not materially
participate (as so determined) in any
activity carried on by any entity in
which such top-tier entity holds
(directly or indirectly) any interest.
``(ii) Family attribution.--For purposes of
applying clause (i), the participation of any
individual in any activity shall also be
treated as performed by such individual's
spouse and the lineal descendants of such
individual and such individual's spouse.
``(C) Non-participation entity.--For purposes of
this paragraph, the term `non-participation entity'
means, with respect to any individual, any entity with
respect to which such individual does not have material
participation (as determined under subparagraph
(B)).''.
(2) Conforming amendment.--Section 211 of the Social
Security Act is amended by adding at the end the following new
subsection:
``(l) Deduction for Return on Invested Capital.--
``(1) In general.--An individual's net earnings from self-
employment shall be reduced (but not below zero) by the lesser
of--
``(A) 30 percent of the sum of--
``(i) such individual's pass-through net
earnings from self-employment, and
``(ii) such individual's wages (as defined
in section 209) paid with respect to any trade
or business carried on by an S corporation in
which he is a shareholder, or
``(B) such individual's pass-through net earnings
from self-employment.
``(2) Pass-through net earnings from self-employment.--For
purposes of this subsection, the term `pass-through net
earnings from self-employment' means net earnings from self-
employment (as computed under subsection (a) without regard to
this subsection) determined without regard to any trade or
business carried on by the individual.
``(3) 100 percent deduction where no material
participation.--
``(A) In general.--If an individual does not have
material participation with respect to an entity (as
determined under subparagraph (B)), in lieu of the
reduction provided under paragraph (1) such
individual's net earnings from self-employment shall be
reduced (but not below zero) by the sum of--
``(i) the reduction determined under
paragraph (1) applied--
``(I) by substituting `100 percent'
for `30 percent' in subparagraph (A)
thereof, and
``(II) by determining pass-through
net earnings from self-employment by
only taking into account distributive
and pro rata shares from non-
participation entities, and
``(III) by only taking into account
under subparagraph (A)(ii) thereof
wages paid with respect to trades or
businesses carried on by S corporations
which are non-participation entities,
plus
``(ii) the reduction determined under
paragraph (1) applied--
``(I) by determining pass-through
net earnings from self-employment by
not taking into account any
distributive or pro rata share from a
nonparticipation entity, and
``(II) by not taking into account
under subparagraph (A)(ii) thereof any
wages paid with respect to trades or
businesses carried on by an S
corporation which is a nonparticipation
entity.
``(B) Material participation.--For purposes of this
paragraph--
``(i) In general.--An individual does not
have material participation with respect to an
entity (hereafter referred to as the top-tier
entity) if such individual demonstrates to the
satisfaction of the Secretary of the Treasury
under section 1402(m) of the Internal Revenue
Code of 1986 that such individual--
``(I) does not materially
participate (as determined under
section 469(h) of the Internal Revenue
Code of 1986 without regard to
paragraph (2) thereof) in any activity
carried on by such top-tier entity, and
``(II) does not materially
participate (as so determined) in any
activity carried on by any entity in
which such top-tier entity holds
(directly or indirectly) any interest.
``(ii) Family attribution.--For purposes of
applying clause (i), the participation of any
individual in any activity shall also be
treated as performed by such individual's
spouse and the lineal descendants of such
individual and such individual's spouse.
``(C) Nonparticipation entity.--For purposes of
this paragraph, the term `nonparticipation entity'
means, with respect to any individual, any entity with
respect to which such individual does not have material
participation (as determined under subparagraph
(B)).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1503. REPEAL OF EXEMPTION FROM FICA TAXES FOR CERTAIN FOREIGN
WORKERS.
(a) In General.--Subsection (b) of section 3121 is amended by
striking paragraphs (1) and (19).
(b) Coordination With Benefits.--Subsection (a) of section 210 of
the Social Security Act is amended by striking paragraphs (1) and (19).
(c) Railroad Retirement Tax.--Paragraph (1) of section 3231(e) is
amended by striking the third sentence.
(d) Effective Date.--The amendments made by this section shall
apply to remuneration received for services performed after December
31, 2014.
SEC. 1504. REPEAL OF EXEMPTION FROM FICA TAXES FOR CERTAIN STUDENTS.
(a) In General.--Paragraph (10) of section 3121(b) is amended--
(1) by inserting ``during any calendar year'' after
``service performed'' in the matter preceding subparagraph (A),
and
(2) by inserting ``, and the remuneration paid by the
employer with respect to such service during such calendar year
is less than the dollar amount in effect under section 213(d)
of the Social Security Act (relating to amount required for a
quarter of coverage) with respect to such year'' before the
semicolon at the end.
(b) College Clubs, Fraternities, and Sororities.--Paragraph (2) of
section 3121(b) is amended--
(1) by inserting ``during any calendar year'' after
``domestic service performed'', and
(2) by inserting ``, if the remuneration paid by the
employer with respect to such service during such calendar year
is less than the dollar amount in effect under section 213(d)
of the Social Security Act (relating to amount required for a
quarter of coverage) with respect to such year'' before the
semicolon at the end.
(c) Deduction of Tax From Wages.--Subsection (a) of section 3102 is
amended by inserting ``; and an employer who in any calendar year pays
to an employee remuneration to which paragraph (2) or (10) of section
3121(b) is applicable may deduct an amount equivalent to such tax from
any such payment of remuneration, even though at the time of payment
the total amount of such remuneration paid to the employee by the
employer in the calendar year is less than the dollar amount in effect
under section 213(d) of the Social Security Act with respect to such
year'' before the period at the end.
(d) Coordination With Benefits.--
(1) Paragraph (10) of section 210(a) of the Social Security
Act is amended--
(A) by inserting ``during any calendar year'' after
``Service performed'' in the matter preceding
subparagraph (A), and
(B) by inserting ``, and the remuneration paid by
the employer with respect to such service during such
calendar year is less than the dollar amount in effect
under section 213(d) (relating to amount required for a
quarter of coverage) with respect to such year'' before
the semicolon at the end.
(2) Paragraph (2) of section 210(a) of the Social Security
Act is amended--
(A) by inserting ``during any calendar year'' after
``Domestic service performed'', and
(B) by inserting ``, if the remuneration paid by
the employer with respect to such service during such
calendar year is less than the dollar amount in effect
under section 213(d) (relating to amount required for a
quarter of coverage) with respect to such year'' before
the semicolon at the end.
(e) Effective Date.--The amendments made by this section shall
apply to remuneration received for services performed after December
31, 2014.
SEC. 1505. OVERRIDE OF TREASURY GUIDANCE PROVIDING THAT CERTAIN
EMPLOYER-PROVIDED SUPPLEMENTAL UNEMPLOYMENT BENEFITS ARE
NOT SUBJECT TO EMPLOYMENT TAXES.
(a) In General.--Effective with respect to amounts paid after
December 31, 2014--
(1) Revenue Ruling 56-249,
(2) Revenue Ruling 58-128,
(3) Revenue Ruling 60-330,
(4) so much of the holding of Revenue Ruling 77-347 as
relates to Plan (1) and Plan (2),
(5) Revenue Ruling 90-72, and
(6) any other ruling, regulation, or other guidance
provided by the Secretary of the Treasury, or his designee, to
the extent that such ruling, regulation, or guidance provides
that any payment made by an employer by reason of involuntary
termination of employment shall not be treated as wages or
compensation for purposes of any provision of the Internal
Revenue Code of 1986,
shall be null and void. The preceding sentence shall not apply to the
extent a ruling, regulation, or other guidance implements a statutory
exception to wages or compensation.
(b) Repeal of Withholding Requirement.--
(1) In general.--Section 3402(o)(1) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B) and (C)
as subparagraphs (A) and (B), respectively.
(2) Conforming amendments.--
(A) Section 3402(o)(2) is amended by striking
subparagraph (A) and by redesignating subparagraphs (B)
and (C) as subparagraphs (A) and (B), respectively.
(B) Section 3402(o)(5)(A) is amended by striking
``paragraph (1)(C)'' and inserting ``paragraph
(1)(B)''.
(3) Effective date.--
(A) In general.--The amendments made by this
subsection shall apply to amounts paid after December
31, 2013.
(B) No inference.--No amendment made by this
subsection shall be construed to create any inference
with respect to any amounts paid before January 1,
2014.
SEC. 1506. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.
(a) Employment Taxes.--Chapter 25 is amended by adding at the end
the following new section:
``SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.
``(a) General Rules.--For purposes of the taxes and other
obligations imposed by this subtitle--
``(1) a certified professional employer organization shall
be treated as the employer (and no other person shall be
treated as the employer) of any work site employee performing
services for any customer of such organization, but only with
respect to remuneration remitted by such organization to such
work site employee, and
``(2) the exemptions, exclusions, definitions, and other
rules which are based on type of employer and which would (but
for paragraph (1)) apply shall apply with respect to such taxes
imposed on such remuneration.
``(b) Successor Employer Status.--For purposes of sections
3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)--
``(1) a certified professional employer organization
entering into a service contract with a customer with respect
to a work site employee shall be treated as a successor
employer and the customer shall be treated as a predecessor
employer during the term of such service contract, and
``(2) a customer whose service contract with a certified
professional employer organization is terminated with respect
to a work site employee shall be treated as a successor
employer and the certified professional employer organization
shall be treated as a predecessor employer.
``(c) Liability of Certified Professional Employer Organization.--
Solely for purposes of its liability for the taxes and other
obligations imposed by this subtitle--
``(1) a certified professional employer organization shall
be treated as the employer of any work site employee (other
than a person described in subsection (e)) who is performing
services covered by a contract meeting the requirements of
section 7706(e)(2), but only with respect to remuneration
remitted by such organization to such individual, and
``(2) exemptions, exclusions, definitions, and other rules
which are based on type of employer and which would (but for
paragraph (1)) apply shall apply with respect to such taxes
imposed on such remuneration.
``(d) Special Rule for Related Party.--This section shall not apply
in the case of a customer which bears a relationship to a certified
professional employer organization described in section 267(b) or
707(b). For purposes of the preceding sentence, such sections shall be
applied by substituting `10 percent' for `50 percent'.
``(e) Special Rule for Certain Individuals.--For purposes of the
taxes imposed under this subtitle, an individual with net earnings from
self-employment derived from the customer's trade or business
(including a partner in a partnership that is a customer), is not a
work site employee with respect to remuneration paid by a certified
professional employer organization.
``(f) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Certified Professional Employer Organization Defined.--Chapter
79, as amended by the preceding provisions of this Act, is amended by
adding at the end the following new section:
``SEC. 7706. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.
``(a) In General.--For purposes of this title, the term `certified
professional employer organization' means a person who applies to be
treated as a certified professional employer organization for purposes
of section 3511 and who has been certified by the Secretary as meeting
the requirements of subsection (b).
``(b) Certification Requirements.--A person meets the requirements
of this subsection if such person--
``(1) demonstrates that such person (and any owner,
officer, and such other persons as may be specified in
regulations) meets such requirements as the Secretary shall
establish with respect to tax status, background, experience,
business location, and annual financial audits,
``(2) agrees that it will satisfy the bond and independent
financial review requirements of subsections (c) on an ongoing
basis,
``(3) agrees that it will satisfy such reporting
obligations as may be imposed by the Secretary,
``(4) computes its taxable income using an accrual method
of accounting unless the Secretary approves another method,
``(5) agrees to verify on such periodic basis as the
Secretary may prescribe that it continues to meet the
requirements of this subsection, and
``(6) agrees to notify the Secretary in writing, within
such time as the of Secretary may prescribe, of any change that
materially affects the continuing accuracy of any agreement or
information which was previously made or provided.
``(c) Bond and Independent Financial Review.--
``(1) In general.--An organization meets the requirements
of this paragraph if such organization--
``(A) meets the bond requirements of paragraph (2),
and
``(B) meets the independent financial review
requirements of paragraph (3).
``(2) Bond.--
``(A) In general.--A certified professional
employer organization meets the requirements of this
paragraph if the organization has posted a bond for the
payment of taxes under subtitle C (in a form acceptable
to the Secretary) that is in an amount at least equal
to the amount specified in subparagraph (B).
``(B) Amount of bond.--
``(i) In general.--For the period April 1
of any calendar year through March 31 of the
following calendar year, the amount of the bond
required is equal to the greater of--
``(I) 5 percent of the
organization's liability under section
3511 for taxes imposed by subtitle C
during the preceding calendar year (but
not to exceed $1,000,000), or
``(II) $50,000.
``(ii) Special rule for newly created
professional employer organizations.--During
the first three full calendar years that an
organization is in existence, subclause (I) of
clause (i) shall not apply. For this purpose--
``(I) under rules provided by the
Secretary, an organization is treated
as in existence as of the date that
such organization began providing
services to any customer which were
comparable to the services being
provided with respect to work site
employees, regardless of whether such
date occurred before or after the
organization is certified under
subsection (b), and
``(II) an organization with
liability under section 3511 for taxes
imposed by subtitle C during the
preceding calendar year in excess of
$5,000,000 shall no longer be described
in this clause (ii) as of April 1 of
the year following such calendar year.
``(3) Independent financial review requirements.--A
certified professional employer organization meets the
requirements of this paragraph if such organization--
``(A) has, as of the most recent audit date, caused
to be prepared and provided to the Secretary (in such
manner as the Secretary may prescribe) an opinion of an
independent certified public accountant as to whether
the certified professional employer organization's
financial statements are presented fairly in accordance
with generally accepted accounting principles, and
``(B) provides to the Secretary an assertion
regarding Federal employment tax payments and an
examination level attestation on such assertion from an
independent certified public accountant not later than
the last day of the second month beginning after the
end of each calendar quarter. Such assertion shall
state that the organization has withheld and made
deposits of all taxes imposed by chapters 21, 22, and
24 of the Internal Revenue Code in accordance with
regulations imposed by the Secretary for such calendar
quarter and such examination level attestation shall
state that such assertion is fairly stated, in all
material respects.
``(4) Controlled group rules.--For purposes of the
requirements of paragraphs (2) and (3), all professional
employer organizations that are members of a controlled group
within the meaning of sections 414(b) and (c) shall be treated
as a single organization.
``(5) Failure to file assertion and attestation.--If the
certified professional employer organization fails to file the
assertion and attestation required by paragraph (3) with
respect to any calendar quarter, then the requirements of
paragraph (3) with respect to such failure shall be treated as
not satisfied for the period beginning on the due date for such
attestation.
``(6) Audit date.--For purposes of paragraph (3)(A), the
audit date shall be six months after the completion of the
organization's fiscal year.
``(d) Suspension and Revocation Authority.--The Secretary may
suspend or revoke a certification of any person under subsection (b)
for purposes of section 3511 if the Secretary determines that such
person is not satisfying the agreements or requirements of subsections
(b) or (c), or fails to satisfy applicable accounting, reporting,
payment, or deposit requirements.
``(e) Work Site Employee.--For purposes of this title--
``(1) In general.--The term `work site employee' means,
with respect to a certified professional employer organization,
an individual who--
``(A) performs services for a customer pursuant to
a contract which is between such customer and the
certified professional employer organization and which
meets the requirements of paragraph (2), and
``(B) performs services at a work site meeting the
requirements of paragraph (3).
``(2) Service contract requirements.--A contract meets the
requirements of this paragraph with respect to an individual
performing services for a customer if such contract is in
writing and provides that the certified professional employer
organization shall--
``(A) assume responsibility for payment of wages to
the individual, without regard to the receipt or
adequacy of payment from the customer for such
services,
``(B) assume responsibility for reporting,
withholding, and paying any applicable taxes under
subtitle C, with respect to the individual's wages,
without regard to the receipt or adequacy of payment
from the customer for such services,
``(C) assume responsibility for any employee
benefits which the service contract may require the
certified professional employer organization to
provide, without regard to the receipt or adequacy of
payment from the customer for such services,
``(D) assume responsibility for hiring, firing and
for recruiting workers in addition to the customer's
responsibility for recruiting, hiring, and firing
workers,
``(E) maintain employee records relating to the
individual, and
``(F) agree to be treated as a certified
professional employer organization for purposes of
section 3511 with respect to such individual.
``(3) Work site coverage requirement.--The requirements of
this paragraph are met with respect to an individual if at
least 85 percent of the individuals performing services for the
customer at the work site where such individual performs
services are subject to 1 or more contracts with the certified
professional employer organization which meet the requirements
of paragraph (2) (but not taking into account those individuals
who are excluded employees within the meaning of section
414(q)(5)).
``(f) Determination of Employment Status.--Except to the extent
necessary for purposes of section 3511, nothing in this section shall
be construed to affect the determination of who is an employee or
employer for purposes of this title.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(c) Conforming Amendments.--
(1) Section 3302 is amended by adding at the end the
following new subsection:
``(h) Treatment of Certified Professional Employer Organizations.--
If a certified professional employer organization (as defined in
section 7706), or a customer of such organization, makes a contribution
to the State's unemployment fund with respect to a work site employee,
such organization shall be eligible for the credits available under
this section with respect to such contribution.''.
(2) Section 3303(a) is amended--
(A) by striking the period at the end of paragraph
(3) and inserting ``; and'' and by inserting after
paragraph (3) the following new paragraph:
``(4) if the taxpayer is a certified professional employer
organization (as defined in section 7706) that is treated as
the employer under section 3511, such certified professional
employer organization is permitted to collect and remit, in
accordance with paragraphs (1), (2), and (3), contributions
during the taxable year to the State unemployment fund with
respect to a work site employee.'', and
(B) in the last sentence--
(i) by striking ``paragraphs (1), (2), and (3)''
and inserting ``paragraphs (1), (2), (3), and (4)'',
and
(ii) by striking ``paragraph (1), (2), or (3)'' and
inserting ``paragraph (1), (2), (3), or (4)''.
(3) Section 6053(c) is amended by adding at the end the
following new paragraph:
``(8) Certified professional employer organizations.--For
purposes of any report required by this subsection, in the case
of a certified professional employer organization that is
treated, under section 3511, as the employer of a work site
employee, the customer with respect to whom a work site
employee performs services shall be the employer for purposes
of reporting under this section and the certified professional
employer organization shall furnish to the customer any
information necessary to complete such reporting no later than
such time as the Secretary shall prescribe.''.
(d) Clerical Amendments.--
(1) The table of sections for chapter 25 is amended by
adding at the end the following new item:
``Sec. 3511. Certified professional employer organizations.''.
(2) The table of sections for chapter 79, as amended by the
preceding provisions of this Act, is amended by adding at the
end the following new item:
``Sec. 7706. Certified professional employer organizations.''.
(e) Reporting Requirements and Obligations.--The Secretary of the
Treasury shall develop such reporting and recordkeeping rules,
regulations, and procedures as the Secretary determines necessary or
appropriate to ensure compliance with the amendments made by this
section with respect to entities applying for certification as
certified professional employer organizations or entities that have
been so certified. Such rules shall be designed in a manner which
streamlines, to the extent possible, the application of requirements of
such amendments, the exchange of information between a certified
professional employer organization and its customers, and the reporting
and recordkeeping obligations of the certified professional employer
organization.
(f) User Fees.--Subsection (b) of section 7528 is amended by adding
at the end thereof the following new paragraph:
``(4) Certified professional employer organizations.--The
fee charged under the program in connection with the
certification by the Secretary of a professional employer
organization under section 7706 shall be an annual fee not to
exceed $1,000 per year.''.
(g) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply with respect to wages for services performed on or after
January 1 of the first calendar year beginning more than 12
months after the date of the enactment of this Act.
(2) Certification program.--The Secretary of the Treasury
shall establish the certification program described in section
7706(b) of the Internal Revenue Code of 1986, as added by this
section, not later than 6 months before the effective date
determined under paragraph (1).
(h) No Inference.--Nothing contained in this section or the
amendments made by this section shall be construed to create any
inference with respect to the determination of who is an employee or
employer--
(1) for Federal tax purposes (other than the purposes set
forth in the amendments made by this section), or
(2) for purposes of any other provision of law.
Subtitle G--Pensions and Retirement
PART 1--INDIVIDUAL RETIREMENT PLANS
SEC. 1601. ELIMINATION OF INCOME LIMITS ON CONTRIBUTIONS TO ROTH IRAS.
(a) In General.--Subsection (c) of section 408A is amended by
striking paragraph (3).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1602. NO NEW CONTRIBUTIONS TO TRADITIONAL IRAS.
(a) In General.--
(1) Individual retirement accounts.--Paragraph (1) of
section 408(a) is amended by striking ``in excess of the
amount'' and all that follows through the end and inserting the
following: ``unless it is a contribution under a simplified
employee pension described in subsection (k) not in excess of
the amount of the limitation in effect for such taxable year
under section 415(c)(1)(A), a contribution to a simple
retirement account described in subsection (p) not in excess of
the amount described in section 408(p)(8) for such taxable
year, or a contribution to a Roth IRA described in section 408A
not in excess of the amount in effect for the taxable year with
respect to such individual under section 408A(c)(1)(A)(i).''.
(2) Individual retirement annuities.--
(A) In general.--Subparagraph (B) of section
408(b)(2) is amended to read as follows:
``(B) any amount paid as a premium on behalf of any
individual for a taxable year would meet the
requirements of subsection (a)(1) if it were paid as a
contribution to an individual retirement account,
and''.
(B) Endowment contract requirement.--The last
sentence of section 408(b) is amended by striking ``the
dollar amount in effect under section 219(b)(1)(A)''
and inserting ``the amounts described in paragraph
(2)(B)''.
(b) Conforming Amendments.--
(1) Amendments relating to deductibility.--
(A) Section 219(a) is amended by striking ``equal
to the qualified retirement contributions of the
individual'' and inserting ``equal to the amounts
contributed on behalf of the individual to a plan
described in section 501(c)(18)''.
(B) Section 219(b) is amended--
(i) by striking ``Maximum Amount of
Deduction'' and all that follows through
``Notwithstanding paragraph (1), the amount
allowable as a deduction'' and inserting
``Maximum Amount of Deduction.--The amount
allowable as a deduction'', and
(ii) by striking paragraphs (4) and (5).
(C) Section 219 is amended by striking subsections
(c), (d), (e), (g), and (h) and by redesignating
subsection (f) as subsection (c).
(D) Section 219(c), as so redesignated, is
amended--
(i) by striking ``Other Definitions and
Special Rules'' and inserting ``Special
Rules'',
(ii) by striking paragraphs (1), (3), (4),
(5), (6), (7), and (8), and
(iii) by inserting before paragraph (2) the
following new paragraph:
``(1) Beneficiary must be under age 70\1/2\.--No deduction
shall be allowed under this section with respect to any amount
contributed on behalf of an individual to a plan described in
section 501(c)(18) if such individual has attained age 70\1/2\
before the close of such individual's taxable year for which
the contribution was made.''.
(E) Section 4973(b)(2)(C) is amended by striking
``(determined without regard to section 219(f)(6))''.
(2) Amendments relating to roth ira contribution limits.--
(A) Section 408A(c), as amended by this Act, is
amended--
(i) by striking paragraphs (1) and (2) and
inserting the following new paragraphs:
``(1) Maximum contribution.--
``(A) In general.--The aggregate amount of
contributions for any taxable year to all Roth IRAs
maintained for the benefit of an individual shall not
exceed the lesser of--
``(i) $5,500, or
``(ii) an amount equal to the compensation
includible in the individual's gross income for
such taxable year.
``(B) Catch-up contributions for individuals 50 or
older.--In the case of an individual who has attained
the age of 50 before the close of the taxable year, the
amount in effect under subparagraph (A)(i) for such
taxable year shall be increased by $1,000.
``(2) Special rule for certain married individuals.--In the
case of an individual to whom this paragraph applies for the
taxable year, the limitation of paragraph (1) shall be equal to
the lesser of--
``(A) the dollar amount in effect under paragraph
(1)(A)(i) for the taxable year, or
``(B) the sum of--
``(i) the compensation includible in such
individual's gross income for the taxable year,
plus
``(ii) the compensation includible in the
gross income of such individual's spouse for
the taxable year reduced by--
``(I) the amount allowed as a
deduction under section 219(a) to such
spouse for such taxable year,
``(II) the amount of any
contribution on behalf of such spouse
to a Roth IRA for such taxable year.
``(3) Individuals to whom paragraph (2) applies.--Paragraph
(2) shall apply to any individual if--
``(A) such individual files a joint return for the
taxable year, and
``(B) the amount of compensation (if any)
includible in such individual's gross income for the
taxable year is less than the compensation includible
in the gross income of such individual's spouse for the
taxable year.''.
(ii) by striking ``paragraph (2)'' in
paragraph (6) and inserting ``paragraph (1)'',
(iii) by striking ``the rule of section
219(f)(3) shall apply'' in paragraph (7) and
inserting the following: ``a taxpayer shall be
deemed to have made a contribution to a Roth
IRA on the last day of the preceding taxable
year if the contribution is made on account of
such taxable year and is made not later than
the time prescribed by law for filing the
return for such taxable year (not including
extensions thereof)'', and
(iv) by adding at the end the following new
paragraphs:
``(8) Compensation.--For purposes of this section, the term
`compensation' includes earned income (as defined in section
401(c)(2)). The term `compensation' does not include any amount
received as a pension or annuity and does not include any
amount received as deferred compensation. For purposes of this
paragraph, section 401(c)(2) shall be applied as if the term
trade or business for purposes of section 1402 included service
described in subsection (c)(6) thereof. The term compensation
includes any differential wage payment (as defined in section
3401(h)(2)).
``(9) Married individuals.--The limitation under this
subsection shall be computed separately for each individual,
and this section shall be applied without regard to any
community property laws.
``(10) Special rule for compensation earned by members of
armed forces for services in combat zone.--For purposes of
paragraphs (1)(A)(ii) and (2), the amount of compensation
includible in an individual's gross income shall be determined
without regard to section 112.''.
(B) Section 408A(d)(3)(A) is amended--
(i) by inserting ``and'' at the end of
clause (i),
(ii) by striking ``, and'' at the end of
clause (ii) and inserting a period,
(iii) by striking clause (iii), and
(iv) by striking the last sentence.
(3) Amendments relating to traditional iras.--
(A) Section 408(d)(4) is amended--
(i) by striking subparagraph (B) and
inserting the following:
``(B) in the case of simplified employee pension,
such contribution is not excluded from gross income
under section 402(h),''.
(ii) by adding at the end the following:
``This paragraph shall not apply to any
contribution to a simple retirement account.''.
(B) Section 408(d)(5)(A) is amended--
(i) by striking ``in effect under section
219(b)(1)(A)'' and inserting ``in effect with
respect to the taxpayer for the taxable year
under section 408A(c)(1)(A)(i)'',
(ii) by striking ``the amount allowable as
a deduction'' and all that follows through
``such excess contribution.'' and inserting
``the amount that may be contributed under
section 408A(c)(1) for the taxable year for
which the contribution was made if such
distribution is received after the date
described in paragraph (4).'',
(iii) by adding at the end of subparagraph
(A) the following: ``This paragraph shall not
apply to any contribution to a simple
retirement account.'', and
(iv) by striking the last sentence.
(C) Section 408 is amended by striking subsection
(o).
(4) Amendments relating to simple retirement accounts.--
(A) Section 408(p)(2)(D)(ii) is amended by striking
``means a plan, contract'' and all that follows through
the period at the end and inserting the following:
``means--
``(I) a plan described in section
401(a) which includes a trust exempt
from tax under section 501(a),
``(II) an annuity plan described in
section 403(a),
``(III) an eligible deferred
compensation plan (as defined in
section 457(b)) of an eligible employer
described in section 457(e)(1)(A)),
``(IV) an annuity contract
described in section 403(b),
``(V) a simplified employee pension
(within the meaning of section 408(k)),
``(VI) any simple retirement
account (within the meaning of section
408(p)), or
``(VII) a trust described in
section 501(c)(18).''.
(B) Section 408(p)(8) is amended to read as
follows:
``(8) Coordination with maximum limitation under subsection
(a).--In the case of a simple retirement account, for purposes
of subsections (a)(1) and (b)(2), contributions may not exceed
the sum of--
``(A) the dollar amount in effect under paragraph
(2)(A)(ii), and
``(B) the employer contribution required under
subparagraph (A)(iii) or (B)(i) of paragraph (2),
whichever is applicable.''.
(5) Amendments relating to seps.--Section 408 is amended by
striking subsection (j).
(6) Amendments relating to excise tax on excess
contributions.--
(A) Traditional iras.--Subsection (b) of section
4973 is amended--
(i) by striking paragraph (1) and inserting
the following:
``(1) the amounts contributed for the taxable year to the
accounts or for the annuities or bonds (other than any
contributions to a Roth IRA) which are not permitted
contributions under subsection (a)(1) or (b)(2) of section 408,
and''.
(ii) in paragraph (2)(C), by striking ``the
maximum amount allowable'' and all that follows
through ``without regard to section
219(f)(6))'' and inserting ``the permitted
contributions under subsection (a)(1) or (b)(2)
of section 408 for the taxable year over the
amount contributed'', and
(iii) by striking the last sentence and
inserting the following: ``Paragraph (2) shall
be determined separately with respect to any
simplified employee pension (within the meaning
of section 408(k)) and any simple retirement
account (within the meaning of section
408(p)).''.
(B) Roth iras.--Section 4973(f) is amended by
striking ``sections 408A(c)(2) and (c)(3)'' each place
it appears and inserting ``section 408A(c)(1)''.
(7) Amendments relating to saver's credit.--Section
25B(d)(1)(A) is amended to read as follows:
``(A) the amounts--
``(i) paid in cash for the taxable year by
or on behalf of an individual to all Roth IRAs
maintained for such individual's benefit, and
``(ii) contributed on behalf of the
individual to a plan described in section
501(c)(18),''.
(8) Other conforming amendments.--
(A) Section 86(f)(3) is amended by striking
``219(f)(1)'' and inserting ``section 408A(c)(8)''.
(B) Section 132(m)(3) is amended by striking
``section 219(g)(5)'' and inserting ``section
408(p)(2)(D)(ii)''.
(C)(i) Section 223(d) is amended--
(I) by redesignating paragraph (4) as
paragraph (7),
(II) by inserting after paragraph (3) the
following new paragraphs:
``(4) Recontributed amounts.--No deduction shall be allowed
under this section with respect to a rollover contribution
described in subsection (f)(5).
``(5) Time when contributions deemed made.--For purposes of
this section, a taxpayer shall be deemed to have made a
contribution to a health savings account on the last day of the
preceding taxable year if the contribution is made on account
of such taxable year and is made not later than the time
prescribed by law for filing the return for such taxable year
(not including extensions thereof).
``(6) Employer payments.--Except as provided in section
106(d), for purposes of this title, any amount paid by an
employer to a health savings account shall be treated as
payment of compensation to the employee (other than a self-
employed individual who is an employee within the meaning of
section 401(c)(1)) includible in his gross income in the
taxable year for which the amount was contributed, whether or
not a deduction for such payment is allowable under this
section to the employee.''.
(ii) Section 223(d)(7), as so redesignated, is
amended by striking subparagraphs (A), (B), and (C),
and redesignating subparagraphs (D) and (E) as
subparagraphs (A) and (B), respectively.
(D) Section 409A(d)(2)(A) is amended by striking
``subparagraph (A) or (B) of section 219(g)(5) (without
regard to subparagraph (A)(iii))'' and inserting
``section 408(p)(2)(D)(ii) (without regard to subclause
(III) thereof)''.
(E) Section 501(c)(18)(D)(i) is amended by striking
``section 219(b)(3)'' and inserting ``section 219(a)''.
(F) Section 877A(d)(4)(A) is amended by striking
``section 219(g)(5)'' and inserting
``408(p)(2)(D)(ii)''.
(G) Section 6652 is amended by striking subsection
(g).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1603. INFLATION ADJUSTMENT FOR ROTH IRA CONTRIBUTIONS.
(a) In General.--Subsection (c) of section 408A, as amended by this
Act, is amended by adding at the end the following new paragraph:
``(11) Cost-of-living adjustment.--In the case of any
taxable year beginning after 2023, the dollar amount in
paragraph (1)(A)(i) 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 the calendar year in which
the taxable year begins, determined by substituting
`calendar year 2022' for `calendar year 2012' in clause
(ii) thereof.
If any increase determined under the preceding sentence is not
a multiple of $500, such increase shall be rounded to the next
lowest multiple of $500.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 1604. 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, 2014.
SEC. 1605. REPEAL OF EXCEPTION TO 10-PERCENT PENALTY FOR FIRST HOME
PURCHASES.
(a) In General.--Section 72(t)(2) is amended by striking
subparagraph (F).
(b) Roth IRAs.--Subparagraph (A) of section 408A(d)(2) is amended
by inserting ``or'' at the end of clause (ii), and by striking ``, or''
at the end of clause (iii) and inserting a period, and by striking
clause (iv).
(c) Conforming Amendment.--
(1) Section 72(t) is amended by striking paragraph (8).
(2) Section 408A(d), as amended by this Act, is amended by
striking paragraph (5) and by redesignating paragraph (6) as
paragraph (5).
(d) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2014.
PART 2--EMPLOYER-PROVIDED PLANS
SEC. 1611. TERMINATION FOR NEW SEPS.
(a) In General.--
(1) Section 408(k) is amended by redesignating paragraph
(9) as paragraph (10) and by inserting after paragraph (8) the
following new paragraph:
``(9) Termination.--This subsection shall not apply to
years beginning after December 31, 2014. The preceding sentence
shall not apply to any simplified employee pension of an
employer if such simplified employee pension, and the terms
thereof, meet the requirements of this subsection on and after
such date.''.
(2) Section 402(h) is amended by adding at the end the
following new paragraph:
``(4) Termination.--This subsection shall not apply to any
simplified employee pension the arrangement for which is
established after December 31, 2014.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1612. TERMINATION FOR NEW SIMPLE 401(K)S.
(a) Amendments Relating to SIMPLE 401(k)s.--Section 401(k)(11) is
amended by adding at the end the following new subparagraph:
``(E) Termination.--This paragraph shall apply to a
cash or deferred arrangement for any plan year
beginning after December 31, 2014, only if such
arrangement meets the requirements of this paragraph
for the last plan year beginning before January 1,
2015, and for each plan year thereafter.''.
(b) Effective Date.--The amendment made by this section shall apply
to plan years beginning after December 31, 2014.
SEC. 1613. RULES RELATED TO DESIGNATED ROTH CONTRIBUTIONS.
(a) Applicable Retirement Plans Which Permit Elective Deferrals
Required To Accept Designated Roth Contributions.--
(1) In general.--Paragraph (30) of section 401(a) is
amended--
(A) by striking ``deferrals.--'' and all that
follows through ``In the case of a trust'' and
inserting the following: ``deferrals.--
``(A) In general.--In the case of a trust'',
(B) by striking ``unless the plan provides that''
and inserting the following: ``unless the plan--
``(i) provides that'',
(C) by striking the period at the end and inserting
``, and'', and
(D) by adding at the end the following:
``(ii) except as provided in subparagraph
(B), includes a qualified Roth contribution
program (as defined in section 402A(b)).
``(B) Exception for certain small plans.--
Subparagraph (A)(ii) shall not apply to any plan of an
eligible employer (as defined in section
408(p)(2)(C)).''.
(2) Conforming amendments.--
(A) Section 402A(b)(1) is amended by striking all
that follows ``designated Roth contributions'' and
inserting a period.
(B) The heading of section 402A (and the item
relating to such section in the table of sections for
part I of subchapter D of chapter 1) is amended by
striking ``optional treatment of elective deferrals as
roth contributions'' and inserting ``designated roth
contributions''.
(b) Restriction on Portion of Elective Deferral Limitation Which
May Apply to Traditional Elective Deferrals.--
(1) In general.--Subparagraph (A) of section 402(g)(1) is
amended by striking ``the applicable dollar amount'' and
inserting ``50 percent (100 percent in the case of elective
deferrals with respect to any plan of an eligible employer (as
defined in section 408(p)(2)(C)) of the applicable dollar
amount''.
(2) Government 457(b) plans.--
(A) In general.--Subsection (b) of section 457 is
amended by striking ``and'' at the end of paragraph
(5), by redesignating paragraph (6) as paragraph (7),
and by inserting after paragraph (5) the following new
paragraph:
``(6) which, in the case of a plan maintained by an
employer described in subsection (e)(1)(A), meets requirements
similar to the requirements of section 401(a)(30), and''.
(B) Conforming amendment.--Section 402(g)(1)(A) is
amended by inserting ``and section 457(a)(1)'' after
``(h)(1)(B)''.
(C) Cross-reference.--For treatment of amounts
deferred under an eligible compensation plan of a
governmental employer as elective deferrals, see
section 1618(b)(1) of this Act.
(3) Roth elective deferrals permitted to extent of full
limitation amount.--
(A) In general.--Section 402A(c)(2)(A) is amended
to read as follows:
``(A) the applicable dollar amount in effect under
section 402(g)(1)(B) with respect to the employee for
the taxable year, over''.
(B) Conforming amendments.--
(i) Section 401(a)(30) is amended--
(I) by inserting ``(including
contributions treated as elective
deferrals under section 402A(a)(1))''
after ``section 402(g)(3)'', and
(II) by striking ``section
402(g)(1)(A)'' and inserting ``section
402(g)(1)(B), and that the amount of
elective deferrals not included in
gross income may not exceed the amount
of the limitation in effect under
section 402(g)(1)(A),''.
(ii) Section 402(g)(1)(C) is amended--
(I) by striking ``In addition to
subparagraph (A)'' and inserting ``For
purposes of subparagraph (A)''.
(II) by striking ``gross income
shall not include'' and all that
follows through ``does not exceed'' and
inserting ``the applicable dollar
amount in effect for the taxable year
under subparagraph (B) shall be
increased by''.
(iii)(I) So much of section 402(g)(2)(A) as
precedes clause (i) is amended to read as
follows:
``(A) In general.--If an individual's aggregate
elective deferrals for a taxable year exceed the
applicable dollar amount under paragraph (1)
(hereinafter in this paragraph referred to as `excess
total deferrals') or if an individual's aggregate
elective deferrals (disregarding designated Roth
contributions and simple Roth contributions) exceed the
amount excludable under paragraph (1)(A) (hereinafter
in this paragraph referred to as `excess non-Roth
deferrals')--''.
(II) Section 402(g)(2)(A)(i) is amended by
striking ``such excess deferrals'' and
inserting ``such excess total deferrals or
excess non-Roth deferrals''.
(III) Section 402(g)(2)(C)(ii) is amended
by striking ``the excess deferral'' and
inserting ``the excess total deferral or excess
non-Roth deferral''.
(IV) Section 402A(d)(2)(C) is amended by
striking ``excess deferral'' and inserting
``excess total deferral''.
(V) Section 402A(d)(3) is amended by
striking ``excess deferral'' each place it
appears and inserting ``excess total
deferral''.
(VI) Section 402(g)(1)(A) is amended by
striking the second sentence.
(iv) Section 402A(c)(1)(A) is amended by
striking ``without regard to this section'' and
inserting ``(determined without regard to this
section and section 402(g))''.
(4) Reporting by employers.--Section 6051(a)(8) is amended
by inserting after ``(as defined in section 402A)'' the
following: ``, and the type of plan under which amounts are
deferred or contributed''.
(c) SIMPLE Roth Retirement Accounts Permitted.--
(1) In general.--Subsection (p) of section 408 is amended
by adding at the end the following new paragraph:
``(11) Roth contributions.--For purposes of this section--
``(A) In general.--If a qualified salary reduction
arrangement with respect to a simple retirement account
includes a simple Roth contribution program, any simple
Roth contribution made by an employer pursuant to such
program shall be treated as an elective employer
contribution, except that such contribution shall be
paid to a Roth IRA and shall not be excludable from
gross income.
``(B) Simple roth contribution program.--The term
`simple Roth contribution program' means a program
under which an employee may elect to make simple Roth
contributions.
``(C) Simple roth contribution.--The term `simple
Roth contribution' means any elective employer
contribution which--
``(i) is excludable from gross income of an
employee without regard to this paragraph, and
``(ii) the employee designates (at such
time and in such manner as the Secretary may
prescribe) as not being so excludable.
``(D) Limitation.--In the case of an eligible
employer which elects the application of this
subparagraph with respect to the simple retirement
accounts established pursuant to a qualified salary
reduction arrangement of such employer, notwithstanding
paragraph (2)(E), the applicable dollar amount for
purposes of paragraph (2)(A)(ii), shall be equal to--
``(i) in the case of any such account which
is not designated as a Roth IRA, 50 percent of
the applicable dollar amount in effect under
section 402(g)(1)(B) for the taxable year, and
``(ii) in the case of any such account
which is designated as a Roth IRA, the excess
(if any) of--
``(I) the applicable dollar amount
in effect under section 402(g)(1)(B)
for the taxable year, over
``(II) the aggregate amount of
elective employer contributions to any
account described in clause (i).
In the case of a simple retirement account with respect
to which the application of this subparagraph is
elected, the employer shall not be treated as an
eligible employer for purposes of section 402(g)(1)(A),
and the applicable dollar amount with respect to any
eligible participant (as defined in section 414(v))
shall, notwithstanding section 414(v)(2)(B)(ii), be
determined by reference to section 402(g)(1)(C).''.
(2) Coordination with maximum roth limitation.--Subsection
(c) of section 408A, as amended by this Act, is amended by
adding at the end the following new paragraph:
``(12) Increase in maximum limitation for simple roth.--In
the case of any simple retirement account, subparagraphs (A)(i)
and (B) of paragraph (1) shall be applied by disregarding any
contributions made to a simple retirement account and any
qualified rollover contributions.''.
(3) Conforming amendments.--
(A) Section 408A(f)(1) is amended by striking ``or
a simple retirement account''.
(B) Section 6051(a)(8), as amended by this Act, is
amended by inserting after ``(as defined in section
402A)'' the following: ``and simple Roth contributions
(as defined in section 408(p)(11)(C))''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to plan years and
taxable years beginning after December 31, 2014.
(2) Subsection (c).--The amendments made by subsection (c)
shall apply to calendar years beginning after December 31,
2014.
SEC. 1614. MODIFICATIONS OF REQUIRED DISTRIBUTION RULES FOR PENSION
PLANS.
(a) In General.--Section 401(a)(9)(B) of the Internal Revenue Code
of 1986 is amended to read as follows:
``(B) Required distributions where employee dies
before entire interest is distributed.--
``(i) 5-year general rule.--A trust shall
not constitute a qualified trust under this
section unless the plan provides that, if an
employee dies before the distribution of the
employee's interest (whether or not such
distribution has begun in accordance with
subparagraph (A)), the entire interest of the
employee will be distributed within 5 years
after the death of such employee.
``(ii) Exception for eligible designated
beneficiaries.--If--
``(I) any portion of the employee's
interest is payable to (or for the
benefit of) an eligible designated
beneficiary,
``(II) such portion will be
distributed (in accordance with
regulations) over the life of such
eligible designated beneficiary (or
over a period not extending beyond the
life expectancy of such beneficiary),
and
``(III) such distributions begin
not later than 1 year after the date of
the employee's death or such later date
as the Secretary may by regulations
prescribe,
then, for purposes of clause (i) and except as
provided in clause (iv) or subparagraph
(E)(iii), the portion referred to in subclause
(I) shall be treated as distributed on the date
on which such distributions begin.
``(iii) Special rule for surviving spouse
of employee.--If the eligible designated
beneficiary referred to in clause (ii)(I) is
the surviving spouse of the employee--
``(I) the date on which the
distributions are required to begin
under clause (ii)(III) shall not be
earlier than the date on which the
employee would have attained age 70\1/
2\, and
``(II) if the surviving spouse dies
before the distributions to such spouse
begin, this subparagraph shall be
applied as if the surviving spouse were
the employee.
``(iv) Rules upon death of eligible
designated beneficiary.--If an eligible
designated beneficiary dies before the portion
of an employee's interest described in clause
(ii) is entirely distributed, clause (ii) shall
not apply to any beneficiary of such eligible
designated beneficiary and the remainder of
such portion shall be distributed within 5
years after the death of such beneficiary.''.
(b) Definition of Eligible Designated Beneficiary.--Section
401(a)(9)(E) of such Code is amended to read as follows:
``(E) Definitions and rules relating to designated
beneficiary.--For purposes of this paragraph--
``(i) Designated beneficiary.--The term
`designated beneficiary' means any individual
designated as a beneficiary by the employee.
``(ii) Eligible designated beneficiary.--
The term `eligible designated beneficiary'
means, with respect to any employee, any
designated beneficiary who, as of the date of
death of the employee, is--
``(I) the surviving spouse of the
employee,
``(II) subject to clause (iii), a
child of the employee who has not
attained age 22,
``(III) disabled (within the
meaning of section 72(m)(7)),
``(IV) a chronically ill individual
(within the meaning of section
7702B(c)(2), except that the
requirements of subparagraph (A)(i)
thereof shall only be treated as met if
there is a certification that, as of
such date, the period of inability
described in such subparagraph with
respect to the individual is an
indefinite one that is reasonably
expected to be lengthy in nature), or
``(V) an individual not described
in any of the preceding subparagraphs
who is not more than 10 years younger
than the employee.
``(iii) Special rule for children.--Subject
to subparagraph (F), an individual described in
clause (ii)(II) shall cease to be an eligible
designated beneficiary as of the date the
individual attains age 22 and the requirement
of subparagraph (B)(i) shall not be treated as
met with respect to any remaining portion of an
employee's interest payable to the individual
unless such portion is distributed within 5
years after such date.''.
(c) Required Beginning Date.--Section 401(a)(9)(C) of such Code is
amended by adding at the end the following new clause:
``(v) Employees becoming 5-percent owners
after age 70\1/2\.--If an employee becomes a 5-
percent owner (as defined in section 416) with
respect to a plan year ending in a calendar
year after the calendar year in which the
employee attains age 70\1/2\, then clause
(i)(II) shall be applied by substituting the
calendar year in which the employee became such
an owner for the calendar year in which the
employee retires.''.
(d) Effective Dates.--
(1) In general.--Except as provided in this subsection, the
amendments made by this section shall apply to distributions
with respect to employees who die after December 31, 2014.
(2) Required beginning date.--The amendment made by
subsection (c) shall apply to employees becoming a 5-percent
owner with respect to plan years ending in calendar years
beginning before, on, or after the date of the enactment of
this Act, except that--
(A) if, without regard to such amendment, an
employee's required beginning date occurs before April
1, 2015, such amendment shall not result in an earlier
required beginning date for such employee, and
(B) if, solely by reason of such amendment, an
employee's required beginning date would occur before
April 1, 2015, such employee's required beginning date
shall occur on April 1, 2015.
(3) Exception for certain beneficiaries.--If a designated
beneficiary of an employee who dies before January 1, 2015,
dies after December 31, 2014--
(A) the amendments made by this section shall apply
to any beneficiary of such designated beneficiary, and
(B) the designated beneficiary shall be treated as
an eligible designated beneficiary for purposes of
applying section 401(a)(9)(B)(iv) of such Code (as in
effect after the amendments made by this section).
(4) Exception for certain existing annuity contracts.--
(A) In general.--The amendments made by this
section shall not apply to a qualified annuity which is
a binding annuity contract in effect on the date of the
enactment of this Act and at all times thereafter.
(B) Qualified annuity contract.--For purposes of
this paragraph, the term ``qualified annuity'' means,
with respect to an employee, an annuity--
(i) which is a commercial annuity (as
defined in section 3405(e)(6) of such Code) or
payable by a defined benefit plan,
(ii) under which the annuity payments are
substantially equal periodic payments (not less
frequently than annually) over the lives of
such employee and a designated beneficiary (or
over a period not extending beyond the life
expectancy of such employee or the life
expectancy of such employee and a designated
beneficiary) in accordance with the regulations
described in section 401(a)(9)(A)(ii) of such
Code (as in effect before such amendments) and
which meets the other requirements of this
section 401(a)(9) of such Code (as so in
effect) with respect to such payments, and
(iii) with respect to which--
(I) annuity payments to the
employee have begun before January 1,
2015, and the employee has made an
irrevocable election before such date
as to the method and amount of the
annuity payments to the employee or any
designated beneficiaries, or
(II) if subclause (I) does not
apply, the employee has made an
irrevocable election before the date of
the enactment of this Act as to the
method and amount of the annuity
payments to the employee or any
designated beneficiaries.
SEC. 1615. 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\1/2\''.
(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\1/2\)'' before the comma at the end.
(c) Effective Date.--The amendments made by this section shall
apply to distributions made after December 31, 2014.
SEC. 1616. 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) to 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, 2014.
SEC. 1617. 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, 2014.
SEC. 1618. COORDINATION OF CONTRIBUTION LIMITATIONS FOR 403(B) PLANS
AND GOVERNMENTAL 457(B) PLANS.
(a) 403(b) Plans.--
(1) Elimination of special catch-up rule.--Subsection (g)
of section 402 is amended by striking paragraph (7) and by
redesignating paragraph (8) as paragraph (7).
(2) Elimination of post termination non-elective
contributions.--Subsection (b) of section 403 is amended--
(A) in paragraph (3), by striking ``for the most
recent period'' and all that follows through ``more
than five years'', and
(B) by striking paragraph (4).
(3) Elimination of increased contribution limit for church
plans.--Subsection (c) of section 415 is amended by striking
paragraph (7).
(4) Elimination of separate 415(c) limits.--Paragraph (4)
of section 415(k) is amended by striking ``each employer with
respect to which the participant has the control required'' and
inserting ``the employer and each employer which is part of a
controlled group or under common control''.
(b) 457(b) Plans.--
(1) Elimination of separate deferral limit.--Paragraph (3)
of section 402(g) is amended by striking ``and'' at the end of
subparagraph (C), by striking the period at the end of
subparagraph (D) and inserting ``, and'', and by inserting
after subparagraph (D) the following new subparagraph:
``(E) any amount deferred under an eligible
deferred compensation plan (as defined in section
457(b)) of an eligible employer described in section
457(e)(1)(A).''.
(2) Taken into account under limitation for defined
contribution plans.--
(A) In general.--Paragraph (2) of section 415(a) is
amended by striking ``or'' at the end of subparagraph
(B), by inserting ``or'' at the end of subparagraph
(C), and by inserting after subparagraph (C) the
following new subparagraph:
``(D) an eligible deferred compensation plan (as
defined in section 457(b)) of an eligible employer
described in section 457(e)(1)(A),''.
(B) Definition.--Paragraph (1) of section 415(k) is
amended by striking ``or'' at the end of subparagraph
(C), by striking the period at the end of subparagraph
(D) and inserting ``, or'', and by adding at the end
the following new subparagraph:
``(E) an eligible deferred compensation plan (as
defined in section 457(b)) of an eligible employer
described in section 457(e)(1)(A).''.
(3) Elimination of special catch-up rule.--Paragraph (3) of
section 457(b) is amended by inserting ``, in the case of an
eligible employer described in subsection (e)(1)(B),'' after
``which''.
(c) Conforming Amendments.--
(1) Section 25B(d)(1)(B) is amended--
(A) by striking clause (ii), and
(B) by striking ``the amount of--'' and all that
follows through ``any elective deferrals'' and
inserting the following: ``the amount of any elective
deferrals''.
(2) Section 402A(e)(2) is amended--
(A) by striking ``, and'' and all that follows and
inserting a period, and
(B) by striking ``means--'' and all that follows
through ``any elective deferral described in
subparagraph (A) or (C)'' and inserting the following:
``means any elective deferral described in (A), (C), or
(E)''.
(3) Section 457(e) is amended by striking paragraph (18).
(4) Section 414(u)(2)(C) is amended by inserting ``by an
eligible employer described in section 457(e)(1)(B)'' after
``(as defined in section 457(b))''.
(5) Section 414(v)(2)(D) is amended--
(A) by striking ``clauses (i), (ii), and (iv) of'',
and
(B) by striking ``, and plans described in clause
(iii)'' and all that follows through the end and
inserting a period.
(6) Section 414(v)(3)(A)(i) is amended by striking
``(determined without regard to section 457(b)(3))''.
(7) Section 414(v)(6)(B) is amended by striking
``subsection (u)(2)(C)'' and inserting ``section 402(g)(3)''.
(8) Section 414(v)(6) is amended by striking subparagraph
(C).
(d) Effective Date.--The amendments made by this section shall
apply to plan years and taxable years beginning after December 31,
2014.
SEC. 1619. APPLICATION OF 10-PERCENT EARLY DISTRIBUTION TAX TO
GOVERNMENTAL 457 PLANS.
(a) In General.--Paragraph (1) of section 72(t) is amended by
inserting ``or an eligible deferred compensation plan (as defined in
section 457(b)) of an eligible employer described in section
457(e)(1)(A),'' after ``section 4974(c)),''.
(b) Effective Date.--The amendment made by this section shall apply
to withdrawals on or after February 26, 2014.
SEC. 1620. INFLATION ADJUSTMENTS FOR QUALIFIED PLAN BENEFIT AND
CONTRIBUTION LIMITATIONS.
(a) Defined Benefit Plans.--
(1) Current limit.--Subparagraph (A) of section 415(b)(1)
is amended by striking ``$160,000'' and inserting ``$210,000''.
(2) Inflation adjustment.--Section 415(d) is amended--
(A) in paragraph (1)(A)--
(i) by striking ``$160,000'' and inserting
``$210,000'', and
(ii) by inserting ``for calendar years
beginning after 2023'' after ``subsection
(b)(1)(A)'',
(B) paragraph (3)(A), by striking ``July 1, 2001''
and inserting ``July 1, 2022''.
(b) Defined Contribution Plans.--
(1) Current limit.--Subparagraph (A) of section 415(c)(1)
is amended by striking ``$40,000'' and inserting ``$52,000''.
(2) Inflation adjustment.--Subsection (d) of section 415 is
amended--
(A) in paragraph (1)(C)--
(i) by striking ``$40,000'' and inserting
``$52,000'',
(ii) by inserting ``for calendar years
beginning after 2023'' after ``subsection
(c)(1)(A)'',
(B) in paragraph (3)(D), by striking ``July 1,
2001'' and inserting ``July 1, 2022''.
(c) Conforming Amendments.--
(1) Section 415(b)(2) is amended by striking ``$160,000''
each place it appears in subparagraphs (C) and (D) and
inserting ``$210,000''.
(2) Section 415(b) is amended by striking ``$160,000'' in
the fourth sentence of paragraph (7) and inserting
``$210,000''.
(3) The headings for subparagraphs (C) and (D) of section
415(b)(2) are each amended by striking ``$160,000'' and
inserting ``$210,000''.
(4) The heading for subparagraph (A) of section 415(d)(3)
is amended by striking ``$160,000'' and inserting ``$210,000''.
(5) The heading for subparagraph (D) of section 415(d)(3)
is amended by striking ``$40,000'' and inserting ``$52,000''.
(6) The heading for subparagraph (A) of section 415(d)(4)
is amended by striking ``$160,000'' and inserting ``$210,000''.
(7) The heading for subparagraph (B) of section 415(d)(4)
is amended by striking ``$40,000'' and inserting ``$52,000''.
(d) Effective Date.--The amendments made by this section shall
apply to years ending with or within a calendar year beginning after
2014.
SEC. 1621. INFLATION ADJUSTMENTS FOR QUALIFIED PLAN ELECTIVE DEFERRAL
LIMITATIONS.
(a) Current Limit.--Subparagraph (B) of section 402(g)(1) is
amended by striking ``shall be'' and all that follows and inserting
``is $17,500.''
(b) Inflation Adjustment.--Paragraph (4) of section 402(g) is
amended--
(1) by striking ``December 31, 2006'' and inserting
``December 31, 2023'',
(2) by striking ``$15,000'' and inserting ``$17,500'', and
(3) by striking ``2005'' and inserting ``2022''.
(c) Effective Date.--The amendments made by this section shall
apply to plan years and taxable years beginning after December 31,
2014.
SEC. 1622. INFLATION ADJUSTMENTS FOR SIMPLE RETIREMENT ACCOUNTS.
(a) Current Limit.--Clause (i) of section 408(p)(2)(E) is amended
by striking ``shall be'' and all that follows and inserting ``shall be
$12,000''.
(b) Inflation Adjustment.--Clause (ii) of section 408(p)(2)(E) is
amended--
(1) by striking ``December 31, 2005'' and inserting
``December 31, 2023'',
(2) by striking ``$10,000'' and inserting ``$12,000'',
(3) by striking ``2004'' and inserting ``2022''.
(c) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after 2014.
SEC. 1623. INFLATION ADJUSTMENTS FOR CATCH-UP CONTRIBUTIONS FOR CERTAIN
EMPLOYER PLANS.
(a) Current Limit.--
(1) Plans other than simple 401(k) and simple retirement
accounts.--Clause (i) of section 414(v)(2)(B) is amended by
striking ``determined in accordance with the following table''
and all that follows through the period at the end and
inserting ``$5,500.''.
(2) Simple 401(k) and simple retirement accounts.--Clause
(ii) of section 414(v)(2)(B) is amended by striking
``determined in accordance with the following table'' and all
that follows through the period at the end and inserting
``$2,500.''.
(b) Inflation Adjustment.--Subparagraph (C) of section 414(v)(2) is
amended--
(1) by striking ``December 31, 2006'' and inserting
``December 31, 2023'',
(2) by striking ``$5,000'' and inserting ``$5,500'', and
(3) by striking ``2005'' and inserting ``2022''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 1624. INFLATION ADJUSTMENTS FOR GOVERNMENTAL AND TAX-EXEMPT
ORGANIZATION PLANS.
(a) Current Limit.--Subparagraph (A) of section 457(b)(2) is
amended by striking ``the applicable dollar amount'' and inserting
``$17,500''.
(b) Inflation Adjustment.--Paragraph (15) of section 457(e) is
amended--
(1) by striking ``Applicable dollar amount.--'' and all
that follows through ``Cost-of-living adjustments.--In the case
of taxable years beginning after December 31, 2006'' and
inserting the following: ``Cost-of-living adjustments.--In the
case of taxable years beginning after December 31, 2023'',
(2) by striking ``the $15,000 amount under subparagraph
(A)'' and inserting ``the $17,500 amount under subsection
(b)(2)(A)'', and
(3) by striking ``2005'' and inserting ``2022''.
(c) Conforming Amendment.--Section 457(f)(4)(A) is amended by
striking ``twice the applicable dollar limit determined under
subsection (e)(15)'' and inserting ``twice the amount in effect under
subsection (b)(2)(A)''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
Subtitle H--Certain Provisions Related to Members of Indian Tribes
SEC. 1701. INDIAN GENERAL WELFARE BENEFITS.
(a) In General.--Part III of subchapter B of chapter 1 is amended
by inserting before section 140 the following new section:
``SEC. 139E. INDIAN GENERAL WELFARE BENEFITS.
``(a) In General.--Gross income does not include the value of any
Indian general welfare benefit.
``(b) Indian General Welfare Benefit.--For purposes of this
section, the term `Indian general welfare benefit' includes any payment
made or services provided to or on behalf of a member of an Indian
tribe (or any spouse or dependent of such a member) pursuant to an
Indian tribal government program, but only if--
``(1) the program is administered under specified written
guidelines and does not discriminate in favor of members of the
governing body of the tribe, and
``(2) the benefits provided under such program--
``(A) are available to any tribal member who meets
such guidelines,
``(B) are for the promotion of general welfare,
``(C) are not lavish or extravagant, and
``(D) are not compensation for services.
``(c) Definitions and Special Rules.--For purposes of this
section--
``(1) Indian tribal government.--For purposes of this
section, the term `Indian tribal government' includes any
agencies or instrumentalities of an Indian tribal government
and any Alaska Native regional or village corporation, as
defined in, or established pursuant to, the Alaska Native
Claims Settlement Act (43 U.S.C. 1601, et seq.).
``(2) Dependent.--The term `dependent' has the meaning
given such term by section 7705, determined without regard to
subsections (b)(1), (b)(2), and (d)(1)(B).
``(3) Lavish or extravagant.--The Secretary shall, in
consultation with the Tribal Advisory Committee (as established
under section 1702 of the Tax Reform Act of 2014), establish
guidelines for what constitutes lavish or extravagant benefits
with respect to Indian tribal government programs.
``(4) Establishment of tribal government program.--A
program shall not fail to be treated as an Indian tribal
government program solely by reason of the program being
established by tribal custom or government practice.''.
(b) 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. 139E. Indian general welfare benefits.''.
(c) Effective Date.--
(1) In general.--The amendments made by this section 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.
(2) One-year waiver of statute of limitations.--If the
period of limitation on a credit or refund resulting from the
amendments made by subsection (a) 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.
SEC. 1702. TRIBAL ADVISORY COMMITTEE.
(a) Establishment.--The Secretary of the Treasury shall establish a
Tribal Advisory Committee (hereinafter in this subsection referred to
as the ``Committee'').
(b) Duties.--
(1) Implementation.--The Committee shall advise the
Secretary on matters relating to the taxation of Indians.
(2) Education and training.--The Secretary shall, in
consultation with the Committee, establish and require--
(A) training and education for internal revenue
field agents who administer and enforce internal
revenue laws with respect to Indian tribes on Federal
Indian law and the Federal Government's unique legal
treaty and trust relationship with Indian tribal
governments, and
(B) training of such internal revenue field agents,
and provision of training and technical assistance to
tribal financial officers, about implementation of this
Act and the amendments made thereby.
(c) Membership.--
(1) In general.--The Committee shall be composed of 7
members appointed as follows:
(A) Three members appointed by the Secretary of the
Treasury.
(B) One member appointed by the Chairman, and one
member appointed by the Ranking Member, of the
Committee on Ways and Means of the House of
Representatives.
(C) One member appointed by the Chairman, and one
member appointed by the Ranking Member, of the
Committee on Finance of the Senate.
(2) Term.--
(A) In general.--Except as provided in subparagraph
(B), each member's term shall be 4 years.
(B) Initial staggering.--The first appointments
made by the Secretary under paragraph (1)(A) shall be
for a term of 2 years.
SEC. 1703. OTHER RELIEF FOR INDIAN TRIBES.
(a) Waiver of Penalties and Interest.--The Secretary of the
Treasury may waive any interest and penalties imposed under the
Internal Revenue Code of 1986 on any Indian tribal government or member
of an Indian tribe (or any spouse or dependent of such a member) to the
extent such interest and penalties relate to excluding a payment or
benefit from gross income under the general welfare exclusion.
(b) Definitions.--For purposes of this section--
(1) Indian tribal government.--The term ``Indian tribal
government'' shall have the meaning given such term by section
139E of such Code, as added by this Act.
(2) Indian tribe.--The term ``Indian tribe'' shall have the
meaning given such term by section 139D(c)(1) of such Code, as
amended by this Act.
TITLE II--ALTERNATIVE MINIMUM TAX REPEAL
SEC. 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 allowed 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.--Subsection (e) of
section 53 is amended to read as follows:
``(e) Portion of Credit Treated as Refundable.--
``(1) In general.--In the case of any taxable year
beginning in 2016, 2017, 2018, or 2019, 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 2019) 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 Reform Act of 2014.''.
(4) Repeal of special rules with respect to treatment of
incentive stock options.--Section 53 is amended by striking
subsection (f).
(c) Conforming Amendments Related to AMT Repeal.--
(1) Section 2(e), as redesignated by section 1001, 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 13, as redesignated by title I, 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 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 45D(g)(4)(B) is amended by striking ``or for
purposes of section 55''.
(10) Section 54(c)(1) is amended to read as follows:
``(1) regular tax liability (as defined in section 26(b)),
over''.
(11) Section 54A(c)(1)(A) is amended to read as follows:
``(A) regular tax liability (as defined in section
26(b)), over''.
(12)(A) Section 108(b)(2) is amended by striking
subparagraph (C) and by redesignating subparagraphs (D) through
(G) as subparagraphs (C) through (F), respectively.
(B) Section 108(b)(3)(B) is amended--
(i) by striking ``subparagraphs (B), (C), and (G)''
and inserting ``subparagraphs (B) and (F) of paragraph
(2)'', and
(ii) by striking ``subparagraph (F)'' and inserting
``paragraph (2)(E)''.
(C) Section 108(b)(4)(B) is amended by striking
``subparagraph (A) or (D)'' in the heading and text thereof and
inserting ``subparagraph (A) or (C)''.
(D) Section 108(b)(4)(C) is amended by striking
``subparagraphs (B) and (G)'' in the heading and text thereof
and inserting ``subparagraphs (B) and (F)''.
(13) Section 168(k)(2) is amended by striking subparagraph
(G).
(14) Section 173 is amended by striking subsection (b).
(15) 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).''.
(16) Section 263A(c) is amended by striking paragraph (6).
(17) Section 382(l) is amended by striking paragraph (7)
and by redesignating paragraph (8) as paragraph (7).
(18) Section 443 (relating to returns for a period of less
than 12 months) adjustment in computing minimum tax and tax
preferences) is amended by striking subsection (d) and by
redesignating subsection (e) as subsection (d).
(19) 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)''.
(20) Subsections (b) and (c) of section 666 are each
amended by striking ``(other than the tax imposed by section
55)''.
(21) Section 815(c)(2) is amended by striking the last
sentence.
(22) Section 847 is amended--
(A) by striking the last sentence of paragraph (9),
and
(B) in paragraph (10), by inserting ``and'' at the
end of subparagraph (A), by striking subparagraph (B),
and by redesignating subparagraph (C) as subparagraph
(B).
(23) Section 848 is amended by striking subsection (i) and
by redesignating subsection (j) as subsection (i).
(24) Section 860E(a) is amended by striking paragraph (4).
(25) Section 871(b)(1) is amended by striking ``or 55''.
(26) Section 882(a)(1) is amended by striking ``55,''.
(27) 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.''.
(28) 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).''.
(29) Section 911(f) is amended to read as follows:
``(f) Determination of Tax Liability.--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--
``(1) 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
``(2) 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.''.
(30) 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''.
(31) Section 1016(a) is amended by striking paragraph (20).
(32) 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).
(33) Section 1374(b)(3)(B) is amended by striking the last
sentence thereof.
(34) Section 1397E(c)(1) is amended to read as follows:
``(1) regular tax liability (as defined in section 26(b),
over''.
(35) Section 1561(a) is amended--
(A) by inserting ``and'' at the end of paragraph
(1), by striking the comma at the end of paragraph (2)
and inserting a period, and by striking paragraphs (3)
and (4), and
(B) by striking the last sentence.
(36) Section 6015(d)(2)(B) is amended by striking ``or
55''.
(37) Section 6425(c)(1)(A) is amended--
(A) by adding ``plus'' at the end of clause (i),
and
(B) by striking clause (ii) and by redesignating
clause (iii) as clause (ii).
(38) 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,''.
(39) Section 6655(e)(2)(B) is amended--
(A) by striking ``The taxable income, alternative
minimum taxable income, and modified alternative
taxable income shall'' and inserting ``Taxable income
shall'', and
(B) by striking clause (iii).
(40) Section 6655(g)(1)(A) is amended--
(A) by striking clause (ii), and
(B) by redesignating clauses (iii) and (iv) as
clauses (ii) and (iii), respectively.
(41) 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, 2014.
(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, 2014.
(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, 2014, to taxable years beginning
before January 1, 2015, shall be determined without regard to
any adjustments under section 56(d)(2)(A) of such Code (as so
in effect).
TITLE III--BUSINESS TAX REFORM
Subtitle A--Tax Rates
SEC. 3001. 25-PERCENT CORPORATE TAX RATE.
(a) In General.--Subsection (b) of section 11 is amended to read as
follows:
``(b) Amount of Tax.--
``(1) In general.--Except as provided in paragraph (2), the
amount of the tax imposed by subsection (a) shall be 25 percent
of taxable income.
``(2) Phase-in for taxable years beginning before 2019.--
``(A) In general.--In the case of taxable years
beginning before 2019, the amount of tax imposed by
subsection (a) shall be the sum of--
``(i) 25 percent of so much of the taxable
income as does not exceed $75,000, and
``(ii) the applicable percentage of so much
of taxable income as exceeds $75,000.
``(B) Applicable percentage.--For purposes of this
paragraph, the applicable percentage shall be
determined in accordance with the following table:
``In the case of taxable years The applicable percentage is:
beginning during calendar
year
2015............................................... 33%
2016............................................... 31%
2017............................................... 29%
2018............................................... 27%''.
(b) Conforming Amendments.--
(1) Paragraphs (2)(B) and (6)(A)(ii) of section 860E(e) are
each amended by striking ``section 11(b)(1)'' and inserting
``section 11(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 13, as amended and redesignated by the
preceding provisions of this Act, is amended by striking
paragraphs (4) and (6), and by redesignating paragraph (5) as
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) Sections 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(d) 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)''.
(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) Sections 6425(c)(1)(A)(i) and 6655(g)(1)(A)(i) are each
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 the preceding provisions
of this Act, is amended to read as follows:
``SEC. 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 7874(e)(1)(B) is amended by striking ``section
11(b)(1)'' and inserting ``section 11(b)''.
(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, 2014.
(2) Withholding.--The amendments made by subsection (b)(3)
shall apply to distributions made after December 31, 2014.
(3) Certain transfers.--The amendments made by subsection
(b)(5) shall apply to transfers made after December 31, 2018.
(4) Certain other amendments related to single rate of
tax.--The amendments made by paragraphs (4) and (6) of
subsection (b) shall apply to taxable years beginning after
December 31, 2018.
Subtitle B--Reform of Business-Related Exclusions and Deductions
SEC. 3101. 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:
``SEC. 76. CONTRIBUTIONS TO CAPITAL.
``(a) In General.--Gross income includes--
``(1) any contribution to the capital of any entity, and
``(2) any premium received by such entity with respect to
any option on any interest in such 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.
SEC. 3102. 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, 2014.
SEC. 3103. EXPENDITURES FOR REPAIRS IN CONNECTION WITH CASUALTY LOSSES.
(a) In General.--Section 165, as amended by the preceding
provisions of this Act, is amended by inserting after subsection (g)
the following new subsection:
``(h) Special Rule for Casualty Losses.--
``(1) Expenditures for repairs in connection with casualty
losses.--If a deduction is allowable under this section for any
casualty loss with respect to any property, any expenditure
made for any repair of damage to such property in connection
with such casualty loss shall be treated as a permanent
improvement made to increase the value of such property for
purposes of section 263(a)(1).
``(2) Election to expense repair in lieu of deducting
casualty loss.--If the taxpayer elects the application of this
paragraph with respect to any property with respect to which
there is a casualty loss, no deduction shall be allowable under
this section for the casualty loss with respect to such
property and paragraph (1) shall not apply to expenditures made
for repair of damage to such property in connection with such
casualty loss. Any election under this paragraph shall be made
not later than the due date for the return of tax (including
extensions) for the taxable year in which the casualty loss
occurs and, once made, may be revoked only with the consent of
the Secretary.''.
(b) Effective Date.--The amendment made by this section shall apply
to losses sustained after December 31, 2014.
SEC. 3104. REFORM OF ACCELERATED COST RECOVERY SYSTEM.
(a) Applicable Depreciation Method.--Subsection (b) of section 168
is amended to read as follows:
``(b) Applicable Depreciation Method.--For purposes of this
section--
``(1) In general.--The applicable depreciation method is
the straight line method.
``(2) Salvage value treated as zero.--Salvage value shall
be treated as zero.''.
(b) Applicable Recovery Period.--Subsection (c) of section 168 is
amended to read as follows:
``(c) Applicable Recovery Period.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
applicable recovery period for any property is the class life
of such property.
``(2) Special rules for determining class life of certain
property.--
``(A) Property with no class life.--In the case of
personal property with no class life, the recovery
period is 12 years.
``(B) Certain horses.--In the case of any race
horse, and any horse other than a race horse which is
more than 12 years old at the time it is placed in
service, 3 years.
``(C) Semi-conductor manufacturing equipment.--In
the case of any semi-conductor manufacturing equipment,
the recovery period is 5 years.
``(D) Qualified technological equipment.--In the
case of any qualified technological equipment, the
recovery period is 5 years.
``(E) Automobile or light general purpose truck.--
In the case of any automobile or light general purpose
truck, the recovery period is 5 years.
``(F) Qualified rent-to-own property.--In the case
of any qualified rent-to-own property, the recovery
period is 9 years.
``(G) Certain telephone switching equipment.--In
the case of any computer-based telephone central office
switching equipment, the recovery period is 9.5 years.
``(H) Railroad track.--In the case of any railroad
track, the recovery period is 10 years.
``(I) Smart electric distribution property.--In the
case of qualified smart electric meters and qualified
smart electric grid systems, the recovery period is 10
years.
``(J) Airplanes.--In the case of any fixed-wing
aircraft (including any fixed-wing airframe or engine),
the recovery period is 12 years.
``(K) Natural gas gathering line.--In the case of
any natural gas gathering line, the recovery period is
14 years.
``(L) Tree or vine bearing fruit or nuts.--In the
case of any tree or vine bearing fruit or nuts, the
recovery period is 20 years.
``(M) Telephone distribution plant.--In the case of
any telephone distribution plant and comparable
equipment used for 2-way exchange of voice and data
communications by cable, the recovery period is 24
years.
``(N) Real property.--In the case of nonresidential
real property, residential rental property, and any
section 1245 property (as defined in section
1245(a)(3)) which is real property with no class life,
the recovery period is 40 years.
``(O) Water treatment and utility property.--In the
case of any municipal wastewater treatment plant or
water utility property, the recovery period is 50
years.
``(P) Clearing and grading improvements; tunnel
bore.--In the case of any clearing and grading land
improvements or tunnel bore, the recovery period is 50
years.
``(Q) Tax-exempt use property subject to lease.--In
the case of any tax-exempt use property subject to a
lease, the recovery period used for purposes of
paragraph (2) shall (notwithstanding any other
subparagraph of this paragraph) in no event be less
than 125 percent of the lease term.''.
(c) Neutral Cost Recovery System.--Section 168, as amended by
subsection (f), is amended by adding at the end the following new
subsection:
``(i) Neutral Cost Recovery System.--
``(1) In general.--In the case of any property (to which
this section applies) placed in service by the taxpayer in a
taxable year for which such taxpayer has elected the
application of this subsection, the deduction determined under
subsection (a) with respect to such property for any taxable
year shall be increased by an amount equal to the product of--
``(A) the modified adjusted basis of such property
determined as of the close of such taxable year
(determined without regard to this subsection but after
taking all other adjustments for such taxable year into
account), multiplied by
``(B) the inflation adjustment percentage for the
calendar year in which such taxable year begins.
``(2) Modified adjusted basis.--For purposes of this
subsection, the term `modified adjusted basis' means, with
respect to any property, the adjusted basis which would be
determined with respect to such property if this subsection
never applied to such property.
``(3) Inflation adjustment percentage.--For purposes of
this subsection, the term `inflation adjustment percentage'
means, with respect to any calendar year, the cost-of-living
adjustment which would be determined under section 1(c)(2)(A)
for such calendar year if clause (ii) thereof were applied by
substituting `the C-CPI-U for the calendar year preceding the
calendar year referred to in clause (i)' for `the normalized
CPI for calendar year 2012'.
``(4) Increase for first taxable year reduced to take into
account placed in service convention.--In the case of the
taxable year in which any property is placed in service, the
increase determined under paragraph (1) with respect to such
property shall be equal to--
``(A) in the case of any property to which
subsection (d)(3) applies, \1/8\ of the amount of such
increase determined without regard to this paragraph,
and
``(B) in the case of any other property, \1/2\ of
the amount of such increase determined without regard
to this paragraph.
``(5) Overall depreciation allowance not to exceed basis.--
The deduction determined under subsection (a) (after any
increase determined under this subsection) with respect to any
property for any taxable year shall not exceed the adjusted
basis of such property determined as of the beginning of such
taxable year.
``(6) Certain property excluded.--Paragraph (1) shall not
apply to any specified property used outside the United States
or to any property described in subsection (d)(2).
``(7) Election.--
``(A) In general.--An election under paragraph (1)
for any taxable year shall be made not later than the
due date (including extensions) for the return of tax
for such taxable year. Such election, once made, shall
be irrevocable. Such election shall apply with respect
to all property placed in service during the taxable
for which made (and shall apply for subsequent taxable
years but only with respect to such property).
``(B) Taxpayer engaged in more than one business.--
A taxpayer engaged in more than one trade or business
may make separate elections under paragraph (1) with
respect to each such trade or business.''.
(d) Application of Mid-Month Convention.--
(1) In general.--Subparagraphs (A), (B) and (C) of section
168(d)(2) are amended to read as follows:
``(A) real property,
``(B) water treatment and utility property, and
``(C) any clearing and grading land improvements or
tunnel bore,''.
(2) Conforming amendment.--Clause (i) of section
168(d)(3)(B) is amended to read as follows:
``(i) any property described in paragraph
(2),''.
(e) Definitions.--Subsection (e) of section 168 is amended to read
as follows:
``(e) Definitions.--For purposes of this section--
``(1) Class life.--
``(A) In general.--Except as provided in this
section, the term `class life' means the class life (if
any) which would be applicable with respect to any
property as of January 1, 1986, under subsection (m) of
section 167 (determined without regard to paragraph (4)
and as if the taxpayer had made an election under such
subsection). The reference in this paragraph to
subsection (m) of section 167 shall be treated as a
reference to such subsection as in effect on the day
before the date of the enactment of the Revenue
Reconciliation Act of 1990.
``(B) Secretarial authority to modify rev. proc.
87-56.--
``(i) In general.--The Secretary, through
the Office of Tax Analysis and in consultation
with the Bureau of Economic Analysis of the
Department of Commerce, shall--
``(I) determine, and develop a
schedule of, the economic depreciation
of the major categories of depreciable
property (other than property with a
specified class life under subsection
(c)(2)) to approximate constant
straight-line depreciation, and
``(II) develop recommendations
regarding the proper economic
depreciation for property with a
specified class life under subsection
(c)(2).
``(ii) Report.--Not later than December 31,
2017, the Secretary shall submit to the
Committee on Ways and Means of the House of
Representatives and the Committee on Finance of
the Senate--
``(I) the schedule developed under
clause (i)(I), and
``(II) the recommendations
developed under clause (i)(II).
The schedule developed under clause (i)(I)
shall take effect with respect to property
placed in service after the later of December
31, 2017, or the end of the first calendar year
ending after the calendar year during which
such schedule is submitted.
``(2) Residential rental property.--
``(A) In general.--The term `residential rental
property' means any building or structure if 80 percent
or more of the gross rental income from such building
or structure for the taxable year is rental income from
dwelling units.
``(B) Dwelling unit.--For purposes of subparagraph
(A)--
``(i) the term `dwelling unit' means a
house or apartment used to provide living
accommodations in a building or structure, but
does not include a unit in a hotel, motel, or
other establishment more than one-half of the
units in which are used on a transient basis,
and
``(ii) if any portion of the building or
structure is occupied by the taxpayer, the
gross rental income from such building or
structure shall include the rental value of the
portion so occupied.
``(3) Nonresidential real property.--The term
`nonresidential real property' means section 1250 property
which is not--
``(A) residential rental property, or
``(B) property with a class life of less than 27.5
years.
``(4) Water utility property.--The term `water utility
property' means property--
``(A) which is an integral part of the gathering,
treatment, or commercial distribution of water, and
``(B) any municipal sewer.
``(5) Qualified rent-to-own property.--
``(A) In general.--The term `qualified rent-to-own
property' means any property held by a rent-to-own
dealer for purposes of being subject to a rent-to-own
contract.
``(B) Rent-to-own dealer.--The term `rent-to-own
dealer' means a person that, in the ordinary course of
business, regularly enters into rent-to-own contracts
with customers for the use of consumer property, if a
substantial portion of those contracts terminate and
the property is returned to such person before the
receipt of all payments required to transfer ownership
of the property from such person to the customer.
``(C) Consumer property.--The term `consumer
property' means tangible personal property of a type
generally used within the home for personal use.
``(D) Rent-to-own contract.--The term `rent-to-own
contract' means any lease for the use of consumer
property between a rent-to-own dealer and a customer
who is an individual which--
``(i) is titled `Rent-to-Own Agreement' or
`Lease Agreement with Ownership Option', or
uses other similar language,
``(ii) provides for level (or decreasing
where no payment is less than 40 percent of the
largest payment), regular periodic payments
(for a payment period which is a week or
month),
``(iii) provides that legal title to such
property remains with the rent-to-own dealer
until the customer makes all the payments
described in clause (ii) or early purchase
payments required under the contract to acquire
legal title to the item of property,
``(iv) provides a beginning date and a
maximum period of time for which the contract
may be in effect that does not exceed 156 weeks
or 36 months from such beginning date
(including renewals or options to extend),
``(v) provides for payments within the 156-
week or 36-month period that, in the aggregate,
generally exceed the normal retail price of the
consumer property plus interest,
``(vi) provides for payments under the
contract that, in the aggregate, do not exceed
$10,000 per item of consumer property,
``(vii) provides that the customer does not
have any legal obligation to make all the
payments referred to in clause (ii) set forth
under the contract, and that at the end of each
payment period the customer may either continue
to use the consumer property by making the
payment for the next payment period or return
such property to the rent-to-own dealer in good
working order, in which case the customer does
not incur any further obligations under the
contract and is not entitled to a return of any
payments previously made under the contract,
and
``(viii) provides that the customer has no
right to sell, sublease, mortgage, pawn,
pledge, encumber, or otherwise dispose of the
consumer property until all the payments stated
in the contract have been made.
``(6) Qualified technological equipment.--
``(A) In general.--The term `qualified
technological equipment' means--
``(i) any computer or peripheral equipment,
``(ii) any high technology telephone
station equipment installed on the customer's
premises, and
``(iii) any high technology medical
equipment.
``(B) Computer or peripheral equipment defined.--
For purposes of this paragraph--
``(i) In general.--The term `computer or
peripheral equipment' means--
``(I) any computer, and
``(II) any related peripheral
equipment.
``(ii) Computer.--The term `computer' means
a programmable electronically activated device
which--
``(I) is capable of accepting
information, applying prescribed
processes to the information, and
supplying the results of these
processes with or without human
intervention, and
``(II) consists of a central
processing unit containing extensive
storage, logic, arithmetic, and control
capabilities.
``(C) High technology medical equipment.--For
purposes of this paragraph, the term `high technology
medical equipment' means any electronic,
electromechanical, or computer-based high technology
equipment used in the screening, monitoring,
observation, diagnosis, or treatment of patients in a
laboratory, medical, or hospital environment.
``(7) Natural gas gathering line.--The term `natural gas
gathering line' means--
``(A) the pipe, equipment, and appurtenances
determined to be a gathering line by the Federal Energy
Regulatory Commission, and
``(B) the pipe, equipment, and appurtenances used
to deliver natural gas from the wellhead or a
commonpoint to the point at which such gas first
reaches--
``(i) a gas processing plant,
``(ii) an interconnection with a
transmission pipeline for which a certificate
as an interstate transmission pipeline has been
issued by the Federal Energy Regulatory
Commission,
``(iii) an interconnection with an
intrastate transmission pipeline, or
``(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer.
``(8) Qualified smart electric meters.--
``(A) In general.--The term `qualified smart
electric meter' means any smart electric meter which--
``(i) is placed in service by a taxpayer
that is a supplier of electric energy or a
provider of electric energy services, and
``(ii) does not have a class life
(determined without regard to subsection (c))
of less than 10 years.
``(B) Smart electric meter.--For purposes of
subparagraph (A), the term `smart electric meter' means
any time-based meter and related communication
equipment which is capable of being used by the
taxpayer as part of a system that--
``(i) measures and records electricity
usage data on a time-differentiated basis in at
least 24 separate time segments per day,
``(ii) provides for the exchange of
information between supplier or provider and
the customer's electric meter in support of
time-based rates or other forms of demand
response,
``(iii) provides data to such supplier or
provider so that the supplier or provider can
provide energy usage information to customers
electronically, and
``(iv) provides net metering.
``(9) Qualified smart electric grid systems.--
``(A) In general.--The term `qualified smart
electric grid system' means any smart grid property
which--
``(i) is used as part of a system for
electric distribution grid communications,
monitoring, and management placed in service by
a taxpayer who is a supplier of electric energy
or a provider of electric energy services, and
``(ii) does not have a class life
(determined without regard to subsection (c))
of less than 10 years.
``(B) Smart grid property.--For the purposes of
subparagraph (A), the term `smart grid property' means
electronics and related equipment that is capable of--
``(i) sensing, collecting, and monitoring
data of or from all portions of a utility's
electric distribution grid,
``(ii) providing real-time, two-way
communications to monitor or manage such grid,
and
``(iii) providing real time analysis of and
event prediction based upon collected data that
can be used to improve electric distribution
system reliability, quality, and performance.
``(10) Specified property used outside the united states.--
``(A) In general.--The term `specified property
used outside the United States' means--
``(i) any aircraft which is registered by
the Administrator of the Federal Aviation
Agency and which is operated to and from the
United States or is operated under contract
with the United States,
``(ii) rolling stock which is used within
and without the United States and which is--
``(I) of a rail carrier subject to
part A of subtitle IV of title 49, or
``(II) of a United States person
(other than a corporation described in
subclause (I)) but only if the rolling
stock is not leased to one or more
foreign persons for periods aggregating
more than 12 months in any 24-month
period,
``(iii) any vessel documented under the
laws of the United States which is operated in
the foreign or domestic commerce of the United
States,
``(iv) any motor vehicle of a United States
person (as defined in section 7701(a)(30))
which is operated to and from the United
States,
``(v) any container of a United States
person which is used in the transportation of
property to and from the United States,
``(vi) any property (other than a vessel or
an aircraft) of a United States person which is
used for the purpose of exploring for,
developing, removing, or transporting resources
from the outer Continental Shelf (within the
meaning of section 2 of the Outer Continental
Shelf Lands Act, as amended and supplemented
(43 U.S.C. 1331)),
``(vii) any property which is owned by a
domestic corporation or by a United States
citizen (other than a citizen entitled to the
benefits of section 931 or 933) and which is
used predominantly in a possession of the
United States by such a corporation, or such a
citizen, or by a corporation created or
organized in, or under the law of, a possession
of the United States,
``(viii) any communications satellite (as
defined in section 103(3) of the Communications
Satellite Act of 1962, 47 U.S.C. 702(3)), or
any interest therein, of a United States
person,
``(ix) any cable, or any interest therein,
of a domestic corporation engaged in furnishing
telephone service to which section
168(e)(10)(C) applies (or of a wholly owned
domestic subsidiary of such a corporation), if
such cable is part of a submarine cable system
which constitutes part of a communication link
exclusively between the United States and one
or more foreign countries,
``(x) any property (other than a vessel or
an aircraft) of a United States person which is
used in international or territorial waters
within the northern portion of the Western
Hemisphere for the purpose of exploring for,
developing, removing, or transporting resources
from ocean waters or deposits under such
waters,
``(xi) any property described in section
48(l)(3)(A)(ix) (as in effect on the day before
the date of the enactment of the Revenue
Reconciliation Act of 1990) which is owned by a
United States person and which is used in
international or territorial waters to generate
energy for use in the United States, and
``(xii) any satellite (not described in
clause (viii)) or other spacecraft (or any
interest therein) held by a United States
person if such satellite or other spacecraft
was launched from within the United States.
``(B) Northern portion of the western hemisphere.--
For purposes of subparagraph (A)(x), the term `northern
portion of the Western Hemisphere' means the area lying
west of the 30th meridian west of Greenwich, east of
the international dateline, and north of the Equator,
but not including any foreign country which is a
country of South America.''.
(f) Conforming Amendments.--
(1) Amendments to section 168.--
(A) Section 168 is amended by striking subsections
(g), (j), (k), (l), (m), and (n), and by redesignating
subsections (h) and (i) as subsections (g) and (h),
respectively.
(B) Section 168(h), as redesignated by subparagraph
(A), is amended--
(i) by striking paragraphs (1), (2), (11),
(12), (13), (14), (15), (16), (17), (18), and
(19) and by redesignating paragraphs (3)
through (10) as paragraphs (1) through (8),
respectively, and
(ii) by striking ``Definitions and'' in the
heading thereof.
(C) Section 168(h)(8), as redesignated by
subparagraphs (A) and (B), is moved to the end of
section 168(e) (as amended by subsection (e)) and
redesignated as paragraph (11).
(2) Other conforming amendments.--
(A) Section 50(b)(4) is amended--
(i) in subparagraph (A)(ii)--
(I) by striking ``section
168(h)(2)(C)'' and inserting ``section
168(g)(2)(C)'',
(II) by striking ``section
168(h)(2)(A)(iii)'' and inserting
``section 168(g)(2)(A)(iii)'', and
(III) by striking ``section
168(h)(2)(B)'' and inserting ``section
168(g)(2)(B)'',
(ii) in subparagraph (B), by striking
``section 168(i)(3)'' and inserting ``section
168(h)(1)'', and
(iii) in subparagraphs (D) and (E), by
striking ``section 168(h)'' each place it
appears and inserting ``section 168(g)''.
(B)(i) Section 50(b)(1)(B) is amended by striking
``any property described in section 168(g)(4)'' and
inserting ``any specified property used outside the
United States (as defined in section 168(e)(10)''.
(ii) Section 865(c)(3)(B) is amended by striking
``property of a kind described in section 168(g)(4)''
and inserting ``specified property used outside the
United States (as defined in section 168(e)(10)''.
(C) Section 179(e)(2) is amended by inserting ``as
in effect before its repeal by the Tax Reform Act of
2014'' after ``section 168(n)(2)''.
(D) Section 179(f), as amended by section 3111, is
amended--
(i) by striking paragraph (2), and
(ii) by inserting after paragraph (1) the
following new paragraphs:
``(2) Qualified real property.--For purposes of this
subsection, the term `qualified real property' means qualified
leasehold improvement property, qualified restaurant property,
and qualified retail improvement property.
``(3) Qualified leasehold improvement property.--For
purposes of this subsection--
``(A) In general.--The term `qualified leasehold
improvement property' means any improvement to an
interior portion of a building which is nonresidential
real property if--
``(i) such improvement is made under or
pursuant to a lease (as defined in section
168(g)(7))--
``(I) by the lessee (or any
sublessee) of such portion, or
``(II) by the lessor of such
portion,
``(ii) such portion is to be occupied
exclusively by the lessee (or any sublessee) of
such portion, and
``(iii) such improvement is placed in
service more than 3 years after the date the
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,
``(iii) any structural component
benefitting a common area, and
``(iv) the internal structural framework of
the building.
``(C) Definitions and special rules.--For purposes
of this paragraph--
``(i) Commitment to lease treated as
lease.--A commitment to enter into a lease
shall be treated as a lease, and the parties to
such commitment shall be treated as lessor and
lessee, respectively.
``(ii) Related persons.--A lease between
related persons shall not be considered a
lease. For purposes of the preceding sentence,
the term `related persons' means--
``(I) members of an affiliated
group (as defined in section 1504), and
``(II) persons having a
relationship described in subsection
(b) of section 267; except that, for
purposes of this subclause, the phrase
`80 percent or more' shall be
substituted for the phrase `more than
50 percent' each place it appears in
such subsection.
``(D) Improvements made by lessor.--In the case of
an improvement made by the person who was the lessor of
such improvement when such improvement was placed in
service, such improvement shall be qualified leasehold
improvement property (if at all) only so long as such
improvement is held by such person.
``(E) Exception for changes in form of business.--
Property shall not cease to be qualified leasehold
improvement property by reason of--
``(i) death,
``(ii) a transaction to which section
381(a) applies,
``(iii) a mere change in the form of
conducting the trade or business so long as the
property is retained in such trade or business
as qualified leasehold improvement property and
the taxpayer retains a substantial interest in
such trade or business,
``(iv) the acquisition of such property in
an exchange described in section 1031 (as in
effect before its repeal by the Tax Reform Act
of 2014), 1033, or 1038 to the extent that the
basis of such property includes an amount
representing the adjusted basis of other
property owned by the taxpayer or a related
person, or
``(v) the acquisition of such property by
the taxpayer in a transaction described in
section 332, 351, 361, 721, or 731 (or the
acquisition of such property by the taxpayer
from the transferee or acquiring corporation in
a transaction described in such section), to
the extent that the basis of the property in
the hands of the taxpayer is determined by
reference to its basis in the hands of the
transferor or distributor.
``(4) Qualified restaurant property.--For purposes of this
subsection, the term `qualified restaurant property' means any
section 1250 property which is--
``(A) a building, or
``(B) an improvement to a building,
if more than 50 percent of the building's square footage is
devoted to preparation of, and seating for on-premises
consumption of, prepared meals.
``(5) Qualified retail improvement property.--
``(A) In general.--The term `qualified retail
improvement property' means any improvement to an
interior portion of a building which is nonresidential
real property if--
``(i) such portion is open to the general
public and is used in the retail trade or
business of selling tangible personal property
to the general public, and
``(ii) such improvement is placed in
service more than 3 years after the date the
building was first placed in service.
``(B) Improvements made by owner.--In the case of
an improvement made by the owner of such improvement,
such improvement shall be qualified retail improvement
property (if at all) only so long as such improvement
is held by such owner. Rules similar to the rules under
paragraph (3)(E) shall apply for purposes of the
preceding sentence.
``(C) 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,
``(iii) any structural component
benefitting a common area, or
``(iv) the internal structural framework of
the building.''.
(E) Section 280F(b) is amended--
(i) by striking paragraph (1) and by
redesignating paragraphs (2) and (3) as
paragraphs (1) and (2), respectively, and
(ii) by striking ``, and the depreciation
deduction'' and all that follows through
``alternative depreciation system)'' in
paragraph (1) (as redesignated by clause (i)).
(F) Section 280F(d)(4)(A)(iv) is amended by
striking ``section 168(i)(2)(B)'' and inserting
``section 168(e)(6)(B)''.
(G) Section 312(k)(3) is amended by striking
``Exception for tangible property'' and all that
follows through ``For purposes of computing the
earnings and profits'' and inserting ``Exception for
certain tangible property.--For purposes of computing
the earnings and profits''.
(H) Section 460(c) is amended by striking paragraph
(6).
(I) Section 460(d)(2) is amended by striking
``section 168(h)(2)(D)'' and inserting ``section
168(g)(2)(D)''.
(J) Section 460(e)(6) is amended by striking
``section 168(e)(2)(A)(ii)'' each place it appears and
inserting ``section 168(e)(2)(B)''.
(K)(i) Subparagraphs (A) and (C) of section
470(c)(2) are each amended by striking ``section
168(h)'' and inserting ``section 168(g).''
(ii) Section 470(c)(2)(B) is amended by striking
``section 168(h)(6)'' and inserting ``section
168(g)(6)''.
(L) Section 512(b)(17)(B)(ii)(I) is amended by
striking ``section 168(h)(4)(B)'' and inserting
``section 168(g)(4)(B)''.
(M) Section 514(c)(9)(B)(vi)(II) is amended by
striking ``section 168(h)(6)'' and inserting ``section
168(g)(6)''.
(N) Section 527(i)(3)(D) is amended by striking
``section 168(h)(4)'' and inserting ``section
168(g)(4)''.
(O) The second sentence of section 860E(e)(5) is
amended by striking ``section 168(h)(2)(D)'' and
inserting ``section 168(g)(2)(D)''.
(P) Section 1245(a) is amended--
(i) in paragraph (3)(D), by striking
``section 168(i)(13)'' and inserting
``paragraph (4)'', and
(ii) by adding at the end the following new
paragraph:
``(4) Single purpose agricultural or horticultural
structure.--For purposes of this subsection--
``(A) In general.--The term `single purpose
agricultural or horticultural structure' means--
``(i) a single purpose livestock structure,
and
``(ii) a single purpose horticultural
structure.
``(B) Definitions.--For purposes of this
paragraph--
``(i) Single purpose livestock structure.--
The term `single purpose livestock structure'
means any enclosure or structure specifically
designed, constructed, and used--
``(I) for housing, raising, and
feeding a particular type of livestock
and their produce, and
``(II) for housing the equipment
(including any replacements) necessary
for the housing, raising, and feeding
referred to in subclause (I).
``(ii) Single purpose horticultural
structure.--The term `single purpose
horticultural structure' means--
``(I) a greenhouse specifically
designed, constructed, and used for the
commercial production of plants, and
``(II) a structure specifically
designed, constructed, and used for the
commercial production of mushrooms.
``(iii) Structures which include work
space.--An enclosure or structure which
provides work space shall be treated as a
single purpose agricultural or horticultural
structure only if such work space is solely
for--
``(I) the stocking, caring for, or
collecting of livestock or plants (as
the case may be) or their produce,
``(II) the maintenance of the
enclosure or structure, and
``(III) the maintenance or
replacement of the equipment or stock
enclosed or housed therein.
``(iv) Livestock.--The term ``livestock''
includes poultry.''.
(Q) Section 1245(a)(3)(F) is amended to read as
follows:
``(F) any clearing and grading land improvements or
tunnel bore (within the meaning of section
168(c)(2)(P)).''.
(R) Section 6050V(d)(3) is amended by striking
``section 168(h)(2)(A)(iv)'' and inserting ``section
168(g)(2)(A)(iv)''.
(S) Section 6211(b)(4)(A) is amended by striking
``168(k)(4),''.
(T) The second sentence of section 7701(e)(4)(A) is
amended by striking ``section 168(h)'' and inserting
``section 168(g)''.
(U) Section 7871(f)(3) is amended--
(i) by striking ``(as defined in section
168(j)(6))'' in subparagraph (B)(ii), and
(ii) by adding at the end the following new
subparagraph:
``(D) Indian reservation.--For purposes of this
paragraph, the term `Indian reservation' means a
reservation, as defined in--
``(i) section 3(d) of the Indian Financing
Act of 1974 (25 U.S.C. 1452(d)), or
``(ii) section 4(10) of the Indian Child
Welfare Act of 1978 (25 U.S.C. 1903(10)).
For purposes of the preceding sentence, such section
3(d) shall be applied by treating the term `former
Indian reservations in Oklahoma' as including only
lands which are within the jurisdictional area of an
Oklahoma Indian tribe (as determined by the Secretary
of the Interior) and are recognized by such Secretary
as eligible for trust land status under 25 CFR Part 151
(as in effect on August 5, 1997).''.
(g) 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.
(h) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2016.
SEC. 3105. REPEAL OF AMORTIZATION OF POLLUTION CONTROL FACILITIES.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 169 (and by striking the item relating to such section
in the table of sections for such part).
(b) Conforming Amendments.--
(1) Section 642(f) is amended by striking ``the deductions
for amortization provided by sections 169 and 197'' and
inserting ``the deduction for amortization provided by section
197''.
(2) Section 1250(b)(3) is amended by inserting ``(as in
effect before its repeal by the Tax Reform Act of 2014)'' after
``169''.
(c) Effective Date.--The amendments made by this section shall
apply to facilities placed in service after December 31, 2014.
SEC. 3106. NET OPERATING LOSS DEDUCTION.
(a) Limitation on Net Operating Losses of Corporations.--
(1) In general.--Section 172(a) is amended to read as
follows:
``(a) Deduction Allowed.--
``(1) In general.--There shall be allowed as a deduction
for the taxable year an amount equal to the aggregate of--
``(A) the net operating loss carryovers to such
year, plus
``(B) the net operating loss carrybacks to such
year.
``(2) Limitation in case of corporations.--In the case of a
corporation--
``(A) the deduction allowed under paragraph (1) for
the taxable year shall not exceed 90 percent of the
taxable income for such year computed without regard to
the deduction allowable under this section, and
``(B) appropriate adjustments in the application of
subsection (b)(2) shall be made to take into account
the limitation of subparagraph (A).
``(3) Net operating loss deduction defined.--For purposes
of this subtitle, the term `net operating loss deduction' means
the deduction allowed by this subsection.''.
(2) Coordination with limitation on deduction for
charitable contributions.--
(A) In general.--Section 170(b)(2)(C) is amended by
redesignating clauses (iv) and (v) as clauses (v) and
(vi), respectively, and by inserting after clause (iii)
the following new clause:
``(iv) the limitation imposed under section
172(a)(2)(A),''.
(B) Life insurance companies.--Section 805(b)(2)(A)
is amended by redesignating clauses (ii) through (v) as
clauses (iii) through (vi), respectively, and by
inserting after clause (i) the following new clause:
``(ii) the limitation imposed under section
172(a)(2)(A),''.
(b) Repeal of Special Carryback Provisions.--
(1) In general.--Section 172(b)(1) is amended by striking
subparagraphs (C), (D), (E), (G), (H), (I), and (J) and by
redesignating subparagraph (F) as subparagraph (C).
(2) Conforming amendments.--
(A) Section 172(b)(1)(C), as redesignated by
paragraph (1), is amended--
(i) in clause (ii), by striking the last
sentence, and
(ii) in clause (iv), by striking ``in a
manner similar to the manner in which a
specified liability loss is treated'' and
inserting ``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''.
(B) Section 172 is amended by striking subsections
(f), (g), (h), (i), and (j) and by redesignating
subsection (k) as subsection (f).
(c) Effective Dates.--
(1) Limitation on nols of corporations.--The amendments
made by subsection (a) shall apply to--
(A) taxable years beginning after December 31,
2014, and
(B) to carrybacks of losses arising in taxable
years beginning after December 31, 2014, to taxable
years beginning on or before such date.
(2) Repeal of special carrybacks.--
(A) In general.--Except as otherwise provided in
this paragraph, the amendments made by subsection (b)
shall apply to losses arising in taxable years
beginning after December 31, 2014.
(B) Expired provisions.--So much of the amendments
made by subsection (b) as relate to striking
subparagraphs (D), (H), (I), and (J) of section
172(b)(1) of the Internal Revenue Code of 1986 shall
take effect on the date of the enactment of this Act.
SEC. 3107. CIRCULATION EXPENDITURES.
(a) In General.--Section 173 is amended to read as follows:
``SEC. 173. CIRCULATION EXPENDITURES.
``(a) In General.--In the case of a taxpayer's specified
circulation expenditures--
``(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 36-month period beginning
with the midpoint of the month in which such
expenditures are paid or incurred.
``(b) Specified Circulation Expenditures.--For purposes of this
section, the term `specified circulation expenditures' means all
expenditures (other than expenditures for the purchase of land or
depreciable property or for the acquisition of circulation through the
purchase of any part of the business of another publisher of a
newspaper, magazine, or other periodical) to establish, maintain, or
increase the circulation of a newspaper, magazine, or other periodical.
``(c) Treatment Upon Abandonment.--If any property with respect to
which specified circulation 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.
``(d) Phase-In for Taxable Years Beginning Before 2019.--
``(1) In general.--In the case of specified circulation
expenditures paid or incurred in taxable years beginning before
2019--
``(A) notwithstanding subsection (a), the
applicable percentage of such expenditures shall be
allowed as a deduction for the taxable year in which
paid or incurred, and
``(B) subsection (a) shall apply to the remainder
of such expenditures.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage shall be determined in
accordance with the following table:
``In the case of taxable years The applicable percentage is:
beginning in:
2016............................................... 75%
2017............................................... 50%
2018............................................... 25%
``(3) Election out of phase-in.--The taxpayer may elect, at
such time and in such form and manner as the Secretary shall
prescribe, for paragraph (1) not to apply for all taxable years
beginning before 2019. Such election, once made, shall be
irrevocable.''.
(b) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years beginning after
December 31, 2015.
SEC. 3108. AMORTIZATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.
(a) In General.--Section 174 is amended to read as follows:
``SEC. 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.
``(e) Special Rules for Expenditures for Domestic Research During
Taxable Years Beginning Before 2021.--
``(1) In general.--In the case of domestic research or
experimental expenditures paid or incurred during any taxable
year beginning before 2021--
``(A) notwithstanding subsection (a), the
applicable percentage of such expenditures shall be
allowed as a deduction in the taxable year in which
paid or incurred, and
``(B) subsection (a) shall apply to the remainder
of such expenditures by substituting the applicable
period for `the 5-year period'.
``(2) Domestic research or experimental expenditures.--For
purposes of this subsection, the term `domestic research or
experimental expenditures' means any expenditures--
``(A) to which subsection (a) applies (determined
without regard to this subsection), and
``(B) which are not attributable to foreign
research (within the meaning of section 41(d)(4)(F)).
``(3) Applicable percentage.--For purposes of this
subsection, the applicable percentage shall be determined in
accordance with the following table:
``In the case of taxable years The applicable percentage is:
beginning in:
2015............................................... 60%
2016 or 2017....................................... 40%
2018, 2019, or 2020................................ 20%
``(4) Applicable period.--For purposes of this subsection,
the applicable period shall be determined in accordance with
the following table:
``In the case of taxable years The applicable period is the:
beginning in:
2015..............................................2-year period
2016 or 2017......................................3-year period
2018, 2019, or 2020...............................4-year period
``(5) Election out of phase-in.--The taxpayer may elect, at
such time and in such form and manner as the Secretary shall
prescribe, for paragraph (1) not to apply to all domestic
research or experimental expenditures of the taxpayer for any
taxable years beginning before 2021. Such election, once made,
shall be irrevocable.''.
(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, 2014.
SEC. 3109. REPEAL OF DEDUCTIONS FOR SOIL AND WATER CONSERVATION
EXPENDITURES AND ENDANGERED SPECIES RECOVERY
EXPENDITURES.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 175 (and by striking the item relating to such section
in the table of sections for such part).
(b) Conforming Amendments.--Paragraphs (1)(A) and (2) of section
1252(a) are each amended by striking ``relating to soil and water
conservation expenditures'' and inserting ``as in effect before its
repeal by the Tax Reform Act of 2014''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2014.
(2) Assessments treated as paid or incurred.--In the case
of any amount paid or incurred before December 31, 2014, and
treated as paid or incurred in any succeeding taxable year by
reason of section 175(f) of the Internal Revenue Code of 1986
(as in effect on the day before the date of the enactment of
this Act), paragraph (1) shall not apply.
SEC. 3110. AMORTIZATION OF CERTAIN ADVERTISING EXPENSES.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
inserting after section 176 the following new section:
``SEC. 177. AMORTIZATION OF CERTAIN ADVERTISING EXPENSES.
``(a) In General.--In the case of a taxpayer's amortizable
advertising expenses for any taxable year--
``(1) except as provided in paragraph (2), no deduction
shall be allowed for such expenses, and
``(2) the taxpayer shall--
``(A) charge such expenses to capital account, and
``(B) be allowed an amortization deduction of such
expenses ratably over the 10-year period beginning with
the midpoint of the taxable year in which such expenses
are paid or incurred.
``(b) Exemption.--
``(1) In general.--So much of the taxpayer's otherwise
deductible advertising expenses for any taxable year as do not
exceed $1,000,000 shall not be taken into account in
determining such taxpayer's amortizable advertising expenses
for such taxable year.
``(2) Phaseout of exemption.--In the case of a taxpayer
whose otherwise deductible advertising expenses for any taxable
year exceed $1,500,000, the dollar amount in effect under
paragraph (1) with respect to such taxpayer for such taxable
year shall be reduced (but not below zero) by twice such
excess.
``(3) Aggregation; short taxable years.--For purposes of
this subsection, rules similar to the rules of paragraphs (2)
and (3)(B) of section 448(b) shall apply.
``(c) Amortizable Advertising Expenses.--
``(1) In general.--For purposes of this section, the term
`amortizable advertising expenses' means, with respect to any
taxpayer for any taxable year, the applicable percentage of the
taxpayer's otherwise deductible advertising expenses for such
taxable year.
``(2) Applicable percentage.--For purposes of this
subsection, the term `applicable percentage' means (with
respect to the taxpayer's otherwise deductible advertising
expenses for any taxable year) the percentage determined in
accordance with the following table:
----------------------------------------------------------------------------------------------------------------
``For taxable years beginning in: The applicable percentage is:
----------------------------------------------------------------------------------------------------------------
2015......................................... 20 percent
2016......................................... 30 percent
2017......................................... 40 percent
2018 or thereafter........................... 50 percent.
----------------------------------------------------------------------------------------------------------------
``(3) Election out of phase-in.--The taxpayer may elect, at
such time and in such form and manner as the Secretary shall
prescribe, to treat the applicable percentage as being equal to
50 percent for all taxable years beginning before 2018. Such
election, once made, shall be irrevocable.
``(d) Otherwise Deductible Advertising Expenses.--For purposes of
this section--
``(1) In general.--The term `otherwise deductible
advertising expenses' means, with respect to any taxpayer for
any taxable year, the deductions which would (but for this
section) be allowable to the taxpayer for such taxable year
with respect to specified advertising expenses.
``(2) Specified advertising expenses.--The term `specified
advertising expenses' means any amount paid or incurred for the
development, production, or placement (including any form of
transmission, broadcast, publication, display, or distribution)
of any communication to the general public (or portions
thereof) which is intended to promote the taxpayer or a trade
or business of the taxpayer (or any service, facility, or
product provided pursuant to such trade or business).
``(3) Exceptions.--The term `specified advertising
expenses' shall not include--
``(A) Certain wages.--Wages paid or incurred to any
employee unless the services rendered by such employee
are primarily related to--
``(i) an activity described in paragraph
(2) (other than the direct sale of goods or
services to customers of the taxpayer), or
``(ii) the direct supervision of employees
rendering services primarily related to such an
activity.
``(B) Depreciation of tangible property.--In the
case of any tangible property, any amount for which a
deduction is allowed for depreciation under section
167.
``(C) Amortizable section 197 intangibles.--Any
amount for which a deduction is allowed for
amortization under section 197.
``(D) Discounts, etc.--Any discount, coupon,
rebate, slotting allowance, sample, prize, loyalty
reward point, or any item determined by the Secretary
to be similar to any of the foregoing (other than any
amount paid or incurred to promote any of the
foregoing).
``(E) Certain communications on taxpayer's
property.--Any amount paid or incurred with respect to
any communication appearing on tangible property of the
taxpayer which--
``(i) is of a character subject to the
allowance for depreciation, or
``(ii) is properly treated as inventory for
purposes of section 471.
``(F) Creation of logos, trade names, etc.--Any
amount paid or incurred for the creation of any logo,
trademark, or trade name.
``(G) Package design.--Any amount to which section
263A(i) applies.
``(H) Marketing research.--Any amount paid or
incurred for marketing research.
``(I) Business meals.--Any amount paid or incurred
for meals.
``(J) Qualified sponsorship payments.--Any amount
paid or incurred as a qualified sponsorship payment (as
defined in section 513(i)(2)) with respect to an
organization subject to the tax imposed by section 511.
``(e) Treatment Upon Abandonment.--If any property with respect to
which specified advertising expenses are paid or incurred is disposed,
retired, or abandoned during the period during which such expenses are
allowed as an amortization deduction under this section, no deduction
shall be allowed with respect such expenses on account of such
disposition, retirement, or abandonment and such amortization deduction
shall continue with respect to such expenses.
``(f) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year
beginning after 2015, each of the dollar amounts in subsection
(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 2014' for
`calendar year 2012' in clause (ii) thereof.
``(2) Rounding.--The amount of any increase under paragraph
(1) shall be rounded to the nearest multiple of $10,000.''.
(b) Capitalization of Package Design Expenses.--Section 263A is
amended by redesignating subsection (i) as subsection (j) and by
inserting after subsection (h) the following new subsection:
``(i) Capitalization of Package Design Expenses.--For purposes of
this section, in the case of any amount paid or incurred for package
design, such amounts shall be treated as an indirect cost described in
subsection (a)(2)(B) with respect to packages which utilize such
design.''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after the item
relating to section 176 the following new item:
``Sec. 177. Amortization of certain advertising expenses.''.
(d) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years beginning after
December 31, 2014.
SEC. 3111. EXPENSING CERTAIN DEPRECIABLE BUSINESS ASSETS FOR SMALL
BUSINESS.
(a) In General.--
(1) Dollar limitation.--Paragraph (1) of section 179(b) is
amended by striking ``shall not exceed--'' and all that follows
and inserting ``shall not exceed $250,000.''.
(2) Reduction in limitation.--Paragraph (2) of section
179(b) is amended by striking ``exceeds--'' and all that
follows and inserting ``exceeds $800,000.''.
(b) Computer Software.--Clause (ii) of section 179(d)(1)(A) is
amended by striking ``to which section 167 applies, and which is placed
in service in a taxable year beginning after 2002 and before 2014'' and
inserting ``and to which section 167 applies''.
(c) Election.--Paragraph (2) of section 179(c) is amended--
(1) by striking ``may not be revoked'' and all that follows
through ``and before 2014'', and
(2) by striking ``irrevocable'' in the heading thereof.
(d) Air Conditioning and Heating Units.--Paragraph (1) of section
179(d) is amended by striking ``and shall not include air conditioning
or heating units''.
(e) Qualified Real Property.--Section 179(f) is amended--
(1) by striking ``beginning in 2010, 2011, 2012, or 2013''
in paragraph (1), and
(2) by striking paragraphs (3) and (4).
(f) Inflation Adjustment.--Subsection (b) of section 179 is amended
by adding at the end the following new paragraph:
``(6) Inflation adjustment.--
``(A) In general.--In the case of any taxable year
beginning after 2014, the dollar amounts in paragraphs
(1) and (2) shall each be increased by an amount equal
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(c)(2)(A) for such
calendar year, determined by substituting
`calendar year 2013' for `calendar year 2012'
in clause (ii) thereof.
``(B) Rounding.--The amount of any increase under
subparagraph (A) shall be rounded to the nearest
multiple of $10,000.''.
(g) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2013.
SEC. 3112. REPEAL OF ELECTION TO EXPENSE CERTAIN REFINERIES.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 179C (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendment.--Section 312(k)(3), as amended by the
preceding provisions of this Act, is amended by striking ``, 179C''
each place it appears.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2013.
SEC. 3113. REPEAL OF DEDUCTION FOR ENERGY EFFICIENT COMMERCIAL
BUILDINGS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 179D (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendment.--
(1) Section 1016(a) is amended by striking paragraph (31).
(2) Section 312(k)(3), as amended by the preceding
provisions of this Act, is amended by striking ``, 179D'' each
place it appears.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2013.
SEC. 3114. REPEAL OF ELECTION TO EXPENSE ADVANCED MINE SAFETY
EQUIPMENT.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 179E (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendment.--Section 312(k)(3), as amended by the
preceding provisions of this Act, is amended--
(1) by striking ``, or 179E, as the case may be'', and
(2) by striking ``, or 179E'' each place it appears.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2013.
SEC. 3115. REPEAL OF DEDUCTION FOR EXPENDITURES BY FARMERS FOR
FERTILIZER, ETC.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 180 (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 expenses paid or incurred in taxable years beginning after
December 31, 2014.
SEC. 3116. REPEAL OF SPECIAL TREATMENT OF CERTAIN QUALIFIED FILM AND
TELEVISION PRODUCTIONS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 181 (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 productions commencing after December 31, 2013.
SEC. 3117. REPEAL OF SPECIAL RULES FOR RECOVERIES OF DAMAGES OF
ANTITRUST VIOLATIONS, ETC.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 186 (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, 2014.
SEC. 3118. TREATMENT OF REFORESTATION EXPENDITURES.
(a) Elimination of Expensing Election.--Section 194 is amended by
striking subsections (a) and (b), by redesignating subsection (c) and
(d) as subsections (b) and (c), respectively, and by inserting before
subsection (b) (as so redesignated) the following new subsection:
``(a) In General.--In the case of a taxpayer's qualified
reforestation 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 7-year period beginning
with the midpoint of the taxable year in which such
expenditures are paid or incurred.''.
(b) Qualified Reforestation Expenditures.--Section 194(b), as
redesignated by subsection (a), is amended by striking paragraph (2),
by redesignating paragraph (1) as paragraph (2), and by inserting
before paragraph (2) (as so redesignated the following new paragraph:
``(1) Qualified reforestation expenditures.--The term
`qualified reforestation expenditures' means, with respect to
any taxable year, the reforestation expenditures paid or
incurred by the taxpayer during such taxable year with respect
to qualified timber property.''.
(c) Qualified Timber Property Limited to Ornamental Trees.--Section
194(b)(2), as redesignated by subsections (a) and (b), is amended to
read as follows:
``(2) Qualified timber property.--The term `qualified
timber property' means a woodlot or other site located in the
United States which--
``(A) will contain evergreen trees in significant
commercial quantities which are reasonably expected to
be more than 6 years old at the time severed from the
roots, and
``(B) is held by the taxpayer for the planting,
cultivating, caring for, and cutting of such trees for
sale for ornamental purposes.''.
(d) Determination of Recomputed Basis.--Section 1245(b) is amended
by striking paragraph (7).
(e) Effective Date.--The amendments made by this section shall
apply to expenditures paid or incurred in taxable years beginning after
December 31, 2014.
SEC. 3119. 20-YEAR AMORTIZATION OF GOODWILL AND CERTAIN OTHER
INTANGIBLES.
(a) In General.--Subsection (a) of section 197 is amended by
striking ``15-year period'' and inserting ``20-year period''.
(b) Mortgage Servicing Rights.--Subsection (e) of section 197 is
amended by striking paragraph (6) and by redesignating paragraph (7) as
paragraph (6).
(c) Conforming Amendments.--
(1) Clause (i) of section 197(e)(4)(D) is amended by
striking ``15 years'' and inserting ``20 years''.
(2) Section 167(f) is amended by striking paragraph (3).
(d) Effective Date.--The amendments made by this section shall
apply to property acquired after December 31, 2014.
SEC. 3120. TREATMENT OF ENVIRONMENTAL REMEDIATION COSTS.
(a) In General.--Subsection (a) of section 198 is amended to read
as follows:
``(a) In General.--In the case of a taxpayer's qualified
environmental remediation 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 40-year period beginning
with the midpoint of the taxable year in which such
expenditures are paid or incurred.''.
(b) Made Permanent.--Section 198 is amended by striking subsection
(h).
(c) Conforming Amendments.--
(1) Section 198, as amended by subsection (b), is amended
by striking subsection (f) and by redesignating subsection (g)
as subsection (f).
(2) Section 198 (and the item relating to such section in
the table of sections for part VI of subchapter B of chapter 1)
is amended by striking ``expensing'' in the heading thereof and
inserting ``amortization''.
(d) Effective Date.--The amendments made by this section shall
apply to expenditures paid or incurred after December 31, 2014.
SEC. 3121. REPEAL OF EXPENSING OF QUALIFIED DISASTER EXPENSES.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 198A (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 amounts paid or incurred after December 31, 2014.
SEC. 3122. PHASEOUT AND REPEAL OF DEDUCTION FOR INCOME ATTRIBUTABLE TO
DOMESTIC PRODUCTION ACTIVITIES.
(a) Phaseout.--
(1) In general.--Subsection (a) of section 199 is amended
by adding at the end the following new paragraph:
``(3) Phaseout.--In the case of any taxable year beginning
after 2014, paragraph (1) shall be applied by substituting for
the percentage contained therein the phaseout percentage
determined under the following table:
``For taxable years beginning in: The phaseout percentage is:
2015............................................... 6%
2016............................................... 3%''.
(2) Coordination with oil related qualified production
activities income.--Section 199(d) is amended by striking
paragraph (9).
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2014.
(b) Repeal.--
(1) 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).
(2) Conforming amendments.--
(A) Sections 86(b)(2)(A), 137(b)(3)(A), 246(b)(1),
and 469(i)(3)(F)(iii) are each amended by striking
``199,''.
(B) Section 163(j)(6)(A)(i), as amended by the
preceding provisions of this Act, is amended by
striking subclause (III) and by redesignating
subclauses (IV) and (V) as subclauses (III) and (IV),
respectively.
(C) Section 170(b)(2)(C), as amended by the
preceding provisions of this Act, is amended by
striking clause (v), by redesignating clause (vi) as
clause (v), and by inserting ``and'' at the end of
clause (iv).
(D) Section 172(d) is amended by striking paragraph
(7).
(E) Section 1402(a) is amended by adding ``and'' at
the end of paragraph (15) and by striking paragraph
(16).
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2016.
SEC. 3123. UNIFICATION OF DEDUCTION FOR ORGANIZATIONAL EXPENDITURES.
(a) In General.--Subsections (a) and (b) of section 195 is amended
by inserting ``and organizational'' after ``start-up'' each place it
appears.
(b) Organizational Expenditures.--Subsection (c) of section 195 is
amended by adding at the end the following new paragraph:
``(3) Organizational expenditures.--The term
`organizational expenditures' means any expenditure which--
``(A) is incident to the creation of a corporation
or a partnership,
``(B) is chargeable to capital account, and
``(C) is of a character which, if expended incident
to the creation of a corporation or a partnership
having a limited life, would be amortizable over such
life.''.
(c) Dollar Amounts.--Clause (ii) of section 195(b)(1)(A) is
amended--
(1) by striking ``$5,000'' and inserting ``$10,000'', and
(2) by striking ``$50,000'' and inserting ``$60,000''.
(d) Mid-Year Convention.--Subparagraph (B) of section 195(b)(1), as
amended by subsection (a), is amended to read as follows:
``(B) the remainder of such start-up and
organizational expenditures shall be charged to capital
account and allowed as an amortization deduction
determined by amortizing such expenditures ratably over
the 15-year period beginning with the midpoint of the
taxable year in which the active trade or business
begins.''.
(e) Conforming Amendments.--
(1) Section 195(b)(1) is amended--
(A) by inserting ``(or, in the case of a
partnership, the partnership elects)'' after ``If a
taxpayer elects'', and
(B) by inserting ``(or the partnership, as the case
may be)'' after ``the taxpayer'' in subparagraph (A).
(2) Section 195(b)(2) is amended--
(A) by striking ``amortization period.--In any
case'' and inserting the following: ``amortization
period.--
``(A) In general.--In any case'', and
(B) by adding at the end the following new
subparagraph:
``(B) Special partnership rule.--In the case of a
partnership, subparagraph (A) shall be applied at the
partnership level.''.
(3) Section 195(b) is amended by striking paragraph (3).
(4)(A) Part VIII of subchapter B of chapter 1 is amended by
striking section 248 (and by striking the item relating to such
section in the table of sections for such part).
(B) Section 170(b)(2)(C)(ii) is amended by striking
``(except section 248)''.
(C) Section 312(n)(3) is amended by striking ``Sections 173
and 248'' and inserting ``Section 173''.
(D) Section 535(b)(3) is amended by striking ``(except
section 248)''.
(E) Section 545(b)(3) is amended by striking ``(except
section 248)''.
(F) Section 834(c)(7) is amended by striking ``(except
section 248)''.
(G) Section 852(b)(2)(C) is amended by striking ``(except
section 248)''.
(H) Section 857(b)(2)(A) is amended by striking ``(except
section 248)''.
(I) Section 1363(b) is amended by inserting ``and'' at the
end of paragraph (2), by striking paragraph (3), and by
redesignating paragraph (4) as paragraph (3).
(J) Section 1375(b)(1)(B)(i) is amended by striking
``(other than the deduction allowed by section 248, relating to
organization expenditures)''.
(5) Part I of subchapter K of chapter 1 is amended by
striking section 709 (and by striking the item relating to such
section in the table of sections for such part).
(6) The heading of section 195 (and the item relating to
such section in the table of sections for part VI of subchapter
B of chapter 1) are each amended by inserting ``and
organizational'' after ``Start-up''.
(f) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred in taxable years beginning after
December 31, 2014.
SEC. 3124. PREVENTION OF ARBITRAGE OF DEDUCTIBLE INTEREST EXPENSE AND
TAX-EXEMPT INTEREST INCOME.
(a) Pro Rata Allocation Rules Applicable to Financial Institutions
Modified and Made Applicable to All C Corporations.--
(1) Application to corporations.--So much of section 265(b)
as precedes paragraph (3) is amended to read as follows:
``(b) Pro Rata Allocation of Interest Expense of Corporations and
Financial Institutions to Tax-Exempt Interest.--
``(1) In general.--In the case of a C corporation or a
financial institution, no deduction shall be allowed for that
portion of the taxpayer's interest expense which is allocable
to tax-exempt interest.
``(2) Allocation.--For purposes of paragraph (1), the
portion of the taxpayer's interest expense which is allocable
to tax-exempt interest is an amount which bears the same ratio
to such interest expense as--
``(A) the taxpayer's average adjusted bases (within
the meaning of section 1016) of tax-exempt obligations
acquired on or after February 26, 2014 (August 7, 1986,
in the case of a financial institution), bears to
``(B) such average adjusted bases for all assets of
the taxpayer.''.
(2) Repeal of exceptions.--Section 265(b) is amended by
striking paragraphs (3) and (7).
(b) Limitation on Investment Interest.--
(1) In general.--Section 163(d)(1) is amended to read as
follows:
``(1) In general.--In the case of a taxpayer other than a
corporation, the amount allowed as a deduction under this
chapter for investment interest for any taxable year--
``(A) shall be reduced by the amount of tax-exempt
interest received by the taxpayer during such taxable
year, and
``(B) shall not (after any reduction under
subparagraph (A)) exceed the net investment income of
the taxpayer for such taxable year.''.
(2) Reductions for tax-exempt interest not carried
forward.--Section 163(d)(2) is amended by striking ``paragraph
(1)'' and inserting ``paragraph (1)(B)''.
(3) Clarification that property held for investment
includes property producing tax-exempt interest.--Section
163(d)(5)(A) is amended by striking ``and'' at the end of
clause (i), by striking the period at the end of clause
(ii)(II) and inserting ``, and'', and by adding at the end the
following new clause:
``(iii) any property held for the
production of tax-exempt interest (including
any shares of stock of a regulated investment
company which during the taxable year of the
holder thereof distributes exempt-interest
dividends).''.
(4) Coordination with section 265.--
(A) In general.--Section 265(a) is amended by--
(i) striking paragraph (2) and inserting
the following new paragraph:
``(2) Interest.--
``(A) Corporations and financial institutions.--For
pro rata allocation rules in the case of corporations
and financial institutions, see subsection (b).
``(B) Other taxpayers.--For limitation on
investment interest in the case of other taxpayers, see
section 163(d).'', and
(ii) by striking paragraphs (4) and (5) and
by redesignating paragraph (6) as paragraph
(4).
(B) Conforming amendments.--
(i) Section 265(b), as amended by
subsection (a), is amended by inserting after
paragraph (2) the following new paragraph:
``(3) Special rules for short sales.--
``(A) In general.--For purposes of this subsection,
interest includes any amount paid or incurred--
``(i) by any person making a short sale in
connection with personal property used in such
short sale, or
``(ii) by any other person for the use of
any collateral with respect to such short sale.
``(B) Exception where no return on cash collateral
.--If--
``(i) the taxpayer provides cash as
collateral for any short sale, and
``(ii) the taxpayer receives no material
earnings on such cash during the period of the
sale,
subparagraph (A)(i) shall not apply to such short
sale.''.
(ii) Section 265(b)(6) is amended to read
as follows:
``(6) Coordination with section 263a.--This section shall
be applied before the application of section 263A (relating to
capitalization of certain expenses where taxpayer produces
property).''.
(iii) Section 163(n)(2) is amended to read
as follows:
``(2) For disallowance of deduction for interest relating
to tax-exempt income, see sections 163(d) and 265(b)''.
(c) Effective Dates.--
(1) Application of pro rata allocation rules.--
(A) Application to c corporations.--The amendments
made by subsection (a)(1) shall apply to taxable years
ending on or after February 26, 2014.
(B) Repeal of exceptions.--The amendments made by
subsection (a)(2) shall apply to obligations issued on
or after February 26, 2014.
(2) Limitation on investment interest.--The amendments made
by subsection (b) shall apply to taxable years beginning after
December 31, 2014.
SEC. 3125. PREVENTION OF TRANSFER OF CERTAIN LOSSES FROM TAX
INDIFFERENT PARTIES.
(a) In General.--Section 267(d) is amended to read as follows:
``(d) Amount of Gain Where Loss Previously Disallowed.--
``(1) In general.--If--
``(A) in the case of a sale or exchange of property
to the taxpayer a loss sustained by the transferor is
not allowable to the transferor as a deduction by
reason of subsection (a)(1), and
``(B) the taxpayer sells or otherwise disposes of
such property (or of other property the basis of which
in the taxpayer's hands is determined directly or
indirectly by reference to such property) at a gain,
then such gain shall be recognized only to the extent that it
exceeds so much of such loss as is properly allocable to the
property sold or otherwise disposed of by the taxpayer.
``(2) Exception for wash sales.--Paragraph (1) shall not
apply if the loss sustained by the transferor is not allowable
to the transferor as a deduction by reason of section 1091
(relating to wash sales).
``(3) Exception for transfers from tax indifferent
parties.--Paragraph (1) shall not apply to the extent any loss
sustained by the transferor (if allowed) would not be taken
into account in determining a tax imposed under section 1 or 11
or a tax computed as provided by either of such sections.''.
(b) Effective Date.--The amendment made by this section shall apply
to sales and exchanges after December 31, 2014.
SEC. 3126. ENTERTAINMENT, ETC. EXPENSES.
(a) Denial of Deduction.--Subsection (a) of section 274 is amended
to read as follows:
``(a) Entertainment, Amusement, or Recreation.--
``(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)).
``(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, 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(g)(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, 2014.
SEC. 3127. REPEAL OF LIMITATION ON CORPORATE ACQUISITION INDEBTEDNESS.
(a) In General.--Part IX of subchapter B of chapter 1 is amended by
striking section 279 (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 interest paid or incurred with respect to indebtedness
incurred after December 31, 2014.
SEC. 3128. DENIAL OF DEDUCTIONS AND CREDITS FOR EXPENDITURES IN ILLEGAL
BUSINESSES.
(a) In General.--Section 280E is amended to read as follows:
``SEC. 280E. EXPENDITURES IN CONNECTION WITH ILLEGAL BUSINESSES.
``No deduction or credit shall be allowed for any amount paid or
incurred during the taxable year in carrying on any trade or business
if--
``(1) such trade or business (or the activities which
comprise such trade or business) consists of trafficking in
controlled substances (within the meaning of schedule I and II
of the Controlled Substances Act) which is prohibited by
Federal law or the law of any State in which such trade or
business is conducted, or
``(2) the carrying out of such trade or business is a
felony under Federal law or the law of any State in which such
trade or business is conducted.''.
(b) Clerical Amendment.--The table of sections for part IX of
subchapter B of chapter 1 is amended by striking the item relating to
section 280E and inserting the following new item:
``Sec. 280E. Expenditures in connection with illegal businesses.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after the date of the enactment of
this Act in taxable years ending after the date of the enactment of
this Act.
SEC. 3129. 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, 2014.
SEC. 3130. REPEAL OF PERCENTAGE DEPLETION.
(a) In General.--Part I of subchapter I of chapter 1 is amended by
striking sections 613 and 613A (and by striking the items relating to
such sections in the table of sections for such part).
(b) Conforming Amendments.--
(1)(A) Such part is amended by redesignating section 614 as
section 613 (and, in the table of sections for such part, by
redesignating the item relating to section 614 as an item
relating to section 613).
(B) Clauses (iv) and (v) of section 465(c)(2)(A) are each
amended by striking ``section 614'' and inserting ``section
613''.
(C) Section 1016(e) is amended by striking ``section 614''
and inserting ``section 613''.
(D) Section 1254(a)(3) is amended by striking ``section
614'' and inserting ``section 613''.
(2) Section 45(c)(4) is amended to read as follows:
``(4) Geothermal energy.--
``(A) In general.--The term `geothermal energy'
means energy derived from a geothermal deposit.
``(B) Geothermal deposit.--The term `geothermal
deposit' means a geothermal reservoir consisting of
natural heat which is stored in rocks or in an aqueous
liquid or vapor (whether or not under pressure).''.
(3) Section 48(a)(3)(A)(iii) is amended by striking
``section 613(e)(2)'' and inserting ``section 45(c)(4)(B)''
(4) Section 381(c) is amended by striking paragraph (18).
(5) Section 465(c)(1)(E) is amended by striking ``section
613(e)(2)'' and inserting ``section 45(c)(4)(B)''.
(6) Section 468(d)(3) is amended by striking ``section
614'' and inserting ``section 613''.
(7) Section 611(a) is amended by striking the second
sentence.
(8) Section 613(d), as redesignated by paragraph (1), is
amended by striking ``includes only'' and all that follows and
inserting ``includes only an interest burdened by the costs of
production.''.
(9) Section 636(a) is amended by striking ``(for purposes
of section 613)''.
(10) Section 636(d) is amended by striking ``section
614(a)'' and inserting ``section 613(a)''.
(11) Section 705(a) is amended--
(A) in paragraph (1), by adding ``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),
(B) in paragraph (2), by striking ``; and'' at the
end of subparagraph (B) and inserting a period, and
(C) by striking paragraph (3).
(12) Section 901(e)(1)(A) is amended by striking ``(or, if
smaller'' and all that follows through ``under section 613)''.
(13) Section 993(c)(2)(C) is amended by inserting ``(as
each such section was in effect before its repeal by the Tax
Reform Act of 2014)'' after ``section 613 or 613A''.
(14) Section 1202(e)(3)(D) is amended by inserting ``(as
each such section was in effect before its repeal by the Tax
Reform Act of 2014)'' after ``section 613 or 613A''.
(15) Section 1367(a) is amended--
(A) in paragraph (1), by adding ``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), and
(B) in paragraph (2), by adding ``and'' at the end
of subparagraph (C), by striking ``, and'' at the end
of subparagraph (D) and inserting a period, and by
striking subparagraph (E).
(16) Section 1446(c) is amended by striking paragraph (2)
and by redesignating paragraph (3) as paragraph (2).
(17) Section 4612(a)(7) is amended by inserting ``(as in
effect before its repeal by the Tax Reform Act of 2014)'' after
``section 613''.
(18) Section 4940(c)(3)(B) is amended--
(A) by striking clause (ii), and
(B) by striking all that precedes ``The deduction
provided'' and inserting the following:
``(B) Modifications.--For purposes of subparagraph
(A), the deduction provided''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3131. REPEAL OF PASSIVE ACTIVITY EXCEPTION FOR WORKING INTERESTS
IN OIL AND GAS PROPERTY.
(a) In General.--Subsection (c) of section 469 is amended by
striking paragraph (3).
(b) Conforming Amendments.--Section 469 is amended--
(1) by striking paragraph (4) and by redesignating
paragraphs (5), (6), and (7) as paragraphs (3), (4), and (5),
respectively, and
(2) in paragraph (2)--
(A) by striking ``paragraph (7)'' and inserting
``paragraph (5)'', and
(B) by inserting ``, without regard to whether or
not the taxpayer materially participates in the
activity'' before the period at the end.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3132. REPEAL OF SPECIAL RULES FOR GAIN OR LOSS ON TIMBER, COAL, OR
DOMESTIC IRON ORE.
(a) In General.--Subchapter I of chapter 1 is amended by striking
part III (and by striking the item relating to such part in the table
of parts for such subchapter).
(b) Conforming Amendments.--
(1) Section 512(b)(5) is amended by striking the last
sentence.
(2) Section 871(a)(1)(B) is amended by striking ``gains
described in section 631(b) or (c), and''.
(3) Section 871(d)(1)(A) is amended--
(A) by striking ``, (ii) rents'' and inserting
``and (ii) rents'', and
(B) by striking ``, and (iii) gains described in
section 631(b) or (c)''.
(4)(A) Section 881(a) is amended by striking paragraph (2)
and by redesignating paragraphs (3) and (4) as paragraphs (2)
and (3), respectively.
(B) Section 1442(a) is amended--
(i) by striking ``881(a)(3) and (4)'' and inserting
``881(a)(2) and (3)'',
(ii) by striking ``881(a)(3),'' and inserting
``881(a)(2),'', and
(iii) by striking ``881(a)(4)'' and inserting
``881(a)(3)''.
(5) Section 882(d)(1)(A) is amended--
(A) by striking ``, (ii) rents'' and inserting
``and (ii) rents'', and
(B) by striking ``, and (iii) gains described in
section 631(b) or (c)''.
(6) Section 1231(b) is amended by striking paragraph (2).
(7) Section 1402(a)(3) is amended by inserting ``or'' at
the end of subparagraph (A) and by striking subparagraph (B)
and redesignating subparagraph (C) as subparagraph (B).
(8) Section 1441 is amended--
(A) in subsection (b), by striking ``, gains
described in section 631(b) or (c)'', and
(B) in subsection (c)(5), by striking ``gains
described in section 631(b) or (c), gains subject to
tax under section 871(a)(1)(D),'' and inserting ``gains
subject to tax under section 871(a)(1)(D)''.
(9)(A) Part IX of subchapter B of chapter 1 is amended by
striking section 272 (and by striking the item relating to such
section in the table of sections for such subpart).
(B) Section 1016(a) is amended by striking paragraph (15).
(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, 2014.
(2) Basis adjustments.--The amendment made by subsection
(b)(9)(B) shall apply to deductions determined for taxable
years beginning after December 31, 2014.
SEC. 3133. REPEAL OF LIKE-KIND EXCHANGES.
(a) In General.--Part III of subchapter O of chapter 1 is amended
by striking section 1031 (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendments.--
(1) Section 121(d)(10) is amended by inserting ``(as in
effect before its repeal by the Tax Reform Act of 2014)'' after
``section 1031''.
(2) Section 197(f)(2)(B)(i) is amended by inserting ``(as
in effect before its repeal by the Tax Reform Act of 2014)''
after ``1031''.
(3) Section 453(f) is amended by striking paragraph (6).
(4) Section 470(e)(4) is amended--
(A) by striking ``Sections 1031(a) and'' in
subparagraph (A) and inserting ``Section'',
(i) by striking ``1031 or'' in subparagraph (B),
and
(ii) by striking ``sections 1031 and'' in the
heading thereof and inserting ``section''.
(5)(A) Section 501(c)(12)(C)(v) is amended by striking
``asset exchange or conversion transaction'' and inserting
``specified involuntary conversion''.
(B) Section 501(c)(12)(G) is amended--
(i) by striking ``asset exchange or conversion
transaction'' and inserting ``specified involuntary
conversion'',
(ii) by striking ``voluntary exchange or'', and
(iii) by striking ``1031 or''.
(6)(A) Section 704(c) is amended by striking paragraph (2)
and by redesignating paragraph (3) as paragraph (2).
(B) Section 704(c)(2), as so redesignated, is amended by
striking ``or (2)''.
(7) Section 857(e)(2) is amended by striking subparagraph
(B) and by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively.
(8)(A) Section 1035 is amended by striking subsection (d)
and inserting the following new subsections:
``(d) Gain From Exchanges Not Solely in Kind.--If an exchange would
be within the provisions of subsection (a), of section 1036(a), or of
section 1037(a), if it were not for the fact that the property received
in exchange consists not only of property permitted by such provisions
to be received without the recognition of gain, but also of other
property or money, then the gain, if any, to the recipient shall be
recognized, but in an amount not in excess of the sum of such money and
the fair market value of such other property.
``(e) Loss From Exchanges Not Solely in Kind.--If an exchange would
be within the provisions of subsection (a), of section 1036(a), or of
section 1037(a), if it were not for the fact that the property received
in exchange consists not only of property permitted by such provisions
to be received without the recognition of gain or loss, but also of
other property or money, then no loss from the exchange shall be
recognized.
``(f) Basis.--If property was acquired on an exchange described in
this section, section 1036(a), or section 1037(a), then the basis shall
be the same as that of the property exchanged, decreased in the amount
of any money received by the taxpayer and increased in the amount of
gain or decreased in the amount of loss to the taxpayer that was
recognized on such exchange. If the property so acquired consisted in
part of the type of property permitted by this section, section
1036(a), or section 1037(a), to be received without the recognition of
gain or loss, and in part of other property, the basis provided in this
subsection shall be allocated between the properties (other than money)
received, and for the purpose of the allocation there shall be assigned
to such other property an amount equivalent to its fair market value at
the date of the exchange. For purposes of this section and section
1036(a), where as part of the consideration to the taxpayer another
party to the exchange assumed (as determined under section 357(d)) a
liability of the taxpayer, such assumption shall be considered as money
received by the taxpayer on the exchange.''.
(B) Section 1036(c) is amended--
(i) in paragraph (1), by striking ``subsections (b)
and (c) of section 1031'' and inserting ``subsections
(d) and (e) of section 1035'', and
(ii) in paragraph (2), by striking ``subsection (d)
of section 1031'' and inserting ``subsection (f) of
section 1035''.
(C) Section 1037(c) is amended--
(i) in paragraph (1), by striking ``subsections (b)
and (c) of section 1031'' and inserting ``subsections
(d) and (e) of section 1035'', and
(ii) in paragraph (2), by striking ``subsection (d)
of section 1031'' and inserting ``subsection (f) of
section 1035''.
(D) Section 83(g) is amended by striking ``section 1031''
and inserting ``section 1035''.
(E) Section 424(b) is amended by striking ``section 1031''
and inserting ``section 1035''.
(F) Section 424(c)(1)(B) is amended by striking ``section
1031'' and inserting ``section 1035''.
(9) Section 1060(c) is amended by striking the second
sentence thereof.
(10) Section 1245(b)(4) is amended--
(A) by striking ``Like kind exchanges;
involuntary'' and inserting ``Involuntary'', and
(B) by striking ``1031 or''.
(11) Section 1250(d)(4) is amended--
(A) by striking ``Like kind exchanges;
involuntary'' and inserting ``Involuntary'',
(B) by striking ``1031 or'' in subparagraph (A),
and
(C) by striking ``1031 or'' in subparagraph (E).
(12) Section 2032A(e)(14)(C) is amended--
(A) in clause (i)(I), by inserting ``(as in effect
before its repeal by the Tax Reform Act of 2014)''
after ``section 1031'', and
(B) in clause (ii)(I), by inserting ``(as so in
effect)'' after ``section 1031''.
(13) Section 4940(c)(4) is amended by striking subparagraph
(D).
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to transfers after December 31, 2014.
(2) Exception for transfers pursuant to binding
contracts.--Notwithstanding paragraph (1), the amendments made
by this section shall not apply to any transfer if--
(A) such transfer is pursuant to a written binding
contract entered into before January 1, 2015, and
(B) the exchange of which such transfer is a part
is completed before January 1, 2017.
SEC. 3134. RESTRICTION ON TRADE OR BUSINESS PROPERTY TREATED AS SIMILAR
OR RELATED IN SERVICE TO INVOLUNTARILY CONVERTED PROPERTY
IN DISASTER AREAS.
(a) Class Life of Replacement Property Not To Exceed Converted
Property.--Section 1033(h)(2) is amended by inserting ``if the class
life of such tangible property does not exceed the class life of the
property so converted'' before the period at the end.
(b) Effective Date.--The amendment made by this section shall apply
to disasters declared after December 31, 2014.
SEC. 3135. 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.--
(1) Section 45D(c)(2)(A) is amended to read as follows:
``(A) any partnership or corporation which is
licensed by the Small Business Administration under
section 301(d) of the Small Business Investment Act of
1958 (as in effect on May 13, 1993), and''.
(2) Section 1016(a)(23) is amended--
(A) by striking ``1044,'', and
(B) by striking ``1044(d),''.
(c) Effective Date.--The amendments made by this section shall
apply to sales after December 31, 2014.
SEC. 3136. TERMINATION OF SPECIAL RULES FOR GAIN FROM CERTAIN SMALL
BUSINESS STOCK.
(a) Termination of Partial Exclusion.--Section 1202 is amended--
(1) by inserting ``and before the date of the enactment of
the Tax Reform Act of 2014'' after ``Revenue Reconciliation Act
of 1993'' in subsection (c)(1), and
(2) by adding at the end the following new subsection:
``(l) Termination.--For termination with respect to qualified small
business stock issued after the date of the enactment of the Tax Reform
Act of 2014, see subsection (c)(1).''.
(b) Repeal of Rollover Rules.--
(1) In general.--Part III of subchapter O of chapter 1 is
amended by striking section 1045 (and by striking the item
relating to such section in the table of sections of such
part).
(2) Conforming amendments.--
(A) Section 1016(a)(23) is amended--
(i) by striking ``1045,'', and
(ii) by striking ``1045(b)(3),''.
(B) Section 1223 is amended by striking paragraph
(13).
(c) Effective Dates.--
(1) Termination of partial exclusion.--The amendments made
by subsection (a) shall apply to sales and exchanges after the
date of the enactment of this Act.
(2) Repeal of rollover rules.--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by subsection (b) shall apply
to sales after the date of the enactment of this Act.
(B) Savings provision.--The amendments made by
subsection (b)(2) shall not apply with respect to
property the acquisition of which was before the date
of the enactment of this Act.
SEC. 3137. 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).
(c) Effective Date.--The amendments made by this section shall
apply to dispositions after December 31, 2014.
SEC. 3138. 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)(A) Section 871(a)(1), as amended by the preceding
provisions of this Act, is amended by striking subparagraph (B)
and by redesignating subparagraphs (C) and (D) as subparagraphs
(B) and (C), respectively.
(B) Section 871(g)(3) is amended by striking ``(a)(1)(C)''
and inserting ``(a)(1)(B)''.
(C) Subsections (h)(1) and (i)(1) of section 871 are each
amended by striking ``(1)(C)'' and inserting ``(1)(B)''.
(D) Section 1441, as amended by the preceding provisions of
this Act, is amended--
(i) in subsections (b) and (c)(8), by striking
``871(a)(1)(C)'' and inserting ``871(a)(1)(B)'', and
(ii) in subsections (b) and (c)(5), by striking
``871(a)(1)(D)'' and inserting ``871(a)(1)(C)''.
(E) Section 1442(a), as amended by the preceding provisions
of this Act, is amended--
(i) by striking ``871(a)(1)(C) and (D)'' and
inserting ``871(a)(1)(B) and (C)'', and
(ii) by striking ``871(a)(1)(D)'' and inserting
``871(a)(1)(C)''.
(3) 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''.
(4) Section 1274(c)(3) is amended by striking subparagraph
(E) and redesignating subparagraph (F) as subparagraph (E).
(5) Subsections (b) and (c)(5) of section 1441, as amended
by the preceding provisions of this Act, are each amended by
striking ``gains subject to tax under section 871(a)(1)(C), and
gains on transfers described in section 1235 made on or before
October 4, 1966'' and inserting ``and gains subject to tax
under section 871(a)(1)(C)''.
(c) Effective Date.--The amendments made by this section shall
apply to dispositions after December 31, 2014.
SEC. 3139. DEPRECIATION RECAPTURE ON GAIN FROM DISPOSITION OF CERTAIN
DEPRECIABLE REALTY.
(a) In General.--Subsection (a) of section 1250 is amended to read
as follows:
``(a) In General.--Except as otherwise provided in this section, if
section 1250 property is disposed of after December 31, 2014, the
amount of gain with respect to such property which is treated as
ordinary income shall be an amount equal to the lesser of--
``(1) the sum of--
``(A) the amount of additional depreciation
attributable to periods before January 1, 2015, in
respect of such property, and
``(B) the amount of depreciation adjustments
attributable to periods after December 31, 2014, in
respect of such property, or
``(2) the excess of the amount realized (or, in the case of
a disposition other than a sale, exchange, or involuntary
conversion, the fair market value of such property), over the
adjusted basis of such property.''.
(b) Conforming Amendments.--
(1) Section 267(e)(5)(D)(i) is amended to read as follows:
``(i) any interest in--
``(I) any section 1250 property
with respect to which a mortgage is
insured under section 221(d)(3) or 236
of the National Housing Act, or housing
financed or assisted by direct loan or
tax abatement under similar provisions
of State or local laws and with respect
to which the owner is subject to the
restrictions described in section
1039(b)(1)(B) (as in effect on the day
before the date of the enactment of the
Revenue Reconciliation Act of 1990),
``(II) dwelling units which, on the
average, were held for occupancy by
families or individuals eligible to
receive subsidies under section 8 of
the United States Housing Act of 1937,
as amended, or under the provisions of
State or local law authorizing similar
levels of subsidy for lower-income
families,
``(III) any section 1250 property
with respect to which a depreciation
deduction for rehabilitation
expenditures was allowed under section
167(k), or
``(IV) any section 1250 property
with respect to which a loan is made or
insured under title V of the Housing
Act of 1949, and''.
(2) Section 1250(b) is amended by striking paragraph (4)
and by redesignating paragraph (5) as paragraph (4).
(3) Section 1250(c) is amended by striking ``For purposes
of this section'' and inserting ``For purposes of this title''
(4)(A) Section 1250(d)(5)(B)(i) is amended by striking
``and the applicable percentage for the property had been 100
percent''.
(B) Section 1250(d)(5)(B)(ii) is amended to read as
follows:
``(ii) the amount of such gain (if any) to
which section 751(b) applied.''.
(5) Section 1250(d) is amended by striking paragraph (7).
(6) Section 1250 is amended by striking subsections (e) and
(f) and by redesignating subsections (g) and (h) as subsections
(e) and (f), respectively.
(c) Effective Date.--The amendments made by this section shall
apply to dispositions after December 31, 2014.
SEC. 3140. COMMON DEDUCTION CONFORMING AMENDMENTS.
(a) In General.--
(1) Section 1245(a)(2)(C) is amended by striking ``section
179,'' and all that follows through ``or 194'' and inserting
``section 179 or (as in effect before repeal by the Tax Reform
Act of 2014) section 179A, 179B, 179C, 179D, 179E, 181, 190,
193, or 194,''
(2) Section 1245(a)(3)(C) is amended by striking ``section
169'' and all that follows through ``or 194'' and inserting
``section 179, 185, 188 (as in effect before its repeal by the
Revenue Reconciliation Act of 1990), or (as in effect before
repeal by the Tax Reform Act of 2014) section 169, 179A, 179B,
179C, 179D, 179E, 190, 193, or 194''.
(3) Section 263(a)(1) is amended by striking subparagraphs
(C), (D), (F), (H), (I), (J), (K), and (L) and by redesignating
subparagraphs (E) and (G) as subparagraphs (C) and (D),
respectively.
(4) Section 280C, as amended by the preceding provisions of
this Act, is amended by redesignating subsections (c) and (g)
as subsections (b) and (c), respectively.
(b) Effective Date.--Each portion of each amendment made by this
section shall take effect as if included in the provision of this
subtitle to which such portion relates.
Subtitle C--Reform of Business Credits
SEC. 3201. REPEAL OF CREDIT FOR ALCOHOL, ETC., USED AS FUEL.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 40 (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Repeal of Corresponding Excise Tax Credits.--
(1) Credit.--Subchapter B of chapter 65 is amended by
striking section 6426 (and by striking the item relating to
such section in the table of sections for such subchapter).
(2) Payment.--Section 6427 is amended by striking
subsection (e).
(c) Conforming Amendments.--
(1) Section 38(b) is amended by striking paragraph (3).
(2) Section 6416(a)(4)(C) is amended--
(A) by striking ``section 6427(i)(4)'' and
inserting ``section 6427(i)(3)'', and
(B) by striking ``section 6427(i)(3)(B)'' and
inserting ``subparagraph (B) thereof''.
(3) Section 6427(i) is amended by striking paragraph (3)
and by redesignating paragraph (4) as paragraph (3).
(4) Section 6427(i)(3), as redesignated by paragraph (2),
is amended--
(A) by striking the sentence at the end of
subparagraph (A),
(B) by redesignating subparagraph (B) as
subparagraph (C), and
(C) by inserting after subparagraph (A) the
following new subparagraph:
``(B) Payment of claim.--Notwithstanding subsection
(l)(1), if the Secretary has not paid pursuant to a
claim filed under subsection (b)(4), (l)(4)(C)(ii), or
(l)(5) within 45 days of the date of the filing of such
claim (20 days in the case of an electronic claim), the
claim shall be paid with interest from such date
determined by using the overpayment rate and method
under section 6621.''.
(5) Subpart B of part III of subchapter A of chapter 32 is
amended by striking section 4104 (and by striking the item
relating to such section in the table of sections for such
subpart).
(6) Section 6501(m) is amended by striking ``40(f),''.
(7) Section 9503(b)(1) is amended by striking the second
sentence.
(d) Effective Date.--The amendments made by this section shall
apply to fuels sold or used after December 31, 2013.
SEC. 3202. REPEAL OF CREDIT FOR BIODIESEL AND RENEWABLE DIESEL USED AS
FUEL.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 40A (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 (17).
(2) Part II of subchapter B of chapter 1 is amended by
striking section 87 (and by striking the item relating to such
section in the table of sections for such subpart).
(3) Section 4101(a)(1) is amended by striking ``, every
person producing'' and all that follows through ``section
40(b)(6)(E))''.
(c) Effective Date.--The amendments made by this section shall
apply to fuels sold or used after December 31, 2013.
SEC. 3203. RESEARCH CREDIT MODIFIED AND MADE PERMANENT.
(a) Permanent Simplification of Incremental Research Credit and
Elimination of Credit for Energy Research Consortium Payments.--
(1) In general.--Subsection (a) of section 41 is amended to
read as follows:
``(a) In General.--For purposes of section 38, the research credit
determined under this section for the taxable year shall be an amount
equal to the sum of--
``(1) 15 percent of so much of the qualified research
expenses for the taxable year as exceeds 50 percent of the
average qualified research expenses for the 3 taxable years
preceding the taxable year for which the credit is being
determined, plus
``(2) 15 percent of so much of the basic research payments
for the taxable year as exceeds 50 percent of the average basic
research payments for the 3 taxable years preceding the taxable
year for which the credit is being determined.''.
(2) Repeal of termination.--Section 41 is amended by
striking subsection (h).
(3) Conforming amendments.--
(A) Subsection (c) of section 41 is amended to read
as follows:
``(c) Determination of Average Research Expenses for Prior Years.--
``(1) Special rule in case of no qualified research
expenditures in any of 3 preceding taxable years.--In any case
in which the taxpayer has no qualified research expenses in any
one of the 3 taxable years preceding the taxable year for which
the credit is being determined, the amount determined under
subsection (a)(1) for such taxable year shall be equal to 10
percent of the qualified research expenses for the taxable
year.
``(2) Consistent treatment of expenses.--
``(A) In general.--Notwithstanding whether the
period for filing a claim for credit or refund has
expired for any taxable year taken into account in
determining the average qualified research expenses, or
average basic research payments, taken into account
under subsection (a), the qualified research expenses
and basic research payments taken into account in
determining such averages shall be determined on a
basis consistent with the determination of qualified
research expenses and basic research payments,
respectively, for the credit year.
``(B) Prevention of distortions.--The Secretary may
prescribe regulations to prevent distortions in
calculating a taxpayer's qualified research expenses or
basic research payments caused by a change in
accounting methods used by such taxpayer between the
current year and a year taken into account in
determining the average qualified research expenses or
average basic research payments taken into account
under subsection (a).''.
(B) Section 41(e) is amended--
(i) by striking all that precedes paragraph
(6) and inserting the following:
``(e) Basic Research Payments.--For purposes of this section--
``(1) In general.--The term `basic research payment' means,
with respect to any taxable year, any amount paid in cash
during such taxable year by a corporation to any qualified
organization for basic research but only if--
``(A) such payment is pursuant to a written
agreement between such corporation and such qualified
organization, and
``(B) such basic research is to be performed by
such qualified organization.
``(2) Exception to requirement that research be performed
by the organization.--In the case of a qualified organization
described in subparagraph (C) or (D) of paragraph (3),
subparagraph (B) of paragraph (1) shall not apply.'',
(ii) by redesignating paragraphs (6) and
(7) as paragraphs (3) and (4), respectively,
and
(iii) in paragraph (4) as so redesignated,
by striking subparagraphs (B) and (C) and by
redesignating subparagraphs (D) and (E) as
subparagraphs (B) and (C), respectively.
(C)(i) Section 41(f)(1) is amended by striking ``,
basic research payments, and amounts paid or incurred
to energy research consortiums,'' in subparagraphs
(A)(ii) and (B)(ii) and inserting ``and basic research
payments''.
(ii) Section 41(f) is amended by striking paragraph
(6).
(4) Effective date.--
(A) In general.--Except as provided in subparagraph
(B), the amendments made by this subsection shall apply
to taxable years beginning after December 31, 2013.
(B) Paragraph (2).--The amendment made by paragraph
(2) shall apply to amounts paid or incurred after
December 31, 2013.
(b) Other Reforms.--
(1) Elimination of credit for computer software.--
Subparagraph (E) of section 41(d)(4) is amended--
(A) by striking ``Except to the extent provided in
regulations, any research'' and inserting ``Any
research'', and
(B) by striking ``which is developed by'' and all
that follows through the end and inserting a period.
(2) Elimination of increased credit for amounts paid to
certain entities.--Paragraph (3) of section 41(b) is amended by
striking subparagraphs (C) and (D).
(3) Elimination of credit for supplies.--Subparagraph (A)
of section 41(b)(2) is amended by inserting ``and'' at the end
of clause (i), by striking clause (ii), and by redesignating
clause (iii) as clause (ii).
(4) Elimination of election of reduced credit.--Section
280C(c) is amended by striking paragraphs (3) and (4).
(5) Conforming amendments.--
(A) The second sentence of section 41(b)(2)(A) is
amended by striking ``Clause (iii)'' and inserting
``Clause (ii)''.
(B) Section 41(b)(2) is amended by striking
subparagraph (C) and by redesignating subparagraph (D)
as subparagraph (C).
(C) Section 41(d)(2)(B) is amended by striking ``,
computer software''.
(6) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2013.
SEC. 3204. LOW-INCOME HOUSING TAX CREDIT.
(a) Reform of Limitation and Allocation Rules.--
(1) Allocations of eligible basis amounts rather than
credit amounts; elimination of national reallocations.--
Subsection (h) of section 42 is amended to read as follows:
``(h) Limitation on Qualified Basis With Respect to Projects
Located in a State.--
``(1) Qualified basis may not exceed limitation amount
allocated to building.--
``(A) In general.--The qualified basis of any
building which is taken into account under subsection
(a) for any taxable year shall not exceed the
limitation amount allocated to such building under this
subsection.
``(B) Time for making allocation.--Except in the
case of an allocation which meets the requirements of
subparagraph (C), (D), (E), or (F), an allocation shall
be taken into account under subparagraph (A) only if it
is made not later than the close of the calendar year
in which the building is placed in service.
``(C) Exception where binding commitment.--An
allocation meets the requirements of this subparagraph
if there is a binding commitment (not later than the
close of the calendar year in which the building is
placed in service) by the housing credit agency to
allocate a specified limitation amount to such building
beginning in a specified later taxable year.
``(D) Exception where increase in qualified
basis.--
``(i) In general.--An allocation meets the
requirements of this subparagraph if such
allocation is made not later than the close of
the calendar year in which ends the taxable
year to which it will 1st apply but only to the
extent the amount of such allocation does not
exceed the limitation under clause (ii).
``(ii) Limitation.--The limitation under
this clause is the excess of--
``(I) the qualified basis of such
building as of the close of the 1st
taxable year to which such allocation
will apply, over
``(II) the qualified basis of such
building as of the close of the 1st
taxable year to which the most recent
prior allocation with respect to such
building applied.
``(iii) Housing credit basis limitation
reduced by full allocation.--Notwithstanding
clause (i), the full amount of the allocation
shall be taken into account under paragraph
(2).
``(E) Exception where 10 percent of cost
incurred.--
``(i) In general.--An allocation meets the
requirements of this subparagraph if such
allocation is made with respect to a qualified
building which is placed in service not later
than the close of the second calendar year
following the calendar year in which the
allocation is made.
``(ii) Qualified building.--For purposes of
clause (i), the term `qualified building' means
any building which is part of a project if the
taxpayer's basis in such project (as of the
date which is 1 year after the date that the
allocation was made) is more than 10 percent of
the taxpayer's reasonably expected basis in
such project (as of the close of the second
calendar year referred to in clause (i)). Such
term does not include any existing building
unless a credit is allowable under subsection
(e) for rehabilitation expenditures paid or
incurred by the taxpayer with respect to such
building for a taxable year ending during the
second calendar year referred to in clause (i)
or the prior taxable year.
``(F) Allocation of credit on a project basis.--
``(i) In general.--In the case of a project
which includes (or will include) more than 1
building, an allocation meets the requirements
of this subparagraph if--
``(I) the allocation is made to the
project for a calendar year during the
project period,
``(II) the allocation only applies
to buildings placed in service during
or after the calendar year for which
the allocation is made, and
``(III) the portion of such
allocation which is allocated to any
building in such project is specified
not later than the close of the
calendar year in which the building is
placed in service.
``(ii) Project period.--For purposes of
clause (i), the term `project period' means the
period--
``(I) beginning with the 1st
calendar year for which an allocation
may be made for the 1st building placed
in service as part of such project, and
``(II) ending with the calendar
year the last building is placed in
service as part of such project.
``(2) Allocated limitation amount to apply to all taxable
years ending during or after allocation year.--Any limitation
amount allocated to any building for any calendar year--
``(A) shall apply to such building for all taxable
years in the compliance period ending during or after
such calendar year, and
``(B) shall reduce the aggregate limitation amount
of the allocating agency only for such calendar year.
``(3) Limitation amount for agencies.--
``(A) In general.--The limitation amount which a
housing credit agency may allocate for any calendar
year is the portion of the State limitation allocated
under this paragraph for such calendar year to such
agency.
``(B) State limitation initially allocated to state
housing credit agencies.--Except as provided in
subparagraph (F), the State limitation for each
calendar year shall be allocated to the housing credit
agency of such State. If there is more than 1 housing
credit agency of a State, all such agencies shall be
treated as a single agency.
``(C) State limitation.--The State limitation
applicable to any State for any calendar year shall be
an amount equal to the sum of--
``(i) the unused State limitation (if any)
of such State for the preceding calendar year,
``(ii) the greater of--
``(I) $31.20 multiplied by the
State population, or
``(II) $36,300,000, plus
``(iii) the amount of State limitation
returned in the calendar year.
``(D) Unused state limitation.--For purposes of
subparagraph (C)(i), the unused State limitation for
any calendar year is the excess (if any) of the sum of
the amounts described in clauses (ii) and (iii) of
subparagraph (C) over the aggregate limitation amount
allocated for such year.
``(E) State limitation returned in the calendar
year.--For purposes of subparagraph (C)(iii), the
amount of State limitation returned in the calendar
year equals the limitation amount previously allocated
within the State to any project--
``(i) which fails to meet the 10 percent
test under paragraph (1)(E)(ii) on a date after
the close of the calendar year in which the
allocation was made,
``(ii) which does not become a qualified
low-income housing project within the period
required by this section or the terms of the
allocation, or
``(iii) with respect to which an allocation
is cancelled by mutual consent of the housing
credit agency and the allocation recipient.
``(F) State may provide for different allocation.--
For purposes of this paragraph, a State may by law
provide (or a Governor of a State may proclaim) a
different formula for allocating the State limitation
among the State housing credit agencies in such State.
``(G) Population.--For purposes of this paragraph,
determinations of the population of any State shall be
made with respect to any calendar year on the basis of
the most recent census estimate of the resident
population of such State released by the Bureau of
Census before the beginning of such calendar year.
``(H) Cost-of-living adjustment.--
``(i) In general.--In the case of a
calendar year after 2015, the dollar amounts in
subparagraph (C)(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(c)(2)(A) for such calendar year,
determined by substituting `calendar
year 2014' for `calendar year 2012' in
clause (ii) thereof.
``(ii) Rounding.--
``(I) In the case of the dollar
amount in subparagraph (C)(ii)(I), any
increase under clause (i) which is not
a multiple of 20 cents shall be rounded
to the next lowest multiple of 20
cents.
``(II) In the case of the dollar
amount in subparagraph (C)(ii)(II), any
increase under clause (i) which is not
a multiple of $100,000 shall be rounded
to the next lowest multiple of
$100,000.
``(4) Portion of state limitation set-aside for certain
projects involving qualified nonprofit organizations.--
``(A) In general.--Not more than 90 percent of the
State limitation for any State for any calendar year
shall be allocated to projects other than qualified
low-income housing projects described in subparagraph
(B).
``(B) Projects involving qualified nonprofit
organizations.--For purposes of subparagraph (A), a
qualified low-income housing project is described in
this subparagraph if a qualified nonprofit organization
is to own an interest in the project (directly or
through a partnership) and materially participate
(within the meaning of section 469(h)) in the
development and operation of the project throughout the
credit period.
``(C) Qualified nonprofit organization.--For
purposes of this paragraph, the term `qualified
nonprofit organization' means any organization if--
``(i) such organization is described in
paragraph (3) or (4) of section 501(c) and is
exempt from tax under section 501(a),
``(ii) such organization is determined by
the State housing credit agency not to be
affiliated with or controlled by a for-profit
organization; and
``(iii) 1 of the exempt purposes of such
organization includes the fostering of low-
income housing.
``(D) Treatment of certain subsidiaries.--
``(i) In general.--For purposes of this
paragraph, a qualified nonprofit organization
shall be treated as satisfying the ownership
and material participation test of subparagraph
(B) if any qualified corporation in which such
organization holds stock satisfies such test.
``(ii) Qualified corporation.--For purposes
of clause (i), the term `qualified corporation'
means any corporation if 100 percent of the
stock of such corporation is held by 1 or more
qualified nonprofit organizations at all times
during the period such corporation is in
existence.
``(E) State may not override set-aside.--Nothing in
subparagraph (F) of paragraph (3) shall be construed to
permit a State not to comply with subparagraph (A) of
this paragraph.
``(5) Buildings eligible for credit only if minimum long-
term commitment to low-income housing.--
``(A) In general.--No credit shall be allowed by
reason of this section with respect to any building for
the taxable year unless an extended low-income housing
commitment is in effect as of the end of such taxable
year.
``(B) Extended low-income housing commitment.--For
purposes of this paragraph, the term `extended low-
income housing commitment' means any agreement between
the taxpayer and the housing credit agency--
``(i) which requires that the applicable
fraction (as defined in subsection (c)(1)) for
the building for each taxable year in the
extended use period will not be less than the
applicable fraction specified in such agreement
and which prohibits the actions described in
subclauses (I) and (II) of subparagraph
(E)(ii),
``(ii) which allows individuals who meet
the income limitation applicable to the
building under subsection (g) (whether
prospective, present, or former occupants of
the building) the right to enforce in any State
court the requirement and prohibitions of
clause (i),
``(iii) which prohibits the disposition to
any person of any portion of the building to
which such agreement applies unless all of the
building to which such agreement applies is
disposed of to such person,
``(iv) which prohibits the refusal to lease
to a holder of a voucher or certificate of
eligibility under section 8 of the United
States Housing Act of 1937 because of the
status of the prospective tenant as such a
holder,
``(v) which is binding on all successors of
the taxpayer, and
``(vi) which, with respect to the property,
is recorded pursuant to State law as a
restrictive covenant.
``(C) Allocation of limitation amount may not
exceed amount necessary to support commitment.--The
limitation amount allocated to any building may not
exceed the amount necessary to support the applicable
fraction specified in the extended low-income housing
commitment for such building.
``(D) Extended use period.--For purposes of this
paragraph, the term `extended use period' means the
period--
``(i) beginning on the 1st day in the
credit period on which such building is part of
a qualified low-income housing project, and
``(ii) ending on the later of--
``(I) the date specified by such
agency in such agreement, or
``(II) the date which is 15 years
after the close of the credit period.
``(E) Exceptions if foreclosure or if no buyer
willing to maintain low-income status.--
``(i) In general.--The extended use period
for any building shall terminate--
``(I) on the date the building is
acquired by foreclosure (or instrument
in lieu of foreclosure) unless the
Secretary determines that such
acquisition is part of an arrangement
with the taxpayer a purpose of which is
to terminate such period, or
``(II) on the last day of the
period specified in subparagraph (I) if
the housing credit agency is unable to
present during such period a qualified
contract for the acquisition of the
low-income portion of the building by
any person who will continue to operate
such portion as a qualified low-income
building.
Subclause (II) shall not apply to the extent
more stringent requirements are provided in the
agreement or in State law.
``(ii) Eviction, etc., of existing low-
income tenants not permitted.--The termination
of an extended use period under clause (i)
shall not be construed to permit before the
close of the 3-year period following such
termination--
``(I) the eviction or the
termination of tenancy (other than for
good cause) of an existing tenant of
any low-income unit, or
``(II) any increase in the gross
rent with respect to such unit not
otherwise permitted under this section.
``(F) Qualified contract.--For purposes of
subparagraph (E), the term `qualified contract' means a
bona fide contract to acquire (within a reasonable
period after the contract is entered into) the nonlow-
income portion of the building for fair market value
and the low-income portion of the building for an
amount not less than the applicable fraction (specified
in the extended low-income housing commitment) of--
``(i) the sum of--
``(I) the outstanding indebtedness
secured by, or with respect to, the
building,
``(II) the adjusted investor equity
in the building, plus
``(III) other capital contributions
not reflected in the amounts described
in subclause (I) or (II), reduced by
``(ii) cash distributions from (or
available for distribution from) the project.
The Secretary shall prescribe such regulations as may
be necessary or appropriate to carry out this
paragraph, including regulations to prevent the
manipulation of the amount determined under the
preceding sentence.
``(G) Adjusted investor equity.--
``(i) In general.--For purposes of
subparagraph (F), the term `adjusted investor
equity' means, with respect to any calendar
year, the aggregate amount of cash taxpayers
invested with respect to the project increased
by the amount equal to--
``(I) such amount, multiplied by
``(II) the cost-of-living
adjustment for such calendar year,
determined under section 1(c)(2)(A) by
substituting the base calendar year for
`calendar year 2012' in clause (ii)
thereof.
An amount shall be taken into account as an
investment in the project only to the extent
there was an obligation to invest such amount
as of the beginning of the credit period and to
the extent such amount is reflected in the
adjusted basis of the project.
``(ii) Cost-of-living increases in excess
of 5 percent not taken into account.--Under
regulations prescribed by the Secretary, if the
C-CPI-U for any calendar year (within the
meaning of section 1(c)) 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).
``(iii) Base calendar year.--For purposes
of this subparagraph, the term `base calendar
year' means the calendar year with or within
which the 1st taxable year of the credit period
ends.
``(H) Low-income portion.--For purposes of this
paragraph, the low-income portion of a building is the
portion of such building equal to the applicable
fraction specified in the extended low-income housing
commitment for the building.
``(I) Period for finding buyer.--The period
referred to in this subparagraph is the 1-year period
beginning on the date (after the 14th year of the
credit period) the taxpayer submits a written request
to the housing credit agency to find a person to
acquire the taxpayer's interest in the low-income
portion of the building.
``(J) Effect of noncompliance.--If, during a
taxable year, there is a determination that an extended
low-income housing agreement was not in effect as of
the beginning of such year, such determination shall
not apply to any period before such year and
subparagraph (A) shall be applied without regard to
such determination if the failure is corrected within 1
year from the date of the determination.
``(K) Projects which consist of more than 1
building.--The application of this paragraph to
projects which consist of more than 1 building shall be
made under regulations prescribed by the Secretary.
``(6) Special rules.--
``(A) Building must be located within jurisdiction
of credit agency.--A housing credit agency may allocate
its limitation amount only to buildings located in the
jurisdiction of the governmental unit of which such
agency is a part.
``(B) Agency allocations in excess of limit.--If
the limitation amounts allocated by a housing credit
agency for any calendar year exceed the portion of the
State limitation allocated to such agency for such
calendar year, the limitation amounts so allocated
shall be reduced (to the extent of such excess) for
buildings in the reverse of the order in which the
allocations of such amounts were made.
``(C) Credit reduced if credit is less than credit
which would be allowable without regard to placed in
service convention, etc.--
``(i) In general.--The amount of the credit
determined under this section with respect to
any building shall not exceed the clause (ii)
percentage of the amount of the credit which
would (but for this subparagraph) be determined
under this section with respect to such
building.
``(ii) Determination of percentage.--For
purposes of clause (i), the clause (ii)
percentage with respect to any building is the
percentage which--
``(I) the credit amount which would
be determined under this section with
respect to the building if the
limitation amount allocated to such
building were equal to the qualified
basis of such building, bears to
``(II) the credit amount determined
in accordance with clause (iii).
``(iii) Determination of credit amount.--
The credit amount determined in accordance with
this clause is the amount of the credit which
would (but for this subparagraph) be determined
under this section with respect to the building
if this section were applied without regard to
subsection (f)(2)(A).
``(7) Other definitions.--For purposes of this subsection--
``(A) Housing credit agency.--The term `housing
credit agency' means any agency authorized to carry out
this subsection.
``(B) Possessions treated as states.--The term
`State' includes a possession of the United States.''.
(2) Conforming amendments.--
(A) Section 42(f) is amended by striking paragraph
(3).
(B) Section 42(i)(3)(B)(iii)(II) is amended by
striking ``subsection (h)(5)'' and inserting
``subsection (h)(4)''.
(C) Section 42(i)(7)(A) is amended by striking
``subsection (h)(5)(C)'' and inserting ``subsection
(h)(4)(C)''.
(D) Section 42(i)(8) is amended by striking the
last sentence.
(E) Section 42(i) is amended by striking paragraph
(9).
(F) Section 42(k)(2)(A) is amended by striking
``subsection (h)(5)'' and inserting ``subsection
(h)(4)''.
(G) Section 42(l)(3) is amended by striking
``housing credit amount'' both places it appears and
inserting ``limitation amount''.
(H) Section 42(m)(1)(A) is amended by striking
``housing credit dollar amount'' both places it appears
and inserting ``limitation amount''.
(I) Section 42(m)(1)(B)(ii) is amended by striking
``housing credit dollar amounts'' and inserting
``limitation amounts''.
(J) Section 42(m)(1) is amended by striking
subparagraph (D).
(K) Subparagraphs (A), (B)(iii), (C)(i)(I), and
(C)(i)(II) of section 42(m)(2) are each amended by
striking ``housing credit dollar amount'' and inserting
``limitation amount''.
(L) Section 42(m)(2) is amended by striking
subparagraph (D).
(b) 15-Year Credit Period.--
(1) In general.--Section 42(f)(1) is amended by striking
``10 taxable years'' and inserting ``15 taxable years''.
(2) Repeal of recapture.--Section 42 is amended by striking
subsection (j).
(3) Conforming amendments.--
(A) Section 42(d)(7) is amended--
(i) by striking ``compliance period'' in
the heading thereof and inserting ``credit
period'', and
(ii) by striking ``compliance period'' in
subparagraph (B)(ii) and inserting ``credit
period''.
(B) Section 42(f)(4) is amended by striking the
last sentence thereof.
(C) Section 42(i) is amended by striking paragraph
(1).
(D) Section 42(i)(6) is amended by striking ``and
any increase in tax under subsection (j)''.
(E) Section 42(k)(4)(C) is amended to read as
follows:
``(C) Special rules.--
``(i) Tax benefit rule.--The tax for the
taxable year shall be increased under
subparagraph (A) only with respect to credits
allowed by reason of this section which were
used to reduce tax liability. In the case of
credits not so used to reduce tax liability,
the carryforwards and carrybacks under section
39 shall be appropriately adjusted.
``(ii) No credits against tax.--Any
increase in tax under this paragraph shall not
be treated as a tax imposed by this chapter for
purposes of determining the amount of any
credit under this chapter.''.
(c) Determination of Applicable Percentage.--
(1) Elimination of 30 percent credit; modification of
discount rate.--Subsection (b) of section 42 is amended to read
as follows:
``(b) Applicable Percentage.--
``(1) In general.--For purposes of this section, the term
`applicable percentage' means with respect to any building, the
appropriate percentage prescribed by the Secretary for the
earlier of--
``(A) the month in which such building is placed in
service, or
``(B) at the election of the taxpayer, the month in
which the taxpayer and the housing credit agency enter
into an agreement with respect to such building (which
is binding on such agency, the taxpayer, and all
successors in interest) as to the limitation amount to
be allocated to such building.
A month may be elected under subparagraph (B) only if the
election is made not later than the 5th day after the close of
such month. Such an election, once made, shall be irrevocable.
``(2) Method of prescribing percentages.--The percentages
prescribed by the Secretary for any month shall be percentages
which will yield over a 15-year period amounts of credit under
subsection (a) which have a present value equal to 70 percent
of the qualified basis of the building.
``(3) Method of discounting.--
``(A) In general.--The present value under
paragraph (2) shall be determined--
``(i) as of the last day of the 1st year of
the 15-year period referred to in paragraph
(2),
``(ii) by using a discount rate equal to
the applicable discount percentage of the
average of the annual Federal mid-term rate and
the annual Federal long-term rate applicable
under section 1274(d)(1) to the month
applicable under subparagraph (A) or (B) of
paragraph (1) and compounded annually, and
``(iii) by assuming that the credit
allowable under this section for any year is
received on the last day of such year.
``(B) Applicable discount percentage.--For purposes
of this paragraph, the term `applicable discount
percentage' means, with respect to any month referred
to in subparagraph (A)(ii) the number of percentage
points by which 100 percent exceeds the highest rate of
tax in effect under section 11 for a taxable year which
begins in such month.
``(4) Cross reference.--For treatment of certain
rehabilitation expenditures as separate new buildings, see
subsection (e).''.
(2) Existing and federally subsidized buildings ineligible
for credit.--Section 42(d) is amended--
(A) by striking paragraphs (1), (2), and (6), and
redesignating paragraphs (3), (4), (5), and (7) as
paragraphs (2), (3), (4), and (5), respectively, and
(B) by inserting before paragraph (2) (as so
redesignated) the following new paragraph:
``(1) In general.--The eligible basis of any building is--
``(A) in the case a new building which is not
Federally subsidized for the taxable year, its adjusted
basis as of the close of the 1st taxable year of the
credit period, and
``(B) zero in any other case.''.
(3) Conforming amendments.--
(A) Section 42(e) is amended--
(i) in paragraph (2)(B), by striking
``paragraph (3) or (4)'' and inserting
``paragraph (2) or (3)''.
(ii) in paragraph (3), by striking
subparagraph (B) and redesignating
subparagraphs (C) and (D) as subparagraphs (B)
and (C), respectively,
(iii) in paragraph (4), by striking the
last sentence thereof, and
(iv) by striking paragraph (5) and
redesignating paragraph (6) as paragraph (5).
(B) Section 42(f) is amended by striking paragraph
(5).
(C) Section 42(i)(2)(A) is amended by striking
``for purposes of subsection (b)(1),''.
(D) Section 42(i)(3) is amended--
(i) by striking ``(as defined in subsection
(d)(2)(D)(iii))'' in subparagraph (C)(ii) and
inserting ``(within the meaning of subparagraph
(F))'', and
(ii) by adding at the end the following new
subparagraph:
``(F) Related person.--For purposes of subparagraph
(C), a person (hereinafter in this subparagraph
referred to as the `related person') is related to any
person if the related person bears a relationship to
such person specified in section 267(b) or 707(b)(1),
or the related person and such person are engaged in
trades or businesses under common control (within the
meaning of subsections (a) and (b) of section 52).''.
(E) Section 42(i) is amended by striking paragraph
(5).
(F) Section 42(k)(2)(B) is amended by striking ``,
except that'' and all that follows and inserting a
period.
(d) Repeal of Special Rules for Buildings in High Cost and
Difficult Development Areas.--
(1) In general.--Paragraph (4) of section 42(d), as
redesignated by subsection (c)(2), is amended to read as
follows:
``(4) Federal grants not taken into account in determining
eligible basis.--The eligible basis of a building shall not
include any costs financed with the proceeds of a federally
funded grant.''.
(2) Conforming amendments.--
(A) Paragraph (3) of section 42(d), as redesignated
by subsection (c)(2), is amended--
(i) by striking ``(as defined in paragraph
(5)(C))'' in subparagraph (C)(i), and
(ii) by adding at the end the following new
subparagraph:
``(E) Qualified census tract.--For purposes of this
paragraph--
``(i) In general.--The term `qualified
census tract' means any census tract which is
designated by the Secretary of Housing and
Urban Development and, for the most recent year
for which census data are available on
household income in such tract, either in which
50 percent or more of the households have an
income which is less than 60 percent of the
area median gross income for such year or which
has a poverty rate of at least 25 percent. If
the Secretary of Housing and Urban Development
determines that sufficient data for any period
are not available to apply this subparagraph on
the basis of census tracts, such Secretary
shall apply this subparagraph for such period
on the basis of enumeration districts.
``(ii) Limit on msa's designated.--The
portion of a metropolitan statistical area
which may be designated for purposes of this
subparagraph shall not exceed an area having 20
percent of the population of such metropolitan
statistical area.
``(iii) Determination of areas.--For
purposes of this subparagraph, each
metropolitan statistical area shall be treated
as a separate area and all nonmetropolitan
areas in a State shall be treated as 1 area.''.
(B) Clause (i) of section 42(d)(5)(A), as
redesignated by subsection (c)(2), is amended to read
as follows:
``(i) such building shall be treated as a
new building, but''.
(e) Repeal of Certain Exceptions to Rules Against Preferential
Treatment.--Section 42(g)(9) is amended--
(1) by adding ``or'' at the end of subparagraph (A), and
(2) by striking subparagraphs (B) and (C) and inserting the
following new subparagraph:
``(B) who are veterans (as defined in section 101
of title 38, United States Code).''.
(f) Modification of Selection Criteria.--Section 42(m)(1)(C) is
amended--
(1) by adding ``and'' at the end of clause (vii),
(2) by striking the comma at the end of clause (viii) and
inserting a period, and
(3) by striking clauses (ix) and (x).
(g) Effective Date.--
(1) In general.--The amendments made by this section shall
apply with respect to State limitation amounts determined for
calendar years after 2014 (and to determinations with respect
to allocations of such limitation amounts).
(2) Transition rule.--For purposes of determining the State
limitation amount for calendar year 2015 under section
42(h)(3)(C) of the Internal Revenue Code of 1986, as amended by
this section, the amount described in clause (i) of such
section shall be treated as being equal to the quotient of--
(A) the amount which would be described in section
42(h)(3)(C)(i) of such Code (determined without regard
to the amendments made by this section), divided by
(B) the applicable percentage determined under
section 42(b)(1)(B)(i) for December 2014 (determined
without regard to the amendments made by this section).
SEC. 3205. 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 take
effect on the date of the enactment of this Act.
SEC. 3206. PHASEOUT AND REPEAL OF CREDIT FOR ELECTRICITY PRODUCED FROM
CERTAIN RENEWABLE RESOURCES.
(a) Reduction of Credit and Phaseout Amounts.--
(1) In general.--Section 45(b) is amended by striking
paragraph (2).
(2) Conforming amendments.--Section 45(e)(2) is amended--
(A) by striking ``the inflation adjustment factor
and'' in subparagraph (A), and
(B) by striking subparagraph (B) and redesignating
subparagraph (C) as subparagraph (B).
(3) Effective date.--The amendments made by this subsection
shall apply to electricity, and refined coal, produced and sold
after December 31, 2014.
(b) Special Rule for Determining Beginning of Construction.--
(1) In general.--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) and section
48(a)(5), 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.''.
(2) Effective date.--The amendment made by this subsection
shall apply to taxable years beginning before, on, or after the
date of the enactment of this Act.
(c) Repeal of Credit.--
(1) In general.--Subpart D of part IV of subchapter A of
chapter 1 is amended by striking section 45 (and by striking
the item relating to such section in the table of sections for
such subpart).
(2) Conforming amendment.--Section 38(b) is amended by
striking paragraph (8).
(3) Effective date.--The amendments made by this subsection
shall apply to electricity, and refined coal, produced and sold
after December 31, 2024.
SEC. 3207. REPEAL OF INDIAN EMPLOYMENT CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45A (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Conforming Amendment.--
(1) Section 38(b) is amended by striking paragraph (10).
(2) Section 139D(c)(1) is amended to read as follows:
``(1) Indian tribe.--The term `Indian tribe' means any
Indian tribe, band, nation, pueblo, or other organized group or
community, including any Alaska Native village or regional or
village corporation, as defined in, or established pursuant to,
the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et
seq.) which is recognized as eligible for the special programs
and services provided by the United States to Indians because
of their status as Indians.''.
(3) Section 280C(a) is amended by striking ``45A,''.
(4) Section 5000A(e)(3) is amended by striking ``section
45A(c)(6)'' and inserting ``section 139D(c)(1)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2013.
SEC. 3208. REPEAL OF CREDIT FOR PORTION OF EMPLOYER SOCIAL SECURITY
TAXES PAID WITH RESPECT TO EMPLOYEE CASH TIPS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45B (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 (11).
(2) Section 6501(m) is amended by striking ``45B,''.
(c) Effective Date.--The amendments made by this section shall
apply with respect to tips received for services performed after
December 31, 2014.
SEC. 3209. 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, 2014.
SEC. 3210. REPEAL OF CREDIT FOR SMALL EMPLOYER PENSION PLAN STARTUP
COSTS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45E (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Conforming Amendments.--Section 38(b) is amended by striking
paragraph (14).
(c) Effective Date.--The amendments made by this section shall
apply to costs paid or incurred after December 31, 2014, with respect
to qualified employer plans first effective after such date.
SEC. 3211. 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, 2014.
(2) Basis adjustments.--The amendment made by subsection
(b)(2) shall apply to credits determined for taxable years
beginning after December 31, 2014.
SEC. 3212. REPEAL OF RAILROAD TRACK MAINTENANCE CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45G (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 (16).
(2) Section 1016(a) is amended by striking paragraph (29).
(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, 2013.
(2) Basis adjustments.--The amendment made by subsection
(b)(2) shall apply to credits determined for taxable years
beginning after December 31, 2013.
SEC. 3213. REPEAL OF CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45H (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 (18).
(2) Section 280C is amended by striking subsection (d).
(3) Section 6501(m) is amended by striking ``45H(g),''.
(4) Section 6720A is amended--
(A) by striking ``(as defined in section
45H(c)(3))'' in subsection (a), and
(B) by adding at the end the following new
subsection:
``(c) Applicable EPA Regulations.--The term `applicable EPA
regulations' means the Highway Diesel Fuel Sulfur Control Requirements
of the Environmental Protection Agency.''.
(c) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred in taxable years beginning after
December 31, 2014.
SEC. 3214. 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, 2014.
SEC. 3215. REPEAL OF CREDIT FOR PRODUCTION FROM ADVANCED NUCLEAR POWER
FACILITIES.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45J (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 (21).
(c) Effective Date.--The amendments made by this section shall
apply to electricity produced and sold after December 31, 2014.
SEC. 3216. REPEAL OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL
SOURCE.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45K (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 (22).
(2) Section 45(e)(9) is amended--
(A) in subparagraph (A)--
(i) by inserting ``, as in effect before
its repeal'' after ``within the meaning of
section 45K'', and
(ii) by inserting ``(as in effect before
its repeal)'' after ``under section 45K'', and
(B) in subparagraph (B), by inserting ``(as in
effect before its repeal)'' after ``section 45K''.
(3) Section 4041(a)(2) is amended--
(A) by striking ``(as defined in section
45K(c)(3))'' in subparagraph (B)(ii), and
(B) by adding at the end the following new
subparagraph:
``(C) Biomass.--The term ``biomass'' means any
organic material other than--
``(i) oil and natural gas (or any product
thereof), and
``(ii) coal (including lignite) or any
product thereof.''.
(c) Effective Date.--The amendments made by this section shall
apply to fuel produced and sold after December 31, 2013.
SEC. 3217. REPEAL OF NEW ENERGY EFFICIENT HOME CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45L (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 (23).
(2) Section 1016(a) is amended by striking paragraph (32).
(c) Effective Date.--The amendments made by this section shall
apply to homes acquired after December 31, 2013.
SEC. 3218. REPEAL OF ENERGY EFFICIENT APPLIANCE CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45M (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 (24).
(c) Effective Date.--The amendments made by this section shall
apply to appliances produced after December 31, 2013.
SEC. 3219. REPEAL OF MINE RESCUE TEAM TRAINING CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45N (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 (31).
(2) Section 280C is amended by striking subsection (e).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2013.
SEC. 3220. REPEAL OF AGRICULTURAL CHEMICALS SECURITY CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45O (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 (32).
(2) Section 280C is amended by striking subsection (f).
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2012.
SEC. 3221. REPEAL OF CREDIT FOR CARBON DIOXIDE SEQUESTRATION.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45Q (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 (34).
(c) Effective Date.--The amendments made by this section shall
apply to credits determined for taxable years beginning after December
31, 2014.
SEC. 3222. REPEAL OF CREDIT FOR EMPLOYEE HEALTH INSURANCE EXPENSES OF
SMALL EMPLOYERS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
is amended by striking section 45R (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 (36).
(2) Section 280C is amended by striking subsection (h).
(3) Section 6055(b)(2) is amended 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).
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred for taxable years beginning after
December 31, 2014.
SEC. 3223. 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 Reform Act of 2014)'' 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
after December 31, 2014.
(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) acquired by the taxpayer before January 1,
2015, 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 January 1, 2015,
the amendments made by this section shall apply to amounts paid
after December 31, 2016.
SEC. 3224. REPEAL OF ENERGY CREDIT.
(a) Termination.--Section 48 is amended by adding at the end the
following new subsection:
``(e) Application of Section.--This section shall not apply to any
energy property placed in service after December 31, 2016.''.
(b) Conforming Amendments.--
(1) Paragraph (2)(A)(i)(II), and clauses (ii) and (vii) of
paragraph (3)(A), of section 48(a) are each amended by striking
``but only with respect to periods ending before January 1,
2017''.
(2) Paragraph (1) of section 48(c) is amended by striking
subparagraph (D).
(3) Paragraph (2) of section 48(c) is amended by striking
subparagraph (D).
(4) Subparagraph (A) of section 48(c)(3) is amended by
inserting ``and'' at the end of clause (ii), by striking ``,
and'' at the end of clause (iii) and inserting a period, and by
striking clause (iv).
(5) Paragraph (4) of section 48(c) is amended by striking
subparagraph (C).
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2016.
SEC. 3225. REPEAL OF QUALIFYING ADVANCED COAL PROJECT CREDIT.
(a) In General.--Subpart E of part IV of subchapter A of chapter 1
is amended by striking section 48A (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Effective Date.--The amendments made by this section shall
apply to allocations and reallocations after December 31, 2014.
SEC. 3226. REPEAL OF QUALIFYING GASIFICATION PROJECT CREDIT.
(a) In General.--Subpart E of part IV of subchapter A of chapter 1
is amended by striking section 48B (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Effective Date.--The amendments made by this section shall
apply to allocations and reallocations after December 31, 2014.
SEC. 3227. REPEAL OF QUALIFYING ADVANCED ENERGY PROJECT CREDIT.
(a) In General.--Subpart E of part IV of subchapter A of chapter 1
is amended by striking section 48C (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Effective Date.--The amendments made by this section shall
apply to allocations and reallocations after December 31, 2014.
SEC. 3228. REPEAL OF QUALIFYING THERAPEUTIC DISCOVERY PROJECT CREDIT.
(a) In General.--Subpart E of part IV of subchapter A of chapter 1
is amended by striking section 48D (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Conforming Amendments.--Section 280C is amended by striking the
second subsection (g) (as added by the Patient Protection and
Affordable Care Act).
(c) Effective Date.--The amendments made by this section shall
apply to allocations and reallocations after December 31, 2014.
SEC. 3229. 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, 2013.
SEC. 3230. 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, 2014.
Subtitle D--Accounting Methods
SEC. 3301. LIMITATION ON USE OF CASH METHOD OF ACCOUNTING.
(a) In General.--Section 448 is amended to read as follows:
``SEC. 448. LIMITATION ON USE OF CASH METHOD OF ACCOUNTING.
``(a) In General.--The cash receipts and disbursements method of
accounting may only be used by--
``(1) a natural person,
``(2) a farming business, and
``(3) any other entity which meets the gross receipts test
of subsection (b) for the taxable year.
Such method may not be used by a tax shelter (as defined in subsection
(d)).
``(b) Gross Receipts Test.--For purposes of this section--
``(1) In general.--An entity 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 $10,000,000.
``(2) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414 shall be treated as one
entity for purposes of paragraph (1).
``(3) Special rules.--For purposes of this subsection--
``(A) Not in existence for entire 3-year period.--
If the entity was not in existence for the entire 3-
year period referred to in paragraph (1), such
paragraph shall be applied on the basis of the period
during which such entity (or trade or business) was in
existence.
``(B) Short taxable years.--Gross receipts for any
taxable year of less than 12 months shall be annualized
by multiplying the gross receipts for the short period
by 12 and dividing the result by the number of months
in the short period.
``(C) Gross receipts.--Gross receipts for any
taxable year shall be reduced by returns and allowances
made during such year.
``(D) Treatment of predecessors.--Any reference in
this subsection to an entity shall include a reference
to any predecessor of such entity.
``(c) Farming Business.--For purposes of this section--
``(1) In general.--The term `farming business' means the
trade or business of farming.
``(2) Certain trades and businesses included.--
``(A) In general.--The term `farming business'
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.
``(B) Certain evergreen trees not treated as
ornamental.--For purposes of subparagraph (A)(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.
``(d) Tax Shelter Defined.--For purposes of this section, the term
`tax shelter' has the meaning given such term by section 461(i)(2)
(determined after application of paragraph (3) thereof). An S
corporation shall not be treated as a tax shelter for purposes of this
section merely by reason of being required to file a notice of
exemption from registration with a State agency described in section
461(i)(2)(A), but only if there is a requirement applicable to all
corporations offering securities for sale in the State that to be
exempt from such registration the corporation must file such a notice.
``(e) Special Rules.--For purposes of this section--
``(1) Coordination with section 481.--In the case of any
person required by this section to change its method of
accounting for any taxable year--
``(A) such change shall be treated as initiated by
such person, and
``(B) such change shall be treated as made with the
consent of the Secretary.
``(2) Use of related parties, etc.--The Secretary shall
prescribe such regulations as may be necessary to prevent the
use of related parties, pass-thru entities, or intermediaries
to avoid the application of this section.''.
(b) Conforming Amendments.--
(1) Section 446(c)(1) is amended by inserting ``to the
extent provided in section 448,'' before ``the cash receipts''.
(2) Section 451 is amended by adding at the end the
following new subsection:
``(j) Special Rule for Losses of Certain Service Providers on
Accrual Method of Accounting.--
``(1) In general.--In the case of any person using an
accrual method of accounting with respect to amounts to be
received for the performance of services by such person, such
person shall not be required to accrue any portion of such
amounts which (on the basis of such person's experience) will
not be collected if such services are in the fields of health,
law, engineering, architecture, accounting, actuarial science,
performing arts, consulting, or any other field identified by
the Secretary for purposes of this subsection.
``(2) Exception.--Paragraph (1) shall not apply to any
amount if interest is required to be paid on such amount or
there is any penalty for failure to timely pay such amount.
``(3) Regulations.--The Secretary shall prescribe
regulations to permit taxpayers to determine amounts referred
to in paragraph (1) using computations or formulas which, based
on experience, accurately reflect the amount of income that
will not be collected by such person. A taxpayer may adopt, or
request consent of the Secretary to change to, a computation or
formula that clearly reflects the taxpayer's experience. A
request under the preceding sentence shall be approved if such
computation or formula clearly reflects the taxpayer's
experience.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(d) Change in Method of Accounting.--
(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, 2014--
(A) such change shall be treated as initiated by
the taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) if the net amount of the adjustments required
to be taken into account by the taxpayer under section
481 of the Internal Revenue Code of 1986 by reason of
such change is positive--
(i) such amount shall be taken into account
during the 4-taxable year period beginning with
the earlier of the taxpayer's elected taxable
year or the taxpayer's first taxable year
beginning after December 31, 2018, as follows:
(I) 10 percent of such amount in
the first taxable year in such period,
(II) 15 percent of such amount in
the second taxable year in such period,
(III) 25 percent of such amount in
the third taxable year in such period,
and
(IV) 50 percent of such amount in
the fourth taxable year in such period,
and
(ii) for purposes of applying the
regulations and other guidance issued under
such section (including any provisions which
require accelerated inclusion), the period
beginning with the taxpayer's first taxable
year beginning after December 31 2014, and
ending with the taxable year before the first
taxable year referred to in clause (i) shall
not fail to be taken into account as part of
the period of the adjustment merely because
such amount is not otherwise taken into account
under clause (i) during such period.
(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.
(3) Elected taxable year.--For purposes of this subsection,
the term ``elected taxable year'' means such taxable year as
the taxpayer may elect (at such time and in such form and
manner as the Secretary may provide) which begins after
December 31, 2014, and is before the taxpayer's second taxable
year beginning after December 31, 2018.
SEC. 3302. RULES FOR DETERMINING WHETHER TAXPAYER HAS ADOPTED A METHOD
OF ACCOUNTING.
(a) In General.--Section 446 is amended by adding at the end the
following new subsection:
``(g) Rules for Treating Accounting Method as Adopted by
Taxpayer.--If the taxpayer uses a method of accounting with respect to
any item on any return of tax--
``(1) in the case of any method of accounting which the
taxpayer is permitted to use with respect to such item, such
method shall be treated as having been adopted by the taxpayer
with respect to such item, and
``(2) in the case of any method of accounting which the
taxpayer is not permitted to use with respect to such item,
such method shall be treated as having been adopted by the
taxpayer with respect to such item if the taxpayer used the
same method with respect to such item on the return of tax for
the preceding taxable year.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3303. 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 (j) as
subsection (c) through (k), respectively, and by inserting after
subsection (a) the following new subsection:
``(b) Inclusion Not Later Than for Financial Accounting Purposes.--
``(1) In general.--In the case of a taxpayer the taxable
income of which is computed under the accrual method of
accounting, the amount of any portion of any item of income
shall be included in gross income not later than the taxable
year with respect to which such amount is taken into account as
income in--
``(A) an audited financial statement of the
taxpayer described in section 1221(b)(3)(B), or
``(B) such other financial statement as the
Secretary may specify for purposes of this subsection.
``(2) Coordination with special rules for long-term
contracts.--Paragraph (1) shall not apply with respect to any
item of income to which section 460 applies.''.
(b) Treatment of Advance Payments.--Section 451, as amended by
subsection (a), is amended by redesignating subsections (c) through (k)
as subsections (d) through (l), 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) 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), and
``(ii) 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,
``(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) Crop Insurance Proceeds and Disaster Payments.--Section 451, as
amended by subsections (a) and (b), is amended by striking subsection
(f).
(d) Livestock Sold on Account of Drought, Flood, and Other Weather-
Related Conditions.--Section 451, as amended by subsections (a) and
(b), is amended by striking subsection (g).
(e) Sales or Dispositions To Implement Federal Energy Regulatory
Commission or State Electric Restructuring Policy.--Section 451, as
amended by subsections (a) and (b), is amended by striking subsection
(k).
(f) Conforming Amendments.--Section 451, as amended by subsections
(a), (b), (c), (d), and (e), is amended by redesignating subsections
(h), (i), (j), and (l) as subsections (f), (g), (h), and (i),
respectively.
(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, 2014.
(2) Crop insurance proceeds and disaster payments.----
(A) In general.--Except as provided in subparagraph
(B), the amendments made by subsection (c) shall apply
to destruction and damage of crops occurring after
December 31, 2014.
(B) Inability to plant.--In the case of inability
to plant crops because of a natural disaster, the
amendments made by subsection (c) shall apply to
natural disasters occurring after December 31, 2014.
(3) Livestock.--The amendments made by subsection (d) shall
apply to sales and exchanges after December 31, 2014.
(4) Sales or dispositions to implement electric
restructuring policy.--The amendments made by subsection (e)
shall apply to sales and dispositions after December 31, 2013.
(5) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by subsections (a) and
(b) to change its method of accounting for its first taxable
year beginning after December 31, 2014--
(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.
SEC. 3304. INSTALLMENT SALES.
(a) Repeal of Exceptions to Treatment as Dealer Dispositions.--
Section 453(l) is amended to read as follows:
``(l) Dealer Dispositions.--For purposes of subsection (b)(2)(A),
the term `dealer disposition' means any of the following dispositions:
``(1) Personal property.--Any disposition of personal
property by a person who regularly sells or otherwise disposes
of personal property of the same type on the installment plan.
``(2) Real property.--Any disposition of real property
which is held by the taxpayer for sale to customers in the
ordinary course of the taxpayer's trade or business.''.
(b) Modification of Rules for Nondealers.--
(1) Repeal of special rule for interest payments.--Section
453A(b)(2) is amended to read as follows:
``(2) Interest payment exception for obligations not
outstanding at close of taxable year.--Subsection (a)(1) shall
apply to an obligation described in paragraph (1) arising
during any taxable year only if such obligation is outstanding
as of the close of such taxable year.''.
(2) Repeal of exception for farm property.--Section
453A(b)(3) is amended--
(A) by striking ``from the disposition--'' and all
that follows and inserting ``from the disposition by an
individual of personal use property (within the meaning
of section 1275(b)(3)).'', and
(B) by striking ``and farm'' in the heading.
(3) Repeal of special rule for timeshares and residential
lots.--Section 453A(b) is amended by striking paragraph (4) and
by redesignating paragraph (5) as paragraph (4).
(4) Conforming amendment.--Section 453A(c) is amended--
(A) by striking ``the applicable percentage of'' in
paragraph (2)(A), and
(B) by striking paragraph (4) and by redesignating
paragraphs (5) and (6) as paragraphs (4) and (5),
respectively.
(c) Effective Date.--The amendments made by this section shall
apply to sales and other dispositions after December 31, 2014.
SEC. 3305. REPEAL OF SPECIAL RULE FOR PREPAID SUBSCRIPTION INCOME.
(a) In General.--Subpart B of part II of subchapter E of chapter 1
is amended by striking section 455 (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Effective Date.--The amendments made by this section shall
apply to payments received after December 31, 2014.
SEC. 3306. REPEAL OF SPECIAL RULE FOR PREPAID DUES INCOME OF CERTAIN
MEMBERSHIP ORGANIZATIONS.
(a) In General.--Subpart B of part II of subchapter E of chapter 1
is amended by striking section 456 (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Conforming Amendment.--Section 277(b)(2) is amended by
inserting ``(as in effect before its repeal)'' after ``section
456(c)''.
(c) Effective Date.--The amendments made by this section shall
apply to payments received after December 31, 2014.
SEC. 3307. REPEAL OF SPECIAL RULE FOR MAGAZINES, PAPERBACKS, AND
RECORDS RETURNED AFTER CLOSE OF THE TAXABLE YEAR.
(a) In General.--Subpart B of part II of subchapter E of chapter 1
is amended by striking section 458 (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by this section to
change its method of accounting for its first taxable year
beginning after December 31, 2014--
(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.
SEC. 3308. MODIFICATION OF RULES FOR LONG-TERM CONTRACTS.
(a) Repeal of Exception for Home Construction Contracts.--Paragraph
(1) of section 460(e) is amended to read as follows:
``(1) Exception for certain construction contracts.--
Subsections (a), (b), and (c)(1) and (2) shall not apply to any
construction contract entered into by a taxpayer--
``(A) who estimates (at the time such contract is
entered into) that such contract will be completed
within the 2-year period beginning on the contract
commencement date of such contract, and
``(B) whose average annual gross receipts for the 3
taxable years preceding the taxable year in which such
contract is entered into do not exceed $10,000,000.
For purposes of this paragraph, rules similar to the rules of
paragraphs (2) and (3) of section 448(b) shall apply.''.
(b) Repeal of Special Rule for Other Residential Construction
Contracts.--Section 460(e) is amended by striking paragraphs (5) and
(6).
(c) Repeal of Special Rules for Qualified Ship Contracts.--
(1) In general.--Section 10203(b) of the Revenue Act of
1987 is amended by striking paragraph (2).
(2) Qualified naval ship contracts.--The American Jobs
Creation Act of 2004 is amended by striking section 708.
(d) Conforming Amendments.--Section 460(e) is amended by striking
paragraphs (2) and (3) and by redesignating paragraph (4) as paragraph
(2).
(e) Effective Date.--The amendments made by this section shall
apply to contracts entered into after December 31, 2014.
SEC. 3309. NUCLEAR DECOMMISSIONING RESERVE FUNDS.
(a) Gross Income on Nuclear Decommissioning Reserve Funds Taxed at
Corporate Rate.--Section 468A(e)(2) is amended by striking ``at the
rate of 20 percent'' and inserting ``at a rate equal to the maximum
rate in effect for such taxable year under section 11''.
(b) Income Inclusion Upon Disqualified Distribution.--Section
468A(c)(1) 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) if any distribution is made from the Fund
during such taxable year which is not used as provided
in subsection (e)(4), the balance of the Fund
determined immediately before such distribution.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3310. REPEAL OF LAST-IN, FIRST-OUT METHOD OF INVENTORY.
(a) In General.--Section 471 is amended by redesignating subsection
(c) as subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Last-In, First-Out Method Not Permissible.--The last-in,
first-out method of determining inventories shall in no event be
treated as clearly reflecting income.''.
(b) Conforming Amendments.--
(1) Subpart D of part II of subchapter E of chapter 1 is
amended by striking sections 472, 473, and 474 (and by striking
the items relating to such sections in the table of sections
for such subpart).
(2)(A) Section 312(n), as amended by the preceding
provisions of this Act, is amended by striking paragraph (3)
and by redesignating paragraphs (4) through (7) as paragraphs
(3) through (6), respectively.
(B) Section 312(n)(6), as amended by the preceding
provisions of this Act, is amended--
(i) by striking ``paragraphs (4) and (6)'' in
subparagraph (A) and inserting ``paragraph (4)'', and
(ii) by striking ``paragraph (5)'' in subparagraph
(B) and inserting ``paragraph (3)''.
(C) Section 301(e)(3), as amended by the preceding
provisions of this Act, is amended--
(i) by striking ``paragraph (6)'' and inserting
``paragraph (5)'', and
(ii) by striking ``section 312(n)(6)'' in the
heading and inserting ``section 312(n)(5)''.
(D) Section 952(c)(3), as amended by the preceding
provisions of this Act, is amended by striking ``paragraphs
(3), (4), and (5)'' and inserting ``paragraphs (2), (3), and
(4)''.
(E) Section 1293(e)(3), as amended by the preceding
provisions of this Act, is amended by striking ``paragraphs
(3), (4), and (5)'' and inserting ``paragraphs (2), (3), and
(4)''.
(F) Section 1503(e)(2)(C), as amended by the preceding
provisions of this Act, is amended--
(i) by striking ``paragraph (6)'' and inserting
``paragraph (5)'', and
(ii) by striking ``section 312(n)(6)'' in the
heading and inserting ``section 312(n)(5)''.
(3) Section 1363 is amended by striking subsection (d).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(d) Change in Method of Accounting.--
(1) In general.--In the case of any taxpayer required by
the amendments made by this section to change its method of
accounting for its first taxable year beginning after December
31, 2014--
(A) such change shall be treated as initiated by
the taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) if the net amount of the adjustments required
to be taken into account by the taxpayer under section
481 of the Internal Revenue Code of 1986 by reason of
such change is positive--
(i) such amount shall be taken into account
during the 4-taxable year period beginning with
the earlier of the taxpayer's elected taxable
year or the taxpayer's first taxable year
beginning after December 31, 2018, as follows:
(I) 10 percent of such amount in
the first taxable year in such period,
(II) 15 percent of such amount in
the second taxable year in such period,
(III) 25 percent of such amount in
the third taxable year in such period,
and
(IV) 50 percent of such amount in
the fourth taxable year in such period,
and
(ii) for purposes of applying the
regulations and other guidance issued under
such section (including any provisions which
require accelerated inclusion), the period
beginning with the taxpayer's first taxable
year beginning after December 31 2014, and
ending with the taxable year before the first
taxable year referred to in clause (i) shall
not fail to be taken into account as part of
the period of the adjustment merely because
such amount is not otherwise taken into account
under clause (i) during such period.
(2) Elected taxable year.--For purposes of this subsection,
the term ``elected taxable year'' means such taxable year as
the taxpayer may elect (at such time and in such form and
manner as the Secretary may provide) which begins after
December 31, 2014, and is before the taxpayer's second taxable
year beginning after December 31, 2018.
(3) Reduction in amount of adjustment for closely-held
entities.--
(A) In general.--In the case of any closely-held
entity, paragraph (1)(C) shall be applied by treating
any reference to ``such amount'' as a reference to 20
percent (28 percent in the case of a C corporation) of
such amount.
(B) Closely-held entity.--For purposes of this
paragraph--
(i) In general.--The term ``closely-held
entity'' means any domestic corporation or
domestic partnership which--
(I) is not an ineligible entity,
(II) does not have more than 100
shareholders or partners (as the case
may be), and
(III) does not have as a
shareholder or partner a person (other
than an estate, a trust described in
section 1361(c)(2) of the Internal
Revenue Code of 1986, or an
organization described section
1361(c)(6) of such Code) who is not an
individual.
(ii) Certain subsidiaries.--An entity shall
not fail to be treated as a closely-held entity
by reason of clause (i)(III) if all of the
interests in such entity are held by a single
closely-held entity (determined without regard
to this clause) and individuals taken into
account under clause (i)(II) with respect to
such entity. In the case of tiered entities
(other than the top tier entity), the preceding
sentence shall be applied--
(I) by substituting ``(determined
after application of this clause)'' for
``(determined without regard to this
clause)'', and
(II) by substituting ``with respect
to the top tier entity'' for ``with
respect to such entity''.
(iii) Ineligible entity.--The term
``ineligible entity'' means any entity
described in section 1361(b)(2) of the Internal
Revenue Code of 1986 applied by substituting
``corporation or partnership'' for
``corporation'' each place it appears.
(iv) Date of determination.--The status of
any entity as a closely-held entity shall be
determined as of February 26, 2014.
(v) Sole proprietors.--An individual
operating a trade or business shall be treated
as a closely-held entity.
(C) Certain transfers disregarded.--
(i) In general.--In the case of any
specified inventory transfer, the adjustments
referred to in paragraph (1)(C) shall be
determined--
(I) with respect to the transferor,
as though the property transferred
continued to be held at all times by
such transferor, and
(II) with respect to the
transferee, as though such property was
never transferred to such transferee.
(ii) Specified inventory transfer.--The
term ``specified inventory transfer'' means any
transfer of property described in section
1221(a)(1) if--
(I) such transfer is to a closely-
held entity from any person who is not
a closely-held entity,
(II) such transfer is on or after
February 26, 2014, and before the
beginning of the transferor's first
taxable year beginning after December
31, 2014, and
(III) the basis of such property in
the hands of the transferee immediately
after such transfer is either
determined by reference to the basis of
such property in the hands of the
transferor or is less than the fair
market value of such property at the
time of such transfer.
SEC. 3311. REPEAL OF LOWER OF COST OR MARKET METHOD OF INVENTORY.
(a) In General.--Section 471, as amended by the preceding
provisions of this Act, is amended by redesignating subsection (d) as
subsection (e) and by inserting after subsection (c) the following new
subsection:
``(d) Lower of Cost or Market Method Not Permissible.--The lower of
cost or market method of determining inventories shall in no event be
treated as clearly reflecting income. For purposes of the preceding
sentence, the lower of cost or market shall include the lower of cost
or bona fide net selling price.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(c) Change in Method of Accounting.--
(1) In general.--In the case of any taxpayer required by
the amendments made by this section to change its method of
accounting for its first taxable year beginning after December
31, 2014--
(A) such change shall be treated as initiated by
the taxpayer,
(B) such change shall be treated as made with the
consent of the Secretary of the Treasury, and
(C) if the net amount of the adjustments required
to be taken into account by the taxpayer under section
481 of the Internal Revenue Code of 1986 by reason of
such change is positive--
(i) such amount shall be taken into account
during the 4-taxable year period beginning with
the earlier of the taxpayer's elected taxable
year or the taxpayer's first taxable year
beginning after December 31, 2018, as follows:
(I) 10 percent of such amount in
the first taxable year in such period,
(II) 15 percent of such amount in
the second taxable year in such period,
(III) 25 percent of such amount in
the third taxable year in such period,
and
(IV) 50 percent of such amount in
the fourth taxable year in such period,
and
(ii) for purposes of applying the
regulations and other guidance issued under
such section (including any provisions which
require accelerated inclusion), the period
beginning with the taxpayer's first taxable
year beginning after December 31 2014, and
ending with the taxable year before the first
taxable year referred to in clause (i) shall
not fail to be taken into account as part of
the period of the adjustment merely because
such amount is not otherwise taken into account
under clause (i) during such period.
(2) Elected taxable year.--For purposes of this subsection,
the term ``elected taxable year'' means such taxable year as
the taxpayer may elect (at such time and in such form and
manner as the Secretary may provide) which begins after
December 31, 2014, and is before the taxpayer's second taxable
year beginning after December 31, 2018.
SEC. 3312. MODIFICATION OF RULES FOR CAPITALIZATION AND INCLUSION IN
INVENTORY COSTS OF CERTAIN EXPENSES.
(a) $10,000,000 Gross Receipts Exception To Apply to Property
Produced by the Taxpayer.--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 taxpayer with gross receipts of
$10,000,000 or less.--This section shall not apply to any
property produced or acquired by the taxpayer during any
taxable year if the average annual gross receipts of the
taxpayer (or any predecessor) for the 3-taxable year period
ending with the taxable year preceding such taxable year do not
exceed $10,000,000. For purposes of this paragraph, rules
similar to the rules of paragraphs (2) and (3) of section
448(b) shall apply.
``(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.''.
(b) Repeal of Exceptions for Timber and Certain Ornamental Trees.--
Section 263A(c) is amended by striking paragraph (5).
(c) Repeal of Exception for Qualified Creative Expenses.--Section
263A is amended by striking subsection (h).
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by this section to
change its method of accounting for its first taxable year
beginning after December 31, 2014--
(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.
SEC. 3313. MODIFICATION OF INCOME FORECAST METHOD.
(a) Extension of Forecast Period.--
(1) In general.--Paragraph (1) of section 167(g) is amended
by striking ``10th'' each place it appears and inserting
``20th''.
(2) Modification of recomputation years.--Paragraph (4) of
section 167(g) is amended by striking ``the 3d and the 10th''
and inserting ``the 5th, 10th, 15th, and 20th''.
(b) Modification of Rules for Treatment of Participations and
Residuals.--Paragraph (7) of section 167(g) is amended to read as
follows:
``(7) Treatment of participations and residuals.--
``(A) In general.--In the case of any participation
or residual with respect to any property to which this
subsection applies (including any property to which
section 168 applies by reason of paragraph (8)), the
taxpayer--
``(i) shall exclude such participation or
residual from the adjusted basis of such
property, and
``(ii) shall be allowed a deduction for
such participation or residual in the taxable
year in which such participation or residual is
paid.
``(B) Participations and residuals.--For purposes
of this paragraph, the term `participation or residual'
means, with respect to any property, any cost the
amount of which by contract varies with the amount of
income earned in connection with such property.''.
(c) Election To Utilize 20-Year Straight Line Recovery.--Subsection
(g) of section 167 is amended by redesignating (8) as paragraph (9) and
by inserting after paragraph (7) the following new paragraph:
``(8) Election to utilize 20-year straight line recovery.--
If the taxpayer elects the application of this paragraph for
any taxable year, the depreciation deduction allowable with
respect to any property placed in service by the taxpayer
during such taxable year which would otherwise be determined
under paragraph (1) shall be determined under section 168--
``(A) by treating the straight line method as the
applicable depreciation method, and
``(B) by treating 20 years as the applicable
recovery period.''.
(d) Repeal of Special Rules for Certain Musical Works and
Copyrights.--Subsection (g) of section 167, as amended by subsection
(c), is amended by striking paragraph (9).
(e) Safe Harbor Amortization of Certain Intangible Assets.--
Effective for property placed in service after December 31, 2014, the
Secretary of the Treasury, or the Secretary's designee, shall revise
Treasury Regulation section 1.167(a)-3(b) (and such regulation shall be
applied) such that the safe harbor amortization for certain intangible
assets to which such regulation applies shall allow the taxpayer to
treat such asset as having a useful life equal to 20 years (and not 15
years).
(f) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2014.
SEC. 3314. REPEAL OF AVERAGING OF FARM INCOME.
(a) In General.--Subchapter Q of chapter 1 is amended by striking
part I (and by striking the item relating to such part in the table of
parts for such subchapter).
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3315. TREATMENT OF PATENT OR TRADEMARK INFRINGEMENT AWARDS.
(a) In General.--Part II of subchapter B of chapter 1 is amended by
adding at the end the following new section:
``SEC. 91. PATENT OR TRADEMARK INFRINGEMENT AWARDS.
``(a) In General.--Except as provided in subsection (b), any
payment received for infringement of any patent or trademark (whether
by reason of judgment or settlement) shall be included in gross income
as ordinary income.
``(b) Impairment of Capital.--If the taxpayer demonstrates to the
satisfaction of the Secretary that a payment described in subsection
(a) constitutes damages received by reason of the reduction in value of
property of the taxpayer caused by the infringement referred to in
subsection (a)--
``(1) the taxpayer's basis in such property shall be
reduced (but not below zero) by the amount of such payment, and
``(2) subsection (a) shall apply to so much of such payment
as exceeds the amount of the reduction under paragraph (1).''.
(b) Conforming Amendments.--
(1) Section 1016(a) is amended by adding at the end the
following new paragraph:
``(38) to the extent provided in section 91(b)(1),''.
(2) 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. Patent or trademark infringement awards.''.
(c) Effective Date.--The amendments made by this section shall
apply to payments received pursuant to judgments and settlements after
December 31, 2014.
SEC. 3316. REPEAL OF REDUNDANT RULES WITH RESPECT TO CARRYING CHARGES.
(a) In General.--Part IX of subchapter B of chapter 1 is amended by
striking section 266 (and by striking the item relating to such section
in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Section 163(n) is amended by striking paragraph (3) and
by redesignating paragraphs (4) and (5) as paragraphs (3) and
(4), respectively.
(2) Section 1016(a)(1)(A)(i), as amended by section 3514,
is amended by striking ``described in section 266''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2014.
SEC. 3317. REPEAL OF RECURRING ITEM EXCEPTION FOR SPUDDING OF OIL OR
GAS WELLS.
(a) In General.--Section 461(i) is amended by striking paragraph
(2) and by redesignating paragraphs (3), (4), and (5) as paragraphs
(2), (3), and (4), respectively.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
Subtitle E--Financial Instruments
PART 1--DERIVATIVES AND HEDGES
SEC. 3401. TREATMENT OF CERTAIN DERIVATIVES.
(a) In General.--Subchapter E of chapter 1 is amended by adding at
the end the following new part:
``PART IV--DERIVATIVES
``Sec. 485. Treatment of certain derivatives.
``Sec. 486. Derivative defined.
``SEC. 485. TREATMENT OF CERTAIN DERIVATIVES.
``(a) In General.--For purposes of this subtitle--
``(1) any derivative held by a taxpayer at the close of the
taxable year shall be treated as sold for its fair market value
on the last business day of such taxable year (and any gain or
loss shall be taken into account for the taxable year), and
``(2) proper adjustment shall be made in the amount of any
gain or loss subsequently realized for gain or loss taken into
account by reason of paragraph (1).
``(b) Treatment as Ordinary Income or Loss; Allowance as Net
Operating Loss.--All items of income, gain, loss, and deduction with
respect to any derivative--
``(1) shall be treated as ordinary income or loss, and
``(2) shall be treated for purposes of section 172(d)(4) as
attributable to a trade or business of the taxpayer.
``(c) Mark to Market of Certain Offsetting Positions.--
``(1) In general.--In the case of any straddle which
includes any derivative, subsections (a) and (b) shall apply to
all positions comprising such straddle in the same manner as
such subsections apply to such derivative.
``(2) Application to built-in gain positions.--
``(A) In general.--In the case of any built-in gain
position to which subsection (a) applies by reason of
paragraph (1)--
``(i) in addition to any other time at
which such position is treated as sold under
subsection (a)(1), such position shall be
treated as sold for its fair market value at
the time that the straddle is established with
respect to such position,
``(ii) proper adjustment shall be made in
the amount of any gain or loss subsequently
realized for gain taken into account by reason
of clause (i), and
``(iii) subsection (b) shall not apply to
any gain taken into account by reason of clause
(i).
``(B) Built-in gain position.--For purposes of this
subsection, the term `built-in gain position' means any
position (other than a derivative to which subsection
(a) applies) with respect to which a gain would be
realized if such position were sold for its fair market
value at the time that the straddle is established with
respect to such position.
``(C) Exception for straight debt.--Subparagraph
(A) shall not apply to any position with respect to
debt if--
``(i) the interest payments (or other
similar amounts) with respect to such position
meet the requirements of section
860G(a)(1)(B)(i), and
``(ii) such position is not convertible
(directly or indirectly) into stock of the
issuer or any related person.
``(D) Exception for straddles consisting of
qualified covered call options and the optioned
stock.--Subparagraph (A) shall not apply to any
position which is part of a straddle if--
``(i) all the offsetting positions which
are part of such straddle consist of 1 or more
qualified covered call options (as defined in
paragraph (6)) and the stock to be purchased
from the taxpayer under such options, and
``(ii) such straddle is not part of a
larger straddle.
``(3) Application to built-in loss positions.--
``(A) In general.--In the case of any built-in loss
position to which subsection (a) applies by reason of
paragraph (1), any gain or loss realized under
subsection (a)(1) shall be properly adjusted so as not
to take into account the loss referred to in
subparagraph (B) with respect to such position.
``(B) Built-in loss position.--For purposes of
subparagraph (A), the term `built-in loss position'
means any position (other than a derivative to which
subsection (a) applies) with respect to which a loss
would be realized if such position were sold for its
fair market value at the time that the straddle is
established with respect to such position.
``(4) Holding period of non-derivatives.--For purposes of
section 1222, in the case of any position to which subsection
(a) applies by reason of paragraph (1), the holding period of
such position shall not include--
``(A) the period during which subsection (a)
applies to such position, and
``(B) in the case of a built-in gain position, the
period before such position is treated as sold under
paragraph (2)(A).
``(5) Straddle.--For purposes of this section--
``(A) the term `straddle' has the meaning given
such term by section 1092(c) applied by treating all
offsetting positions as being with respect to personal
property, and
``(B) the term `position' includes any derivative.
``(6) Qualified covered call options.--
``(A) In general.--For purposes of paragraph
(2)(D), the term `qualified covered call option' means
any option granted by the taxpayer to purchase stock
held by the taxpayer (or stock acquired by the taxpayer
in connection with the granting of the option) but only
if--
``(i) such option is traded on a national
securities exchange which is registered with
the Securities and Exchange Commission or other
market which the Secretary determines has rules
adequate to carry out the purposes of this
paragraph,
``(ii) such option is granted--
``(I) more than 30 days before the
day on which the option expires, and
``(II) not more than 90 days before
the day on which the option expires,
``(iii) such option is not granted by an
options dealer (as defined in subparagraph (B))
in connection with such dealer's activity of
dealing in options, and
``(iv) gain or loss with respect to such
option would not be ordinary income or loss if
determined without regard to this section.
``(B) Options dealer.--For purposes of subparagraph
(A), the term `options dealer' means--
``(i) any person registered with an
appropriate national securities exchange as a
market maker or specialist in listed options,
and
``(ii) to the extent provided by the
Secretary consistent with the purposes of this
paragraph, any person whom the Secretary
determines performs functions similar to the
persons described in clause (i).
``(C) Regulations.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this paragraph and paragraph
(2)(D). Such regulations may include modifications to
the provisions of this paragraph and paragraph (2)(D)
which are appropriate to take account of changes in the
practices of option exchanges or to prevent the use of
options for tax avoidance purposes.
``(d) Terminations, etc.--
``(1) In general.--The rules of subsections (a) and (b)
shall also apply to the termination (or transfer) during the
taxable year of the taxpayer's obligation (or rights) with
respect to a derivative by offsetting, by taking or making
delivery, by exercise or being exercised, by assignment or
being assigned, by lapse, by expiration, by settlement, or
otherwise.
``(2) Mark to market of all positions in straddle if any
position terminated or transferred.--If paragraph (1) applies
with respect to any position which is part of a straddle, the
rules of subsections (a) and (b) shall apply to every position
which is part of such straddle.
``(e) Determination of Fair Market Value.--For purposes of this
section--
``(1) Terminations, etc.--For purposes of subsection (d),
fair market value shall be determined at the time of the
termination (or transfer).
``(2) Blockage factor not taken into account.--To the
extent provided in regulations prescribed by the Secretary,
fair market value shall be determined without regard to any
premium or discount based on the proportion of the total
available trading units which are held.
``(f) Coordination With Certain Rules.--The rules of sections
263(g) and 263A shall not apply to any derivative or other position to
which subsection (a) applies, and section 1091 shall not apply (and
section 1092 shall apply) to any loss recognized under subsection (a).
``SEC. 486. DERIVATIVE DEFINED.
``(a) In General.--For purposes of this part, except as otherwise
provided in this section, 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:
``(1) Any share of stock in a corporation.
``(2) Any partnership or beneficial ownership interest in a
partnership or trust.
``(3) Any evidence of indebtedness.
``(4) Except as provided in subsection (d), any real
property.
``(5) Any commodity which is actively traded (within the
meaning of section 1092(d)(1)).
``(6) Any currency.
``(7) Any rate, price, amount, index, formula, or
algorithm.
``(8) Any other item as the Secretary may prescribe.
Such term shall not include any item described in paragraphs (1)
through (8).
``(b) Exceptions.--
``(1) Certain real property.--
``(A) In general.--For purposes of subsection
(a)(4), the term `real property' shall not include--
``(i) a tract of real property (as defined
in section 1237(c)), or
``(ii) any real property which would be
property described in section 1221(a)(1) with
respect to the taxpayer if held directly by the
taxpayer.
``(B) Regulations.--The Secretary shall prescribe
regulations or other guidance under which multiple
tracts of real property may be treated as a single
tract of real property for purposes of subparagraph
(A)(i) if the contract referred to in subsection (a) is
of a type which is designed to facilitate the
acquisition or disposition of such real property.
``(2) Hedging transactions.--
``(A) In general.--For purposes of this part, the
term `derivative' shall not include any contract which
is part of a hedging transaction (as defined in section
1221(b)).
``(B) Section 988 hedging transactions.--For
exception for section 988 hedging transactions, see
section 988(d)(1).
``(3) Securities lending, sale-repurchase, and similar
financing transactions.--To the extent provided by the
Secretary, for purposes of this part, the term `derivative'
shall not include the right to the return of the same or
substantially identical securities transferred in a securities
lending transaction, sale-repurchase transaction, or similar
financing transaction.
``(4) Options received in connection with the performance
of services.--For purposes of this part, the term `derivative'
shall not include any option described in section 83(e)(3)
received in connection with the performance of services.
``(5) Insurance contracts, annuities, and endowments.--For
purposes of this part, the term `derivative' 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).
``(6) Derivatives with respect to stock of members of same
worldwide affiliated group.--For purposes of this part, the
term `derivative' shall not include, and subsections (c) and
(d)(2) of section 485 shall not apply to, any derivative
(determined without regard to this subsection) with respect to
stock issued by any member of the same worldwide affiliated
group (as defined in section 864(f)) in which the taxpayer is a
member.
``(7) Commodities used in normal course of trade or
business.--For purposes of this part, the term `derivative'
shall not include any contract with respect to any commodity
if--
``(A) such contract requires physical delivery with
the option of cash settlement only in unusual and
exceptional circumstances, and
``(B) such commodity is used (and is used in
quantities with respect to which such derivative
relates) in the normal course of the taxpayer's trade
or business (or, in the case of an individual, for
personal consumption).
``(c) Contracts With Embedded Derivative Components.--
``(1) In general.--If a contract has derivative and
nonderivative components, then each derivative component shall
be treated as a derivative for purposes of this part. If the
derivative component cannot be separately valued, then the
entire contract shall be treated as a derivative for purposes
of this part.
``(2) Exception for certain embedded derivative components
of debt instruments.--A debt instrument shall not be treated as
having a derivative component merely because--
``(A) such debt instrument is denominated in a
nonfunctional currency (as defined in section
988(c)(1)(C)(ii)),
``(B) payments with respect to such debt instrument
are determined by reference to the value of a
nonfunctional currency (as so defined), or
``(C) such debt instrument is a convertible debt
instrument, contingent payment debt instrument, a
variable rate debt instrument, an integrated debt
instrument, an investment unit, a debt instrument with
alternative payment schedules, or other debt instrument
with respect to which the regulations under section
1275(d) apply.
``(d) 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.''.
(b) Coordination With Rules for Dealers and Traders.--
(1) Derivatives not treated as securities.--Section
475(c)(2) is amended--
(A) by adding ``and'' at the end of subparagraph
(C),
(B) by striking subparagraphs (D) and (E) and by
redesignating subparagraph (F) as subparagraph (D),
(C) by striking ``subparagraph (A), (B), (C), (D),
or (E)'' in subparagraph (D)(i), as so redesignated,
and inserting ``subparagraph (A), (B), or (C)'', and
(D) by amending the last sentence to read as
follows: ``Such term shall not include any position to
which section 485(a) applies.''
(2) Derivatives not treated as commodities.--Section
475(e)(2) is amended--
(A) by adding ``and'' at the end of subparagraph
(A),
(B) by striking subparagraphs (B) and (C) and by
redesignating subparagraph (D) as subparagraph (B), and
(C) by striking ``subparagraph (A), (B) or (C)'' in
subparagraph (B)(i), as so redesignated, and inserting
``subparagraph (A)''.
(3) Conforming amendments.--
(A) Section 475(b) is amended by striking paragraph
(4).
(B) Section 475(d)(2)(B) is amended--
(i) by striking ``subsection
(c)(2)(F)(iii)'' and inserting ``subsection
(c)(2)(D)(iii)'', and
(ii) by striking ``subsection (c)(2)(F)''
and inserting ``subsection (c)(2)(D)''.
(C) Section 475(f)(1)(D) is amended by striking
``subsections (b)(4) and (d)'' and inserting
``subsection (d)''.
(c) Coordination With Straddle Rules.--
(1) In general.--Section 1092(e) is amended to read as
follows:
``(e) Exception for Hedging Transactions and Straddles With
Derivatives.--This section shall not apply in the case of--
``(1) any hedging transaction (as defined in section
1221(b)), and
``(2) any straddle (as defined in section 485) which
includes any derivative (as defined in section 486).''.
(2) Conforming amendments.--
(A) Section 263(g)(3) is amended to read as
follows:
``(3) Exception for hedging transactions and straddles with
derivatives.--This subsection shall not apply in the case of--
``(A) any hedging transaction (as defined in
section 1221(b)), and
``(B) any straddle (as defined in section 485)
which includes any derivative (as defined in section
486).''.
(B) Section 1092(b) is amended--
(i) by striking paragraph (2), and
(ii) by striking all that precedes ``The
Secretary shall'' and inserting the following:
``(b) Regulations.--The Secretary shall''.
(C) Section 1092(c) is amended by striking
paragraph (4).
(D) Section 1092 is amended by striking subsection
(f) and by redesignating subsection (g) as subsection
(f).
(d) Treatment of Convertible Debt Instruments.--The Secretary of
the Treasury, or the Secretary's designee, shall modify the regulations
issued under section 1275(d) of the Internal Revenue Code of 1986 to
provide that convertible debt instruments are treated in a manner
similar to contingent payment debt instruments.
(e) Repeal of Certain Other Superceded Rules for Determining
Capital Gains and Losses.--
(1) In general.--Part IV of subchapter P of chapter 1 is
amended by striking sections 1233, 1234, 1234A, 1234B, 1236,
1256, 1258, 1259, and 1260 (and by striking the items relating
to such sections in the table of sections for such part).
(2) Conforming amendments related to repeal of section
1233.--Section 1092(b) is amended by inserting ``(as in effect
before their repeal)'' after ``section 1233''.
(3) Conforming amendments related to repeal of section
1234.--Section 6045(h)(2) is amended--
(A) by striking ``(as defined in section
1234(b)(2)(A)'', and
(B) by adding at the end the following: ``For
purposes of the preceding sentence, the term `closing
transaction' means any termination of the taxpayer's
obligation under an option in property other than
through the exercise or lapse of the option.''.
(4) Conforming amendments related to repeal of section
1236.--
(A) Section 475(d)(3)(A) is amended by striking
``or section 1236(b)''.
(B) Section 512(b)(5) is amended by striking
``section 1236(c)'' and inserting ``section 1058(c)''.
(C) Section 1058 is amended--
(i) by striking ``(as defined in section
1236(c))'' in subsection (a), and
(ii) by redesignating subsection (c) as
subsection (d) and by inserting after
subsection (b) the following new subsection:
``(c) Securities.--For purposes of this section, the term
`security' means any share of stock in any corporation, certificate of
stock or interest in any corporation, note, bond, debenture, or
evidence of indebtedness, or any evidence of an interest in or right to
subscribe to or purchase any of the foregoing.''.
(5) Conforming amendments related to repeal of section
1256.--
(A) Section 461(i)(2)(B), as amended by the
preceding provisions of this Act, is amended to read as
follows:
``(B) any partnership or other entity (other than a
corporation which is not an S corporation) if more than
35 percent of the losses of such entity during the
taxable year are allocable to limited partners or
limited entrepreneurs (within the meaning of section
461(j)(4)), and''.
(B) Section 475(d)(1) is amended by striking
``sections 263(g), 263A, and 1256(a)'' and inserting
``sections 263(g) and 263A''.
(C) Section 988(c)(1) is amended by striking
subparagraphs (D) and (E).
(D) Section 1092(a)(3)(C)(ii)(II) is amended by
striking ``section 1256(e)'' and inserting ``section
1221(b)''.
(E) Section 1092(d) is amended by striking
paragraphs (5) and (6) and by redesignating paragraphs
(7) and (8) as paragraphs (5) and (6), respectively.
(F) Section 1212 is amended by striking subsection
(c).
(G) Section 1223 is amended by striking paragraphs
(7) and (14).
(H) Section 1281(b)(1)(E) is amended to read as
follows:
``(E) is a hedging transaction (as defined in
section 1221(b)), or''.
(I) Section 1402 is amended by striking subsection
(i).
(J) Section 4982(e)(6)(B) is amended by striking
``sections 1256 and 1296'' and inserting ``sections 485
and 1296''.
(6) Conforming amendments related to repeal of section
1259.--Section 475(f)(1) is amended by striking subparagraph
(C) and by redesignating subparagraph (D) as subparagraph (C).
(f) Other Conforming Amendments.--
(1) Section 355(g)(2)(B)(i)(V) is amended to read as
follows:
``(V) any derivative (as defined in
section 486),''.
(2) Section 856(n)(4) is amended by inserting ``or
derivatives (as defined in section 486)'' after ``securities
(as defined in section 475(c)(2))''.
(3) Section 857(e)(2)(B)(i), as amended by the preceding
provisions of this Act, is amended by striking ``section 860E
or 1272'' and inserting ``section 485, 860E, or 1272''.
(4) Section 988(d)(1) is amended--
(A) by striking ``or 1256'' and inserting ``or
485'', and
(B) by striking ``1092, and 1256'' and inserting
``485, and 1092''.
(5) Section 1091(e) is amended to read as follows:
``(e) Coordination With Mark to Market of Derivatives.--
Notwithstanding any other provision of this section, a derivative (as
defined in section 486) shall not be treated as a security for purposes
of this section.''.
(6)(A) Section 1221(a)(6) is amended to read as follows:
``(6) any derivative (as defined in section 486),''.
(B) Section 1221(b) is amended by striking paragraph (1).
(7) Section 4975(f)(11)(D) is amended by striking clauses
(i) and (ii) and inserting the following:
``(i) Security.--The term `security' means
any security described in section 475(c)(2)
(without regard to subparagraph (D)(iii)
thereof) and any derivative with respect to
such a security (within the meaning of section
486).
``(ii) Commodity.--The term `commodity'
means any commodity described in section
475(e)(2) (without regard to subparagraph
(B)(iii) thereof) and any derivative with
respect to such a commodity (within the meaning
of section 486).''.
(8) The table of parts for subchapter E of chapter 1 is
amended by adding at the end the following new item:
``Part IV. Derivatives''.
(g) Effective Dates.--The amendments made by this section shall
apply to--
(1) taxable years ending after December 31, 2014, in the
case of property acquired and positions established after
December 31, 2014, and
(2) taxable years ending after December 31, 2019, in the
case of any other property or position.
For purposes of this subsection, any property acquired on or before
December 31, 2014, which becomes part of a straddle (as defined in
section 485, as added by this section) after such date shall be treated
as a position established after such date.
SEC. 3402. MODIFICATION OF CERTAIN RULES RELATED TO HEDGES.
(a) Treatment of Hedges Identified for Financial Accounting
Purposes.--
(1) In general.--Section 1221(b), as amended by the
preceding provisions of this Act, is amended to read as
follows:
``(b) Hedging Transaction.--For purposes of this section--
``(1) In general.--The term `hedging transaction' means any
transaction described in paragraph (2) and identified under
paragraph (3).
``(2) Transaction described.--A transaction is described in
this paragraph if such transaction is entered into by the
taxpayer in the normal course of the taxpayer's trade or
business primarily--
``(A) to manage risk of price changes or currency
fluctuations with respect to ordinary property which is
held or to be held by the taxpayer,
``(B) to manage risk of interest rate or price
changes or currency fluctuations with respect to
borrowings made or to be made, or ordinary obligations
incurred or to be incurred, by the taxpayer, or
``(C) to manage such other risks as the Secretary
may prescribe in regulations.
``(3) Identification.--A transaction is identified under
this paragraph if--
``(A) such transaction is clearly identified as a
hedging transaction for purposes of this paragraph
before the close of the day on which it was acquired,
originated, or entered into (or such other time as the
Secretary may by regulations prescribe), or
``(B) such transaction is treated as a hedging
transaction (within the meaning of generally accepted
accounting principles) for purposes of an audited
financial statement of the taxpayer which--
``(i) is certified as being prepared in
accordance with generally accepted accounting
principles, and
``(ii) is used for the purposes of a
statement or report--
``(I) to shareholders, partners, or
other proprietors, or to beneficiaries,
or
``(II) for credit purposes.
``(4) Treatment of nonidentification or improper
identification of hedging transactions.--The Secretary shall
prescribe regulations to properly characterize any income,
gain, expense, or loss arising from a transaction--
``(A) which would be a hedging transaction if
identified under paragraph (3), or
``(B) which is identified under paragraph (3) but
is not a transaction described in paragraph (2).
In the case of a transaction identified under paragraph (3)
solely by reason of paragraph (3)(B), subparagraph (B) of this
paragraph shall not apply with respect to such transaction
unless the taxpayer treats such transaction as a hedging
transaction for purposes of any provision of this title.
``(5) Bonds held by an insurance company.--For purposes of
paragraph (2)(A), in the case of an insurance company to which
subchapter L applies, any bond, debenture, note, certificate,
or other evidence of indebtedness held by the taxpayer shall be
treated as ordinary property.
``(6) Regulations.--The Secretary shall prescribe such
regulations as are appropriate to carryout the purposes of this
subsection and subsection (a)(7) in the case of transactions
involving related parties.''.
(2) Conforming amendments.--
(A) Section 856(c)(5)(G)(i) is amended by striking
``(as defined in clause (ii) or (iii) of section
1221(b)(2)(A)) which is clearly identified pursuant to
section 1221(a)(7)'' and inserting ``(as defined in
section 1221(b) (determined without regard to paragraph
(2)(A) thereof)''.
(B) Section 954(c)(5)(A) is amended to read as
follows:
``(A) Commodity hedging transactions.--
``(i) In general.--For purposes of
paragraph (1)(C)(i), the term `commodity
hedging transaction' means any transaction with
respect to a commodity if such transaction
would be a hedging transaction under section
1221(b) if--
``(I) the only transactions
described in paragraph (2) thereof were
transactions described in clause (ii),
and
``(II) paragraphs (3) and (4)
thereof were applied by substituting
`controlled foreign corporation' for
`taxpayer' each place it appears.
``(ii) Transaction described.--A
transaction is described in this clause if such
transaction is entered into by the controlled
foreign corporation in the normal course of the
controlled foreign corporation's trade or
business primarily--
``(I) to manage risk of price
changes or currency fluctuations with
respect to ordinary property or
property described in section 1231(b)
which is held or to be held by the
controlled foreign corporation, or
``(II) to manage such other risks
as the Secretary may prescribe in
regulations.''.
(C) Section 1221(a)(7) is amended by striking
``which is clearly'' and all that follows through
``regulations prescribe)''.
(b) Special Rule for Commodity Hedging Transactions Involving
Related Controlled Foreign Corporations.--Section 954(c)(5)(A), as
amended by subsection (a), is amended by adding at the end the
following new clause:
``(iii) Application to related controlled
foreign corporations.--
``(I) In general.--In the case of
qualified property, clause (ii)(I)
shall be applied by substituting `the
controlled foreign corporation or
another controlled foreign corporation
which is a related person (within the
meaning of subsection (d)(3))' for `the
controlled foreign corporation'.
``(II) Qualified property.--For
purposes of this clause, the term
`qualified property' means ordinary
property or property described in
section 1231(b) (if disposed of at a
gain) the income from the disposition
of which would be neither subpart F
income nor income treated as
effectively connected with the conduct
of a trade or business in the United
States.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after December 31, 2014.
PART 2--TREATMENT OF DEBT INSTRUMENTS
SEC. 3411. CURRENT INCLUSION IN INCOME OF MARKET DISCOUNT.
(a) In General.--Subpart B of part V of subchapter P of chapter 1
is amended by redesignating section 1278 as section 1279 and by
inserting after section 1277 the following new section:
``SEC. 1278. CURRENT INCLUSION IN INCOME OF MARKET DISCOUNT ON BONDS
ACQUIRED AFTER 2014.
``(a) In General.--There shall be included in the gross income of
the holder of any market discount bond acquired after December 31,
2014, an amount equal to the sum of the daily portions of the market
discount for each day during the taxable year on which such holder held
such bond.
``(b) Determination of Daily Portions.--
``(1) In general.--For purposes of subsection (a), the
daily portion of the market discount on any market discount
bond shall be an amount equal to the daily portion of original
issue discount which would be includible in gross income under
section 1272(a) (determined without regard to paragraph (2)
thereof) if such bond had been--
``(A) originally issued on the date on which such
bond was acquired by the taxpayer,
``(B) for an issue price equal to the basis of such
bond immediately after such acquisition.
``(2) Coordination where bond has original issue
discount.--In the case of any bond having original issue
discount, the daily portion determined under paragraph (1)
shall be reduced by the daily portion of original issue
discount includible in gross income under section 1272(a)
(determined without regard to paragraph (2) thereof) with
respect to such bond.
``(3) Special rule where partial principal payments.--In
the case of a bond the principal of which may be paid in 2 or
more payments, the daily portions of market discount shall be
determined under regulations prescribed by the Secretary.
``(c) Limitation.--
``(1) In general.--The amount of market discount allocable
to any accrual period for purposes of determining the sum of
the daily portions under subsection (a) shall not exceed the
excess (if any) of--
``(A) the product of--
``(i) the maximum accrual rate determined
under paragraph (2), properly adjusted for the
length of the accrual period, multiplied by
``(ii) the adjusted basis of such bond at
the beginning of such accrual period, over
``(B) the sum of the qualified stated interest and
original issue discount allocable to such accrual
period.
``(2) Maximum accrual rate.--The maximum accrual rate
determined under this paragraph with respect to any bond is the
greater of--
``(A) such bonds's yield to maturity (determined as
of the date of the issuance of such bond) plus 5
percentage points, or
``(B) the applicable Federal rate for such bond
(determined under section 1274(d) as of the date of the
acquisition of such bond and on the basis of the
remaining term of such bond as of such date) plus 10
percentage points.
``(3) Application to pools.--In the case of debt
instruments to which section 1272(a)(6) applies, rules similar
to the rules of such section shall apply for purposes of
determining the daily portions of market discount.
``(4) Accrual period.--For purposes of this subsection, the
term `accrual period' has the meaning given such term in
section 1272(a)(5).
``(d) Special Rules.--
``(1) Accruals treated as interest.--Except for purposes of
sections 103, 871(a), 881, 1441, 1442, and 6049 (and such other
provisions as may be specified in regulations), any amount
included in gross income under this section shall be treated as
interest for purposes of this title.
``(2) Basis adjustment.--The basis of any market discount
bond in the hands of the taxpayer shall be increased by the
amount included in gross income pursuant to this section.
``(3) Treatment of loss on disposition.--So much of any
loss recognized by the taxpayer on the disposition of a market
discount bond as does not exceed the aggregate amounts included
in the taxpayer's gross income under subsection (a) with
respect to such bond shall be treated for purposes of this
title as an ordinary loss.''.
(b) Treatment of Market Discount on Short-Term Nongovernmental
Bonds.--
(1) Accrual basis taxpayers, etc.--Section 1283 is amended
by striking subsection (c) and redesignating subsection (d) as
subsection (c).
(2) Other taxpayers.--
(A) Section 1271(a)(3) is amended--
(i) by striking all that precedes
subparagraph (C) and inserting the following:
``(3) Certain short-term obligations.--
``(A) In general.--On the sale or exchange of any
short-term obligation (as defined in section
1283(a)(1)), any gain realized which does not exceed an
amount equal to the ratable share of the acquisition
discount shall be treated as ordinary income.'', and
(ii) by redesignating subparagraphs (C),
(D), and (E) as subparagraphs (B), (C), and
(D), respectively.
(B) Section 1271(a) is amended by striking
paragraph (4).
(C) Section 1283(c)(3), as redesignated by
paragraph (1), is amended by striking ``paragraphs (3)
and (4) of section 1271(a)'' and inserting ``section
1271(a)(3)''.
(c) Coordination With Rules Related To Treating Market Discount as
Ordinary Income Upon Disposition.--
(1) In general.--Section 1276 is amended by adding at the
end the following new subsection:
``(e) Coordination With Rules for Current Inclusion of Market
Discount.--This section shall not apply to any market discount bond to
which section 1278 applies.''.
(2) Coordination with deferral of interest deduction.--
Section 1277 is amended by adding at the end the following new
subsection:
``(d) Coordination With Rules for Current Inclusion of Market
Discount.--This section shall not apply to any market discount bond to
which section 1278 applies.''.
(3) Coordination with election to include market discount
currently.--Section 1279(b), as redesignated by subsection (a),
is amended by adding at the end the following new paragraph:
``(5) Coordination with rules for current inclusion of
market discount.--This subsection shall not apply to any market
discount bond to which section 1278 applies.''.
(d) Treatment of Certain Bonds Held by Partnerships.--
(1) Transfers of partnership interests.--Section 1279(a),
as redesignated by subsection (a), is amended by adding at the
end the following new paragraph:
``(6) Transfers of partnership interests.--In the case of a
transfer described in section 743 of an interest in a
partnership holding a bond, the partnership shall be treated as
acquiring the transferee partner's proportionate share of such
bond at the time of such transfer.''.
(2) Distribution of bonds by partnerships.--Section
1279(a)(2), as redesignated by subsection (a), is amended by
adding at the end the following new subparagraph:
``(D) Distribution by partnership.--If the basis of
the taxpayer in a bond is determined under section
734(a)(2) or (b), for purposes of subparagraph (A)(ii),
the basis of such bond shall not be less than its fair
market value immediately after its acquisition by the
taxpayer.''.
(e) Modernization of Certain Definitions.--
(1) Repeal of superceded exception for market discount
bonds acquired at issue.--Section 1279(a)(1), as redesignated
by subsection (a), is amended by striking subparagraph (D)
(2) Revised issue price.--Section 1279(a)(4), as
redesignated by subsection (a), is amended--
(A) by redesignating subparagraphs (A) and (B) as
clauses (i) and (ii) and by indenting such clauses
appropriately,
(B) by striking ``means the sum of--'' and
inserting ``means the excess of--
``(A) the sum of--'',
(C) by striking the period at the end and inserting
``, over'', and
(D) by adding at the end the following new
subparagraph:
``(B) the sum of--
``(i) any payments other than qualified
stated interest made under the bond during
periods before the acquisition of the bond by
the taxpayer, and
``(ii) any premium which has accrued during
such periods (determined as if owned at all
times by the original holder).''.
(3) Redemption price .--
(A) In general.--Section 1273(a)(2) is amended to
read as follows:
``(2) Redemption price.--
``(A) In general.--The term `redemption price'
means the sum of all payments provided by the debt
instrument other than qualified stated interest.
``(B) Qualified stated interest.--The term
`qualified stated interest' means stated interest that
is unconditionally payable in money and other property
(other than a debt instrument of the issuer) at least
annually at a fixed rate (or to the extent provided by
regulations, at a variable rate).
``(C) Basis adjustment.--The basis of any debt
instrument shall be reduced by the amount of any
payment received other than qualified stated
interest.''.
(B) Conforming amendments.--
(i) Each of the following provisions is
amended by striking ``stated redemption price
at maturity'' and inserting ``redemption
price'':
(I) Section 1271(a)(3)(B) (as
redesignated by subsection (b)).
(II) Section 1273(a)(1)(A).
(III) Section 1273(a)(3).
(IV) Section 1273(b)(4).
(V) Section 1274(c)(1)(A).
(VI) Section 1279(a)(5) (as
redesignated by subsection (a)).
(VII) Section 1283(a)(2)(A).
(VIII) Section 1286(a)(1).
(IX) The heading and text of
section 1286(e)(4).
(ii) Section 108(e)(10)(B) is amended by
striking ``stated'' both places it appears.
(iii) Section 1272(a)(6)(A)(i) is amended
by striking ``stated''.
(iv) Subparagraphs (A)(i) and (C) of
section 1279(a)(2) (as redesignated by
subsection (a)) are each amended by striking
``the stated redemption price of the bond at
maturity'' and inserting ``the redemption price
of the bond''.
(v) Section 1279(a)(2)(B) (as redesignated
by subsection (a)) is amended by striking ``the
stated redemption price of such bond at
maturity'' and inserting ``the redemption price
of such bond''.
(4) Adjusted issue price.--Section 1275(a) is amended by
adding at the end the following new paragraph:
``(5) Adjusted issue price.--
``(A) In general.--For purposes of this part, the
adjusted issue price of any debt instrument is its
issue price--
``(i) increased by the aggregate of the
original issue discount includible in the gross
income of all holders for prior periods
(determined without regard to paragraph (7) of
section 1272(a)), or, in the case of a tax-
exempt obligation, the aggregate amount which
accrued in the manner provided by this
subsection (determined without regard to such
paragraph (7)) for all prior periods, and
``(ii) reduced by the sum of--
``(I) any payments other than
qualified stated interest previously
made on the debt instrument, and
``(II) in the case of a debt
instrument which was issued with
amortizable bond premium (as defined in
section 171(b)), the aggregate amount
by which the basis of such instrument
would have been reduced under section
1016(a)(5) for prior periods if the
instrument had been held by the
original holder at all times.
``(B) De minimis rule.--The adjusted issue price of
the issuer shall be properly adjusted to take into
account that section 1273(a)(3) does not apply to the
deduction under section 163 for original issue
discount.''.
(5) Certain other terms.--Paragraphs (3), (4), and (5) of
section 1272(a) are amended to read as follows:
``(3) Determination of daily portions.--For purposes of
paragraph (1), the daily portion of the original issue discount
on any debt instrument shall be determined by allocating to
each day in any accrual period its ratable share of the
original issue discount allocable to such accrual period. For
purposes of the preceding sentence, the original issue discount
allocable to any accrual period is the excess (if any) of--
``(A) the product of--
``(i) the adjusted issue price of the debt
instrument at the beginning of such accrual
period, multiplied by
``(ii) the yield to maturity of the debt
instrument properly adjusted for the length of
the accrual period, over
``(B) the amount of any qualified stated interest
allocable to such accrual period.
``(4) Yield to maturity.--For purposes of this subsection,
the term `yield to maturity' means the discount rate that, when
used in computing the present value of all principal and
interest payments to be made under the debt instrument produces
an amount equal to the issue price of the debt instrument.
``(5) Accrual period.--For purposes of this subsection, the
term `accrual period' shall be determined under regulations
prescribed by the Secretary, provided that an accrual period
shall in no event be longer than one year.''.
(f) Broker Reporting of Includible Discount on Bonds.--
(1) In general.--Section 6045 is amended by adding at the
end the following new subsection:
``(i) Discount on Bonds.--
``(1) In general.--If any customer of a broker holds a
covered bond in an account with such broker at any time during
a calendar year--
``(A) such broker shall file a return under
subsection (a) for such calendar year, and
``(B) such return shall include with respect to
each such covered bond--
``(i) the amount (if any) includible in the
gross income of such customer as original issue
discount with respect to such bond under
section 1272 for periods during such calendar
year, and.
``(ii) the amount (if any) includible in
the gross income of such customer as market
discount with respect to such bond under
section 1278(a) for periods during such
calendar year.
``(2) Covered bond.--For purposes of this subsection, the
term `covered bond' means any obligation to which section 1272
or 1278(a) applies if such obligation--
``(A) was acquired after December 31, 2014, through
a transaction in the account in which such obligation
is held, or
``(B) was transferred to such account from an
account in which such obligation was a covered bond,
but only if the broker received a statement under
section 6045A with respect to the transfer.
``(3) Statements to customers.--The requirements of
subsections (b) shall apply with respect to any return filed
under subsection (a) by reason of this subsection.''.
(2) Information required in connection with transfers of
covered bonds to brokers.--Subsection (a) of section 6045A is
amended--
(A) by inserting ``or a covered bond (as defined in
section 6045(i)(2))'' after ``covered security (as
defined in section 6045(g)(3))'', and
(B) by striking ``section 6045(g)'' and inserting
``subsections (g) and (i) of section 6045''.
(3) Coordination with reporting by issuer of original issue
discount.--Paragraph (6) of section 6049(d) is amended by
adding at the end the following new subparagraph:
``(C) Prevention of double reporting.--Except as
otherwise provided by the Secretary, original issue
discount with respect to any obligation shall not be
required to be reported under this section if such
original issue discount is required to be reported with
respect to such obligation under section 6045(i).''.
(g) Conforming Amendments.--
(1) Section 857(e)(2)(B)(i), as amended by the preceding
provisions of this Act, is amended by striking ``or 1272'' and
inserting ``1272, or 1278''.
(2) Section 1042(d) is amended by striking ``section
1278(a)(2)(A)(ii)'' in the matter following paragraph (2) and
inserting ``section 1279(a)(2)(A)(ii)''.
(3) Section 1016(a), as amended by the preceding provisions
of this Act, is amended by adding at the end the following new
paragraph:
``(39) in the case of any debt instrument, to extend
provided in sections 1272(d)(1), 1273(a)(2)(C), and
1278(d)(2).''.
(4) Section 1276 is amended by inserting ``on bonds not
subject to current inclusion'' after ``accrued market
discount'' in the heading thereof.
(5) Section 1277 is amended by inserting ``on bonds not
subject to current inclusion'' after ``accrued market
discount'' in the heading thereof.
(6) Section 1281 is amended by striking subsection (c).
(7) Section 1282 is amended by striking subsection (d).
(8) The table of sections for subpart B of part V of
subchapter P of chapter 1 is amended to read as follows:
``Sec. 1276. Disposition gain representing accrued market discount on
bonds not subject to current inclusion
treated as ordinary income.
``Sec. 1277. Deferral of interest deduction allocable to accrued market
discount on bonds not subject to current
inclusion.
``Sec. 1278. Current inclusion in income of market discount on bonds
acquired after 2014.
``Sec. 1279. Definitions and special rules.''.
(h) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to obligations
acquired after December 31, 2014.
(2) Modernization of terms.--The amendments made by
subsection (e) shall take effect on January 1, 2015.
SEC. 3412. TREATMENT OF CERTAIN EXCHANGES OF DEBT INSTRUMENTS.
(a) Determination of Issue Price.--
(1) In general.--Subpart A of part V of subchapter P is
amended by inserting after section 1274A the following new
section:
``SEC. 1274B. DETERMINATION OF ISSUE PRICE IN THE CASE OF AN EXCHANGE
OF DEBT INSTRUMENTS.
``(a) In General.--In the case of an exchange (including by
significant modification) by an issuer of a new debt instrument for an
existing debt instrument issued by the same issuer, the issue price of
the new debt instrument shall be the least of--
``(1) the adjusted issue price of the existing debt
instrument,
``(2) the stated principal amount of the new debt
instrument, or
``(3) the imputed principal amount of the new debt
instrument.
``(b) Applicable Rate.--The discount rate used to determine the
imputed principal amount of the new debt instrument under subsection
(a)(3) shall be the lesser of--
``(1) the applicable Federal rate determined under section
1274(d) with respect to the new debt instrument, or
``(2) the greater of--
``(A) the rate of qualified stated interest with
respect to the existing debt instrument, or
``(B) the applicable Federal rate determined under
section 1274(d) with respect to the existing debt
instrument.
``(c) Treatment of Investment Units.--Rules similar to the rules of
section 1273(c)(2) shall apply for purposes of this section.''.
(2) Conforming amendments.--
(A) Section 108(e)(10)(B) is amended by striking
``and 1274'' and inserting ``, 1274, and 1274B''.
(B) Section 1274(c)(3), as amended by the preceding
provisions of this Act, is amended by adding at the end
the following new subparagraph:
``(F) Certain modified debt.--Any debt instrument
the issue price of which is determined under section
1274B.''.
(C) The table of sections for subpart A of part V
of subchapter P is amended by inserting after the item
relating to section 1274A the following new item:
``Sec. 1274B. Determination of issue price in the case of an exchange
of debt instruments.''.
(b) Nonrecognition of Gain or Loss by Holder.--
(1) In general.--Section 1037 is amended to read as
follows:
``SEC. 1037. CERTAIN EXCHANGES OF DEBT INSTRUMENTS.
``(a) Nonrecognition of Gain or Loss.--No gain or loss shall be
recognized to the holder of a debt instrument if such existing debt
instrument is exchanged solely for a new debt instrument (whether by
exchange or significant modification) issued by the same issuer.
``(b) Property Attributable to Accrued Interest.--Subsection (a)
shall not apply to the extent that any property received is
attributable to interest which accrued on the existing debt instrument
on or after the beginning of the holder's holding period of such
instrument.
``(c) Limitation on Gain Recognition in Case of Exchange Not Solely
for a New Debt Instrument.--In the case of an exchange of a debt
instrument to which section 1035(d) applies, the amount of gain
recognized shall not exceed the amount of gain which would have been
recognized if section 1274B did not apply.
``(d) Cross References.--
``(1) For rules relating to securities exchanged or
distributed in a reorganization, etc., see sections 354, 355,
and 356.
``(2) For rules relating to recognition of gain or loss
where exchange was not made solely for another debt instrument
of the issuer, see subsections (d) and (e) of section 1035.
``(3) For rules relating to basis of obligations acquired
in an exchange described in subsection (a), see subsection (f)
of section 1035.''.
(2) Clerical amendment.--The table of sections for part III
of subchapter O of chapter 1 is amended by striking the item
relating to section 1037 and inserting the following new item:
``Sec. 1037. Certain exchanges of debt instruments.''.
(c) Application to Excess Principal Rules for Corporate
Reorganizations.--
(1) Exchanges of securities in reorganizations.--
(A) In general.--Section 354(a)(2)(A)(i) is amended
to read as follows:
``(i) the issue price of any such
securities received exceeds the adjusted issue
price of any such securities surrendered, or''.
(B) Definitions.--Section 354(a)(2) is amended by
inserting after subparagraph (C) the following new
subparagraph:
``(D) Definitions.--For purposes of this
paragraph--
``(i) Issue price.--The issue price of any
security shall be determined under sections
1273, 1274, and 1274B.
``(ii) Adjusted issue price.--The adjusted
issue price of any security shall be determined
under section 1275(a)(5).''.
(2) Section 355 transactions.--Section 355(a)(3)(A)(i) is
amended to read as follows:
``(i) the issue price (as defined in
section 354(a)(2)(D)) of the securities in the
controlled corporation which are received
exceeds the adjusted issue price (as so
defined) of the securities which are
surrendered in connection with such
distribution, or''.
(3) Section 356 transactions.--
(A) In general.--Section 356(d)(2)(B)(ii) is
amended to read as follows:
``(ii) the issue price (as defined in
section 354(a)(2)(D)) of such securities
received exceeds the adjusted issue price (as
so defined) of such securities surrendered,''.
(B) Conforming amendments.--
(i) Section 356(d)(2)(B) is amended in the
matter following clause (ii)--
(I) by striking ``the fair market
value of such excess'' and inserting
``the amount of such excess'', and
(II) by striking ``the entire
principal amount'' and inserting ``the
entire issue price (as so defined)''.
(ii) Section 356(d)(2)(C) is amended to
read as follows:
``(C) Greater principal amount in section 355
transaction.--If, in an exchange or distribution
described in section 355, the issue price (as defined
in section 354(a)(2)(D)) of the securities in the
controlled corporation which are received exceeds the
adjusted issue price (as so defined) of the securities
in the distributing corporation which are surrendered,
then, with respect to such securities received, the
term `other property' means only the amount of such
excess.''.
(d) Effective Date.--The amendments made by this section shall
apply to transactions after December 31, 2014.
SEC. 3413. COORDINATION WITH RULES FOR INCLUSION NOT LATER THAN FOR
FINANCIAL ACCOUNTING PURPOSES.
(a) In General.--Section 451(b), as amended by the preceding
provisions of this Act, is amended by inserting immediately after the
heading thereof (and before paragraph (1) thereof) the following:
``Notwithstanding any other provision of law (including part V of
subchapter P)--''.
(b) Effective Date; Change in Method of Accounting.--The amendment
made by subsection (a) shall be treated for purposes of section 3303(g)
as though such amendment were made by section 3303(a).
SEC. 3414. RULES REGARDING CERTAIN GOVERNMENT DEBT.
(a) Repeal of Certain Superceded Rules.--Subpart B of part II of
subchapter E of chapter 1 is amended by striking section 454 (and by
striking the item relating to such section in the table of sections for
such subpart).
(b) Preservation of Rules Related to United States Savings Bonds.--
Subpart A of part V of subchapter P of chapter 1 is amended by
inserting after section 1272 the following new section:
``SEC. 1272A. UNITED STATES SAVINGS BONDS.
``(a) Election To Include Increase in Redemption Price in Income.--
A taxpayer holding a United States savings bond may elect (on the
taxpayer's return for the taxable year) to treat any increase in the
redemption price as income received in the taxable year. If any such
election is made with respect to any such obligation, it shall apply
also to all such obligations owned by the taxpayer at the beginning of
the first taxable year to which it applies and to all such obligations
thereafter acquired by the taxpayer and shall be binding for all
subsequent taxable years, unless revoked with the consent of the
Secretary. In the case of any such obligations owned by the taxpayer at
the beginning of the first taxable year to which the taxpayer's
election applies, the increase in the redemption price of such
obligations occurring between the date of acquisition and the first day
of such taxable year shall also be treated as income received in such
taxable year.
``(b) Treatment Upon Redemption or Final Maturity.--The increase in
redemption value of a United States savings bond (to the extent not
previously included in gross income) in excess of the adjusted basis of
such bond shall be included in gross income in the earlier of the
taxable year in which the bond is redeemed or in the taxable year of
final maturity.
``(c) Cross References.--
``(1) For exception from current inclusion of original
issue discount, see section 1272(a)(2)(B).
``(2) For exception from market discount rules, see section
1279(a)(1)(B)(iii).''.
(c) Conforming Amendments.--
(1) Section 852(b)(2), as amended by the preceding
provisions of this Act, is amended by striking subparagraph (E)
and redesignating subparagraphs (F) and (G) as subparagraphs
(E) and (F), respectively.
(2) Section 1283(c)(3), as amended by the preceding
provisions of this Act, is amended by striking all that
precedes ``shall not apply'' and inserting the following:
``(3) Coordination with section 1271.--Section
1271(a)(3)''.
(3) Section 7871(a)(6) is amended by adding ``and'' at the
end of subparagraph (A) and by striking subparagraph (C).
(4) The table of sections for subpart A of part V of
subchapter P of chapter 1 is amended by inserting after the
item relating to section 1272 the following new item:
``Sec. 1272A. United States savings bonds.''.
(d) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
PART 3--CERTAIN RULES FOR DETERMINING GAIN AND LOSS
SEC. 3421. COST BASIS OF SPECIFIED SECURITIES 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.--Except to the extent otherwise provided in this
section or in regulations thereunder permitting 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.''.
(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 striking ``section
1012'' and inserting ``this section (as in effect prior to the
enactment of the Tax Reform Act of 2014)''.
(3) Section 6045(g)(2)(B)(i)(I) is amended by striking
``unless the customer notifies the broker by means of making an
adequate identification of the stock sold or transferred''.
(c) Effective Date.--The amendments made by this section shall
apply to sales, exchanges, and other dispositions after December 31,
2014.
SEC. 3422. WASH SALES BY RELATED PARTIES.
(a) Application of Wash Sale Rules to Related Parties.--Subsection
(a) of section 1091 is amended by striking ``the taxpayer has
acquired'' and inserting ``the taxpayer (or a related party) has
acquired''.
(b) Modification of Basis Adjustment Rule To Prevent Transfer of
Losses to Related Parties.--Subsection (d) of section 1091 is amended
to read as follows:
``(d) Adjustment to Basis in Case of Wash Sale.--If the taxpayer
(or the taxpayer's spouse) acquires substantially identical stock or
securities during the period which--
``(1) begins 30 days before the disposition with respect to
which a deduction was disallowed under subsection (a), and
``(2) ends with the close of the taxpayer's first taxable
year which begins after such disposition,
the basis of such stock or securities shall be increased by the amount
of the deduction so disallowed (reduced by any amount of such deduction
taken into account under this subsection to increase the basis of stock
or securities previously acquired).''.
(c) Related Party.--Section 1091 is amended by adding at the end
the following new subsection:
``(g) Related Party.--For purposes of this section--
``(1) In general.--The term `related party' means--
``(A) the taxpayer's spouse,
``(B) any dependent of the taxpayer and any other
taxpayer with respect to whom the taxpayer is a
dependent,
``(C) any individual, corporation, partnership,
trust, or estate which controls, or is controlled by,
(within the meaning of section 954(d)(3)) the taxpayer
or any individual described in subparagraph (A) or (B)
with respect to the taxpayer (or any combination
thereof),
``(D) any individual retirement plan, Archer MSA
(as defined in section 220(d)), or health savings
account (as defined in section 223(d)), of the taxpayer
or of any individual described in subparagraph (A) or
(B) with respect to the taxpayer,
``(E) any account under a qualified tuition program
described in section 529 or a Coverdell education
savings account (as defined in section 530(b)) if the
taxpayer, or any individual described in subparagraph
(A) or (B) with respect to the taxpayer, is the
designated beneficiary of such account or has the right
to make any decision with respect to the investment of
any amount in such account, and
``(F) any account under--
``(i) a plan described in section 401(a),
``(ii) an annuity plan described in section
403(a),
``(iii) an annuity contract described in
section 403(b), or
``(iv) an eligible deferred compensation
plan described in section 457(b) and maintained
by an employer described in section
457(e)(1)(A),
if the taxpayer or any individual described in
subparagraph (A) or (B) with respect to the taxpayer
has the right to make any decision with respect to the
investment of any amount in such account.
``(2) Rules for determining status.--
``(A) Relationships determined at time of
acquisition.--Determinations under paragraph (1) shall
be made as of the time of the purchase or exchange
referred to in subsection (a) except that
determinations under subparagraphs (A) and (B) of
paragraph (1) shall be made for the taxable year which
includes such purchase or exchange.
``(B) Determination of marital status.--
``(i) In general.--Except as provided in
clause (ii), marital status shall be determined
under section 7703.
``(ii) Special rule for married individuals
filing separately and living apart.--A husband
and wife who--
``(I) file separate returns for any
taxable year, and
``(II) live apart at all times
during such taxable year,
shall not be treated as married individuals.
``(3) Regulations.--The Secretary shall issue such
regulations or other guidance as may be necessary to prevent
the avoidance of the purposes of this subsection, including
regulations which treat persons as related parties if such
persons are formed or availed of to avoid the purposes of this
subsection.''.
(d) Effective Date.--The amendments made by this section shall
apply to sales and other dispositions after December 31, 2014.
SEC. 3423. NONRECOGNITION FOR DERIVATIVE TRANSACTIONS BY A CORPORATION
WITH RESPECT TO ITS STOCK.
(a) In General.--Section 1032 is amended to read as follows:
``SEC. 1032. DERIVATIVE TRANSACTIONS BY A CORPORATION WITH RESPECT TO
ITS STOCK.
``(a) In General.--Except as otherwise provided in this section or
section 76, section 1032 derivative items of a corporation shall not be
taken into account in determining such corporation's liability for tax
under this subtitle.
``(b) Income Recognition on Certain Forward Contracts.--
``(1) In general.--If--
``(A) a corporation acquires its stock, and
``(B) such acquisition is part of a plan (or series
of related transactions) pursuant to which the
corporation enters into a forward contract with respect
to its stock,
such corporation shall include amounts in income as if the
excess of the amount to be received under the forward contract
over the fair market value of the stock as of the date the
corporation entered into the forward contract were original
issue discount on a debt instrument acquired on such date. The
preceding sentence shall apply only to the extent that the
amount of stock involved in the forward contract does not
exceed the amount acquired as described in subparagraph (A).
``(2) Plan presumed to exist.--If a corporation enters into
a forward contract with respect to its stock within the 60-day
period beginning on the date which is 30 days before the date
that the corporation acquires its stock, such acquisition shall
be treated as pursuant to a plan described in paragraph (1)(B)
unless it is established that entering into such contract and
such acquisition are not pursuant to a plan or series of
related transactions.
``(c) Section 1032 Derivative Items.--For purposes of this section,
the term `section 1032 derivative item' means any item of income, gain,
loss, or deduction if--
``(1) such item arises out of the rights or obligations
under any derivative (as defined in section 486) to the extent
such derivative relates to the corporation's stock (or is
attributable to any transfer or extinguishment of any such
right or obligation), or
``(2) such item arises under any other contract or position
but only to the extent that such item reflects (or is
determined by reference to) changes in the value of such stock
or distributions thereon.
Such term shall not include any deduction with respect to which section
83(h) applies and shall not include any deduction for any item which is
in the nature of compensation for services rendered. For purposes of
this subparagraph, de minimis relationships, as determined by the
Secretary, shall be disregarded.
``(d) Treasury Stock Treated as Stock.--Any reference in this
section to stock shall be treated as including a reference to treasury
stock.
``(e) Regulations.--The Secretary shall prescribe such regulations
or other guidance as may be appropriate to carry out the purposes of
this section, including regulations or other guidance which--
``(1) treat the portion of an instrument which is described
in subsection (c)(1) separately from the portion of such
instrument which is not so described, and
``(2) treat section 1032 derivative items as contributions
to the capital of the corporation to the extent that the
application of this section would be inconsistent with the
purposes of section 76(b).''.
(b) Clerical Amendment.--The item relating to section 1032 in the
table of sections for part III of subchapter O of chapter 1 is amended
to read as follows:
``Sec. 1032. Derivative transactions by a corporation with respect to
its stock.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions entered into after the date of the enactment of
this Act.
PART 4--TAX FAVORED BONDS
SEC. 3431. TERMINATION OF PRIVATE ACTIVITY BONDS.
(a) In General.--Paragraph (1) of section 103(b) is amended--
(1) by striking ``which is not a qualified bond (within the
meaning of section 141)'', and
(2) by striking ``which is not a qualified bond'' in the
heading thereof.
(b) Conforming Amendments.--
(1) Section 141 is amended by striking subsection (e).
(2) Subpart A of part IV of subchapter B of chapter 1 is
amended by striking sections 142, 143, 144, 145, 146, and 147
(and by striking each of the items relating to such sections in
the table of sections for such subpart).
(3) 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 Reform Act of
2014.''.
(4) Section 26(b)(2) is amended by striking subparagraph
(D).
(5) Section 141(b) is amended by striking paragraphs (5)
and (9) and by redesignating paragraphs (6), (7), and (8) as
paragraphs (5), (6), and (7), respectively.
(6) Section 141(d) is amended by striking paragraph (5) and
by redesignating paragraphs (6) and (7) as paragraphs (5) and
(6).
(7) Section 148(b)(2)(E) is amended by striking ``in the
case of a bond other than a private activity bond,''.
(8) 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.''.
(9) Section 148(f)(3) is amended by striking ``or is a
private activity bond'' in the fourth sentence.
(10) 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),
(B) by striking the last sentence of subparagraph
(D)(v), and
(C) by adding at the end the following new
subparagraph:
``(E) Average maturity.--For purposes of this
paragraph, the average maturity of any issue shall be
determined by taking into account the respective issue
prices of the bonds issued as part of such issue.''.
(11) Section 148(f)(4)(A) is amended in the flush matter
after clause (ii) by striking ``In the case of an issue no bond
of which is a private activity bond, clause'' and inserting
``Clause''.
(12) Section 148(f)(4)(B)(ii) is amended--
(A) by striking subclause (II), and
(B) by striking ``certain bonds.--'' and all that
follows through ``issue described in subclause (II)''
and inserting ``certain bonds.--In the case of an issue
no bond of which is a tax or revenue anticipation
bond''.
(13)(A) Section 148(f)(4)(C)(iv) is amended to read as
follows:
``(iv) Construction issue.--For purposes of
this subparagraph, 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 with respect to property which is
to be owned by a governmental unit.''.
(B) Section 148(f)(4)(C) is amended by
redesignating clauses (v) through (xvii) as clauses
(viii) through (xx), respectively, and by inserting
after clause (iv) the following new clauses:
``(v) Construction.--For purposes of this
subparagraph, the term `construction' includes
reconstruction and rehabilitation.
``(vi) Safe harbor for leases and
management contracts.--For purposes of this
subparagraph, property leased by a governmental
unit shall be treated as owned by such
governmental unit if--
``(I) the lessee makes an
irrevocable election (binding on the
lessee and all successors in interest
under the lease) not to claim
depreciation or an investment credit
with respect to such property,
``(II) the lease term (as defined
in section 168(h)(1)) is not more than
80 percent of the reasonably expected
economic life of the property, and
``(III) the lessee has no option to
purchase the property other than at
fair market value (as of the time such
option is exercised).
``(vii) Determination of economic life.--
For purposes of clause (vi), the reasonably
expected economic life of any facility shall be
determined as of the later of--
``(I) the date on which the bonds
are issued, or
``(II) the date on which the
facility is placed in service (or
expected to be placed in service).''.
(C) Section 148(f)(4)(D) is amended by striking
``subparagraph (C)(iv)'' each place it appears and
inserting ``subparagraph (C)(v)''.
(14) Section 148(f)(4)(D)(i) is amended--
(A) by striking subclause (II),
(B) by striking ``(other than private activity
bonds)'' in subclause (IV), and
(C) by redesignating subclauses (III) and (IV) (as
amended by subparagraph (B)) as subclauses (II) and
(III).
(15) Section 148(f)(4)(D)(ii) is amended by striking
``subclause (IV)'' both places it appears and inserting
``subclause (III)''.
(16) Section 148(f)(4)(D)(iii) is amended by striking
``subclause (IV)'' and inserting ``subclause (III)''.
(17) Section 148(f)(4)(D)(iv)(II) is amended by striking
``clause (i)(IV)'' and inserting ``clause (i)(III)''.
(18) Section 148(f)(4)(D)(vi) is amended by striking the
last sentence.
(19) Section 148(f)(7) is amended by striking subparagraph
(A) and by redesignating subparagraphs (B) and (C) as
subparagraphs (A) and (B).
(20) Section 149(b)(3) is amended--
(A) by striking subparagraph (C) and by
redesignating subparagraphs (D) and (E) as
subparagraphs (C) and (D), and
(B) by striking ``subparagraph (E)'' in
subparagraph (A)(iv) and inserting ``subparagraph
(D)''.
(21) Section 149(e)(2) is amended--
(A) by striking subparagraphs (C), (D), and (F) and
by redesignating subparagraphs (E) and (G) as
subparagraphs (C) and (D), respectively, and
(B) by striking the second sentence.
(22) Section 149(f)(6) is amended--
(A) by striking subparagraph (B), and
(B) by striking ``For purposes of this subsection''
and all that follows through ``The term'' and inserting
the following: ``For purposes of this subsection, the
term''.
(23) Section 150 is amended by striking subsections (b) and
(c) and by redesignating subsections (d) and (e) as subsections
(b) and (c), respectively.
(24) Section 150(e)(3) is amended to read as follows:
``(3) Public approval requirement.--A bond shall not be
treated as part of an issue which meets the requirements of
paragraph (1) unless such bond satisfies the requirements of
section 147(f)(2) (as in effect before its repeal by the Tax
Reform Act of 2014).''.
(25) Section 269A(b)(3) is amended by striking
``144(a)(3)'' and inserting ``414(n)(6)(A)''.
(26) Section 414(m)(5) is amended by striking ``section
144(a)(3)'' and inserting ``subsection (n)(6)(A)''.
(27) Section 414(n)(6)(A) is amended to read as follows:
``(A) Related persons.--A person is a related
person to another person if--
``(i) the relationship between such 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).''.
(28) Section 6045(e)(4)(B) is amended by inserting ``(as in
effect before its repeal by the Tax Reform Act of 2014)'' after
``section 143(m)(3)''.
(29) Section 6654(f)(1) is amended by inserting ``(as in
effect before its repeal by the Tax Reform Act of 2014)'' after
``section 143(m)''.
(30) Section 7871(c) is amended--
(A) by striking paragraphs (2) and (3), and
(B) by striking ``Tax-exempt Bonds.--'' and all
that follows through ``Subsection (a) of section 103''
and inserting the following: ``Tax-exempt Bonds.--
Subsection (a) of section 103''.
(c) Effective Date.--The amendments made by this section shall
apply to bonds issued after December 31, 2014.
SEC. 3432. TERMINATION OF CREDIT FOR INTEREST ON CERTAIN HOME
MORTGAGES.
(a) In General.--Section 25, as amended by the preceding provisions
of this Act, is amended by adding at the end the following new
subsection:
``(k) Termination.--No credit shall be allowed under this section
with respect to any mortgage credit certificate issued after December
31, 2014.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years ending after December 31, 2014.
SEC. 3433. REPEAL OF ADVANCE REFUNDING BONDS.
(a) In General.--Paragraph (1) of section 149(d) is amended by
striking ``as part of an issue described in paragraph (2), (3), or
(4).'' and inserting ``to advance refund a 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), as amended by the preceding
provisions of this Act, is amended by striking clause (xvii)
and by redesignating clauses (xviii), (xix), and (xx) as
clauses (xvii), (xviii), and (xix), respectively.
(c) Effective Date.--The amendments made by this section shall
apply to advance refunding bonds issued after December 31, 2014.
SEC. 3434. REPEAL OF TAX CREDIT BOND RULES.
(a) In General.--Part IV of subchapter A of 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) Section 6211(b)(4)(A) is amended by striking ``and
6431''.
(2) Section 6401(b)(1) is amended by striking ``G, H, I,
and J'' and inserting ``and G''.
(d) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act.
Subtitle F--Insurance Reforms
SEC. 3501. EXCEPTION TO PRO RATA INTEREST EXPENSE DISALLOWANCE FOR
CORPORATE-OWNED LIFE INSURANCE RESTRICTED TO 20-PERCENT
OWNERS.
(a) In General.--Subparagraph (A) of section 264(f)(4) is amended--
(1) by striking ``policy or contract)--'' and all that
follows through ``A policy or contract'' and inserting ``policy
or contract) a 20-percent owner of such entity. A policy or
contract'', and
(2) by striking ``, officers, directors, and employees'' in
the heading.
(b) Conforming Amendment.--Section 264(f)(4) is amended by striking
subparagraph (E).
(c) Effective Date.--The amendment made by this section shall apply
to contracts issued after December 31, 2014. For purposes of the
preceding sentence, any material increase in the death benefit or other
material change in the contract shall be treated as a new contract.
SEC. 3502. NET OPERATING LOSSES OF LIFE INSURANCE COMPANIES.
(a) In General.--Paragraph (5) of section 805(a) is amended to read
as follows:
``(5) Net operating loss deduction.--The deduction allowed
under section 172, determined--
``(A) by treating the net operating loss for any
taxable year as equal to the excess (if any) of--
``(i) the life insurance deductions for
such taxable year, over
``(ii) the life insurance gross income for
such taxable year, and
``(B) by applying subsection (d)(5) thereof with
the modifications described in paragraph (4) of this
subsection.''.
(b) Conforming Amendments.--
(1) Part I of subchapter L of chapter 1 is amended by
striking section 810 (and by striking the item relating to such
section in the table of 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)(i), as redesignated by the
preceding provisions of this Act, is amended to read as
follows:
``(ii) the net operating loss deduction
provided by paragraph (5),''.
(5) Section 805(b)(2)(A)(iii), as redesignated by the
preceding provisions of this Act, is amended to read as
follows:
``(iv) any net operating loss carryback to
the taxable year under section 172 (as applied
pursuant to subsection (a)(5)), and''.
(6) Section 805(b) is amended by striking paragraph (4) and
redesignating paragraph (5) as paragraph (4).
(7) Section 953(b)(1)(A), as redesignated by the preceding
provisions of this Act, is amended by striking ``operations''
and inserting ``net operating''.
(8) Section 1351(i)(3) is amended by striking ``or the
operations loss deduction under section 810,''.
(c) Effective Date.--The amendments made by this section shall
apply to losses arising in taxable years beginning after December 31,
2014.
SEC. 3503. REPEAL OF SMALL LIFE INSURANCE COMPANY DEDUCTION.
(a) In General.--Part I of subchapter L of chapter 1 is amended by
striking section 806 (and by striking the item relating to such section
in the table of sections for such part).
(b) Conforming Amendments.--
(1) Section 453B(e) is amended--
(A) by striking ``(as defined in section
806(b)(3))'' in paragraph (2)(B), and
(B) by adding at the end the following new
paragraph:
``(3) Noninsurance business.--
``(A) In general.--For purposes of this subsection,
the term `noninsurance business' means any activity
which is not an insurance business.
``(B) Certain activities treated as 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) 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 815(c)(2)(A) is amended by inserting ``and'' at
the end of clause (i), by striking clause (ii), and by
redesignating clause (iii) as clause (ii).
(8) Section 842(c) is amended by striking paragraph (1) and
by redesignating paragraphs (2) and (3) as paragraphs (1) and
(2), respectively.
(9) Section 953(b)(1) is amended by striking subparagraph
(A) and by redesignating 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, 2014.
SEC. 3504. COMPUTATION OF LIFE INSURANCE TAX RESERVES.
(a) In General.--Subparagraph (B) of section 807(d)(2) is amended
to read as follows:
``(B) an interest rate equal to the sum of--
``(i) the applicable Federal interest rate,
plus
``(ii) 3.5 percentage points, and''.
(b) Conforming Amendments.--
(1) Paragraph (4) of section 807(d) is amended to read as
follows:
``(4) Applicable federal interest rate.--
``(A) In general.--Except as provided in
subparagraph (B), the term `applicable Federal interest
rate' means the annual rate determined by the Secretary
under subparagraph (C) for the calendar year in which
the contract was issued.
``(B) Election to recompute federal interest rate
every 5 years.--For purposes of this subsection--
``(i) In general.--In computing the amount
of the reserve with respect to any contract to
which an election under this subparagraph
applies for periods during any recomputation
period, the applicable Federal interest rate
shall be the annual rate determined by the
Secretary under subparagraph (C) for the 1st
year of such period. No change in the
applicable Federal interest rate shall be made
under the preceding sentence unless such change
would equal or exceed \1/2\ of 1 percentage
point.
``(ii) Recomputation period.--For purposes
of clause (i), the term `recomputation period'
means, with respect to any contract, the 5
calendar year period beginning with the 5th
calendar year beginning after the calendar year
in which the contract was issued (and each
subsequent 5 calendar year period).
``(iii) Election.--An election under this
subparagraph shall apply to all contracts
issued during the calendar year for which the
election was made or during any subsequent
calendar year unless such election is revoked
with the consent of the Secretary.
``(iv) Spread not available.--Subsection
(f) shall not apply to any adjustment required
under this paragraph.
``(C) Rate of interest.--
``(i) In general.--For purposes of this
paragraph, the rate of interest determined
under this subparagraph shall be the annual
rate determined by the Secretary under clause
(ii).
``(ii) Determination of annual rate.--
``(I) In general.--The annual rate
determined by the Secretary under this
clause for any calendar year shall be a
rate equal to the average of the
applicable Federal mid-term rates (as
defined in section 1274(d) but based on
annual compounding) effective as of the
beginning of each of the calendar
months in the test period.
``(II) Test period.--For purposes
of subclause (I), the test period is
the most recent 60-calendar-month
period ending before the beginning of
the calendar year for which the
determination is made.''.
(2) The first sentence following paragraph (6) in section
807(c) is amended by striking ``the applicable Federal interest
rate under subsection (d)(2)(B)(i), the prevailing State
assumed interest rate under subsection (d)(2)(B)(ii),'' and
inserting ``the interest rate determined under subsection
(d)(2)(B)''.
(3) Section 808 is amended by adding at the end the
following new subsection:
``(g) Prevailing State Assumed Interest Rate.--For purposes of this
subchapter--
``(1) In general.--The term `prevailing State assumed
interest rate' means, with respect to any contract, the highest
assumed interest rate 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.''.
(4) 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
807(d)(2)(B)''.
(5) 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
in lieu of the limitation of the last sentence of section
807(d)(1), and''.
(6) Subparagraph (B) of section 954(i)(5) is amended by
striking ``shall be substituted for the prevailing State
assumed interest rate'' and inserting ``shall, if higher, be
substituted for the interest rate in effect under section
807(d)(2)(B)''.
(c) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(2) Transition rule.--For the first taxable year beginning
after December 31, 2014, the reserve with respect to any
contract (as determined under section 807(d)(2) of the Internal
Revenue Code of 1986) at the end of the preceding taxable year
shall be determined as if the amendments made by this section
had applied to such reserve in such preceding taxable year and
by using the interest rate applicable to such reserves under
section 807(d)(2) of the Internal Revenue Code of 1986 for
calendar year 2015. For subsequent taxable years, such
amendments shall be applied with respect to such reserve by
using the interest rate applicable under such section for
calendar year 2015.
(3) Transition relief.--
(A) In general.--If--
(i) the reserve determined under section
807(d)(2) of the Internal Revenue Code of 1986
with respect to any contract as of the close of
the year preceding the first taxable year
beginning after December 31, 2014, 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.
SEC. 3505. 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, 2014.
SEC. 3506. 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:
``SEC. 812. DETERMINATION OF COMPANY'S AND POLICYHOLDER'S SHARE ON
ACCOUNT BY ACCOUNT BASIS.
``(a) Determination on Account by Account Basis.--Sections
805(a)(4) and 807 shall be applied on an account by account basis.
``(b) Company's Share.--For purposes of section 805(a)(4), the term
`company's share' means, with respect to any account for any taxable
year, the ratio (expressed as a percentage) of--
``(1) the excess of--
``(A) the mean assets of such account for such
taxable year, over
``(B) the mean reserves with respect to such
account for such taxable year, divided by
``(2) the mean assets of such account for such taxable
year.
``(c) Policyholder's Share.--For purposes of section 807, the term
`policyholder's share' means, with respect to any account for any
taxable year, the excess of 100 percent over the percentage determined
under paragraph (2).
``(d) Mean Assets and Mean Reserves Defined.--For purposes of this
subsection--
``(1) Mean assets.--The term `mean assets' means, with
respect to any account for any taxable year, 50 percent of the
sum of--
``(A) the fair market value of the assets of such
account determined as of the beginning of such taxable
year, and
``(B) the fair market value of the assets of such
account determined as of the close of such taxable
year.
``(2) Mean reserves.--The term `mean reserves' means, with
respect to any account for any taxable year, 50 percent of the
sum of--
``(A) the reserves with respect to such account as
determined under section 807 as of the beginning of
such taxable year, and
``(B) the reserves with respect to such account as
determined under section 807 as of the close of such
taxable year.
``(3) Certain dividends not taken into account.--Dividends
described in section 246(c) shall not be taken into account for
purposes of determining mean assets or mean reserves.
``(4) Fees and expenses not taken into account.--Fees and
expenses shall not be taken into account for purposes of
determining mean assets or mean reserves.''.
(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) Clerical Amendment.--The table of sections for subpart D of
part I of subchapter L of chapter 1 is amended by striking the item
relating to section 812 and inserting the following:
``Sec. 812. Determination of company's and policyholder's share on
account by account basis.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3507. 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, 2014.
(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, 2015) 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,
2014, 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.
SEC. 3508. 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 ``the percentage determined under subparagraph
(F))''.
(b) Determination of Percentage.--Section 832(b)(5) is amended by
adding at the end the following new subparagraph:
``(F) Determination of percentage.--
``(i) In general.--For purposes of
subparagraph (B), the percentage determined
under this subparagraph is the ratio (expressed
as a percentage) of--
``(I) the average adjusted bases
(within the meaning of section 1016) of
tax-exempt assets of the company, to
``(II) such average adjusted bases
of all assets of the company.
``(ii) Tax-exempt assets.--For purposes of
clause (i)(I), the term `tax-exempt assets'
means assets of the type which give rise to
income described in subparagraph (B).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3509. REPEAL OF SPECIAL TREATMENT OF BLUE CROSS AND BLUE SHIELD
ORGANIZATIONS, ETC.
(a) Transitional Repeal of Special Rules.--
(1) In general.--Section 833 is amended by striking
subsection (b), by redesignating subsection (c) as subsection
(b), and by amending subsection (a) to read as follows:
``(a) In General.--An organization to which this section applies
shall be taxable under this part in the same manner as if it were a
stock insurance company.''.
(2) Tax status not dependent on medical loss ratio.--
Subsection (b) of section 833, as redesignated by subsection
(a), is amended by striking paragraph (5).
(3) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2014.
(b) Repeal of Statutory Treatment as a Stock Insurance Company.--
(1) In general.--Part II of subchapter L of chapter is
amended by striking section 833 (and by striking the item
relating to such section in the table of sections for such
part).
(2) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after December 31, 2016.
SEC. 3510. 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 amount of the losses treated as
paid in the 2d year after the accident
year (or, if lesser, the portion of the
unpaid losses not theretofore taken
into account).
``(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 losses treated as
paid in the 9th year after the accident
year (or, if lesser, the portion of the
unpaid losses not theretofore taken
into account).
``(C) Special rule for international and
reinsurance lines of business.--Except as otherwise
provided by regulations, any determination made under
subsection (a) with respect to unpaid losses relating
to the international or reinsurance lines of business
shall be made using, in lieu of the loss payment
pattern applicable to the respective lines of business,
a pattern determined by the Secretary under paragraphs
(1) and (2) based on the combined losses for all lines
of business described in subparagraph (A)(ii).
``(D) Special rule for 2d or 9th year if negative
or zero.--
``(i) 3-year loss payment pattern.--If the
amount of the losses treated as paid in the 2d
year after the accident year is zero or a
negative amount, subparagraph (B)(i)(II) shall
be applied by substituting the average of the
losses treated as paid in the 1st and 2d years
after the accident year for the losses treated
as paid in the 2d year after the accident year.
``(ii) 10-year loss payment pattern.--If
the amount of the losses treated as paid in the
9th year after the accident year is zero or a
negative amount, subparagraph (B)(ii)(II) shall
be applied by substituting the average of the
losses treated as paid in the 7th, 8th, and 9th
years after the accident year for the losses
treated as paid in the 9th year after the
accident 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, 2014.
(e) Transitional Rule.--For the first taxable year beginning after
December 31, 2014--
(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 2015, 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 2015.
SEC. 3511. 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, 2014.
SEC. 3512. 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) 5 percent of the net premiums for such
taxable year on specified insurance contracts which are
group contracts, and
``(B) 12 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, 2014.
SEC. 3513. TAX REPORTING FOR LIFE SETTLEMENT TRANSACTIONS.
(a) In General.--Subpart B of part III of subchapter A of chapter
61 is amended by adding at the end the following new section:
``SEC. 6050X. 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, and
``(D) the amount of each such 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 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 the amount of cash
and the fair market value of any consideration transferred in a
reportable policy 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 is amended by inserting after
the item relating to section 6050W the following new item:
``Sec. 6050X. 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 6050X (relating to returns
relating to certain life insurance contract
transactions), and'', and
(B) by striking ``or'' at the end of subparagraph
(GG) of paragraph (2), by striking the period at the
end of subparagraph (HH) of such paragraph and
inserting ``, or'', and by inserting after such
subparagraph (HH) the following new subparagraph:
``(II) subsection (a)(2), (b)(2), or (c)(2) of
section 6050X (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 6050X.'', 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 6050X.''.
(d) Effective Date.--The amendments made by this section shall
apply to--
(1) reportable policy sales (as defined in section
6050X(d)(2) of the Internal Revenue Code of 1986 (as added by
subsection (a)) after December 31, 2014, and
(2) reportable death benefits (as defined in section
6050X(d)(4) of such Code (as added by subsection (a)) paid
after December 31, 2014.
SEC. 3514. 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.
SEC. 3515. 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, 2014.
Subtitle G--Pass-Thru and Certain Other Entities
PART 1--S CORPORATIONS
SEC. 3601. REDUCED RECOGNITION PERIOD FOR BUILT-IN GAINS MADE
PERMANENT.
(a) In General.--Paragraph (7) of section 1374(d) (relating to
definitions and special rules) is amended to read as follows:
``(7) Recognition period.--
``(A) In general.--The term `recognition period'
means the 5-year period beginning with the 1st day of
the 1st taxable year for which the corporation was an S
corporation. For purposes of applying this section to
any amount includible in income by reason of
distributions to shareholders pursuant to section
593(e), the preceding sentence shall be applied without
regard to the phrase `5-year'.
``(B) Installment sales.--If an S corporation sells
an asset and reports the income from the sale using the
installment method under section 453, the treatment of
all payments received shall be governed by the
provisions of this paragraph applicable to the taxable
year in which such sale was made.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2013.
SEC. 3602. MODIFICATIONS TO S CORPORATION PASSIVE INVESTMENT INCOME
RULES.
(a) Increased Percentage Limit.--Paragraph (2) of section 1375(a)
is amended by striking ``25 percent'' and inserting ``60 percent''.
(b) Repeal of Excessive Passive Income as a Termination Event.--
Section 1362(d) is amended by striking paragraph (3).
(c) Conforming Amendments.--
(1) Subsection (b) of section 1375 is amended by striking
paragraphs (3) and (4) and inserting the following new
paragraph:
``(3) Passive investment income defined.--
``(A) In general.--Except as otherwise provided in
this paragraph, the term `passive investment income'
means gross receipts derived from royalties, rents,
dividends, interest, and annuities.
``(B) Exception for interest on notes from sales of
inventory.--The term `passive investment income' shall
not include interest on any obligation acquired in the
ordinary course of the corporation's trade or business
from its sale of property described in section
1221(a)(1).
``(C) Treatment of certain lending or finance
companies.--If the S corporation meets the requirements
of section 542(c)(6) for the taxable year, the term
`passive investment income' shall not include gross
receipts for the taxable year which are derived
directly from the active and regular conduct of a
lending or finance business (as defined in section
542(d)(1)).
``(D) Treatment of certain dividends.--If an S
corporation holds stock in a C corporation meeting the
requirements of section 1504(a)(2), the term `passive
investment income' shall not include dividends from
such C corporation to the extent such dividends are
attributable to the earnings and profits of such C
corporation derived from the active conduct of a trade
or business.
``(E) Exception for banks, etc.--In the case of a
bank (as defined in section 581) or a depository
institution holding company (as defined in section
3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1)), the term `passive investment income' shall
not include--
``(i) interest income earned by such bank
or company, or
``(ii) dividends on assets required to be
held by such bank or company, including stock
in the Federal Reserve Bank, the Federal Home
Loan Bank, or the Federal Agricultural Mortgage
Bank or participation certificates issued by a
Federal Intermediate Credit Bank.
``(F) Gross receipts from the sales of certain
assets.--For purposes of this paragraph--
``(i) Capital assets other than stock and
securities.--In the case of dispositions of
capital assets (other than stock and
securities), gross receipts from such
dispositions shall be taken into account only
to the extent of capital gain net income
therefrom.
``(ii) Stock and securities.--In the case
of sales or exchanges of stock or securities,
gross receipts shall be taken into account only
to the extent of the gain therefrom.
``(G) Coordination with section 1374.--The amount
of passive investment income shall be determined by not
taking into account any recognized built-in gain or
loss of the S corporation for any taxable year in the
recognition period. Terms used in the preceding
sentence shall have the same respective meanings as
when used in section 1374.''.
(2)(A) Subparagraph (J) of section 26(b)(2) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(B) Clause (i) of section 1375(b)(1)(A) is amended by
striking ``25 percent'' and inserting ``60 percent''.
(C) The heading for section 1375 is amended by striking
``25 percent'' and inserting ``60 percent''.
(D) The item relating to section 1375 in the table of
sections for part III of subchapter S of chapter 1 is amended
by striking ``25 percent'' and inserting ``60 percent''.
(3) Subparagraph (B) of section 1362(f)(1) is amended by
striking ``paragraph (2) or (3) of subsection (d)'' and
inserting ``subsection (d)(2)''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3603. EXPANSION OF QUALIFYING BENEFICIARIES OF AN ELECTING SMALL
BUSINESS TRUST.
(a) No Look-Through for Eligibility Purposes.--Subparagraph (C) of
section 1361(b)(1) is amended by inserting ``(determined without regard
to subsection (c)(2)(B)(v))'' after ``shareholder''.
(b) Effective Date.--The amendment made by this section shall take
effect on January 1, 2015.
SEC. 3604. CHARITABLE CONTRIBUTION DEDUCTION FOR ELECTING SMALL
BUSINESS TRUSTS.
(a) In General.--Paragraph (2) of section 641(c), as amended by the
preceding provisions of this Act, is amended by inserting after
subparagraph (C) the following new subparagraph:
``(D)(i) Section 642(c) shall not apply.
``(ii) For purposes of section 170(b)(1)(E),
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, 2014.
SEC. 3605. PERMANENT RULE REGARDING BASIS ADJUSTMENT TO STOCK OF S
CORPORATIONS MAKING CHARITABLE CONTRIBUTIONS OF PROPERTY.
(a) In General.--Section 1367(a)(2) (relating to decreases in
basis) is amended by striking the last sentence.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made in taxable years beginning after December 31,
2013.
SEC. 3606. EXTENSION OF TIME FOR MAKING S CORPORATION ELECTIONS.
(a) In General.--Subsection (b) of section 1362 is amended to read
as follows:
``(b) When Made.--
``(1) In general.--An election under subsection (a) may be
made by a small business corporation for any taxable year not
later than the due date for filing the return of the S
corporation for such taxable year (including extensions).
``(2) Certain elections treated as made for next taxable
year.--If--
``(A) an election under subsection (a) is made for
any taxable year within the period described in
paragraph (1), but
``(B) either--
``(i) on 1 or more days in such taxable
year and before the day on which the election
was made the corporation did not meet the
requirements of subsection (b) of section 1361,
or
``(ii) 1 or more of the persons who held
stock in the corporation during such taxable
year and before the election was made did not
consent to the election,
then such election shall be treated as made for the
following taxable year.
``(3) Authority to treat late elections, etc., as timely.--
If--
``(A) an election under subsection (a) is made for
any taxable year after the date prescribed by this
subsection for making such election for such taxable
year or no such election is made for any taxable year,
and
``(B) the Secretary determines that there was
reasonable cause for the failure to timely make such
election,
the Secretary may treat such an election as timely made for
such taxable year.
``(4) Election on timely filed returns.--Except as
otherwise provided by the Secretary, an election under
subsection (a) for any taxable year may be made on a timely
filed return of the S corporation for such taxable year.
``(5) Secretarial authority.--The Secretary may prescribe
such regulations, rules, or other guidance as may be necessary
or appropriate for purposes of applying this subsection.''.
(b) Coordination With Certain Other Provisions.--
(1) Qualified subchapter s subsidiaries.--Section
1361(b)(3)(B) is amended by adding at the end the following
flush sentence:
``Rules similar to the rules of section 1362(b) shall
apply with respect to any election under clause
(ii).''.
(2) Qualified subchapter s trusts.--Section 1361(d)(2) is
amended by striking subparagraph (D).
(c) Revocations.--Paragraph (1) of section 1362(d) is amended--
(1) by striking ``subparagraph (D)'' in subparagraph (C)
and inserting ``subparagraphs (D) and (E)'', and
(2) by adding at the end the following new subparagraph:
``(E) Authority to treat late revocations as
timely.--If--
``(i) a revocation under subparagraph (A)
is made for any taxable year after the date
prescribed by this paragraph for making such
revocation for such taxable year or no such
revocation is made for any taxable year, and
``(ii) the Secretary determines that there
was reasonable cause for the failure to timely
make such revocation,
the Secretary may treat such a revocation as timely
made for such taxable year.''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
elections for taxable years beginning after December 31, 2014.
(2) Revocations.--The amendments made by subsection (c)
shall apply to revocations after December 31, 2014.
SEC. 3607. RELOCATION OF C CORPORATION DEFINITION.
(a) In General.--Subsection (a) of section 1361 is amended--
(1) by striking paragraph (2), and
(2) by striking ``S Corporation Defined.--'' and all that
follows through ``For purposes of this title, the term `S
corporation' means'' and inserting the following: ``In
General.--For purposes of this title, the term `S corporation'
means''.
(b) Conforming Amendment.--Section 7701(a)(3) is amended--
(1) by striking ``Corporation.--The term `corporation'
means'' and inserting the following: ``Corporations.--
``(1) In general.--The term `corporation' means'',
and
(2) by adding at the end the following new paragraph:
``(2) C corporations.--The term `C corporation' means, with
respect to any taxable year, a corporation which is not an S
corporation for such year.''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
PART 2--PARTNERSHIPS
SEC. 3611. REPEAL OF RULES RELATING TO GUARANTEED PAYMENTS AND
LIQUIDATING DISTRIBUTIONS.
(a) Payment to Partner for Services or Use of Capital.--
(1) In general.--Section 707 is amended by striking
subsection (c).
(2) Conforming amendments.--
(A) Section 267(e) is amended by striking paragraph
(4).
(B) Section 706(a) is amended by striking ``and
707(c)''.
(C) Section 1402(a) is amended, in the matter
following paragraph (17)--
(i) by striking ``(after such gross income
has been reduced by the sum of all payments to
which section 707(c) applies)'' in clauses
(iii) and (iv), and
(ii) by striking ``(after such gross income
has been so reduced)'' in clause (iv).
(D) Section 2701(c)(1)(B) is amended by inserting
``or'' at the end of clause (i), by striking ``, or''
at the end of clause (ii) and inserting a period, and
by striking clause (iii).
(E) Section 7519(d) is amended by striking
paragraph (5).
(3) Effective dates.--
(A) In general.--Except as otherwise provided in
this paragraph, the amendments made by this subsection
shall apply to partnership taxable years beginning
after December 31, 2014.
(B) Transfers.--The amendment made by paragraph
(2)(E) shall apply to transfers after December 31,
2014.
(b) Payments Made in Liquidation of Retiring or Deceased Partner.--
(1) In general.--Subpart B of part II of subchapter K of
chapter 1 is amended by striking section 736 (and by striking
the item relating to such section in the table of sections for
such subpart).
(2) Retired partners and successors in interest of deceased
partners treated as partners until liquidation.--Section 761(d)
is amended by adding at the end the following: ``For purposes
of this subchapter, any retired partner or a deceased partner's
successor in interest shall be treated as a partner until the
complete liquidation of such interest.''
(3) Conforming amendment.--
(A) Section 357(c)(3)(A) is amended by striking
``payment of which either--'' and all that follows
through ``then, for purposes of'' and inserting
``payment of which would give rise to a deduction,
then, for purposes of''.
(B) Section 731(d) is amended--
(i) by striking ``section 736 (relating to
payments to a retiring partner or a deceased
partner's successor in interest),'', and
(ii) by striking ``items), and'' and
inserting ``items) and''.
(C) Section 751(b)(2) is amended--
(i) by striking subparagraph (B), and
(ii) by striking ``shall not apply to--''
and all that follows through ``a distribution
of property'' and inserting the following:
``shall not apply to a distribution of
property''.
(D)(i) Section 753 is amended by striking ``The
amount includible'' and all that follows and inserting
``For treatment of income in respect of a decedent, see
section 691.''
(ii) Section 691 is amended by striking subsection
(e).
(4) Effective date.--The amendments made by this subsection
shall apply to partners retiring or dying after December 31,
2014.
SEC. 3612. MANDATORY ADJUSTMENTS TO BASIS OF PARTNERSHIP PROPERTY IN
CASE OF TRANSFER OF PARTNERSHIP INTERESTS.
(a) In General.--Section 743 is amended--
(1) by striking subsections (a), (c), (d), (e), and (f) and
by redesignating subsection (b) as subsection (a),
(2) in subsection (a) (as so redesignated) by striking
``with respect to which the election provided in section 754 is
in effect or which has a substantial built-in loss immediately
after such transfer'', and
(3) by adding at the end the following new subsection:
``(b) Allocation of Basis.--
``(1) General rule.--Any increase or decrease in the
adjusted basis of partnership property under subsection (a)
shall, except as provided in paragraph (2), be allocated--
``(A) in a manner which has the effect of reducing
the difference between the fair market value and the
adjusted basis of partnership properties, or
``(B) in any other manner permitted by regulations
prescribed by the Secretary.
``(2) Special rule.--In applying the allocation rules
provided in paragraph (1), increases or decreases in the
adjusted basis of partnership property arising from a transfer
of an interest attributable to property consisting of--
``(A) capital assets and property described in
section 1231(b), or
``(B) any other property of the partnership,
shall be allocated to partnership property of a like character
except that the basis of any such partnership property shall
not be reduced below zero.''.
(b) Conforming Amendments.--
(1) Section 704(c)(1) is amended--
(A) by adding ``and'' at the end of subparagraph
(A),
(B) by striking ``, and'' at the end of
subparagraph (B) and inserting a period, and
(C) by striking all that follows subparagraph (B).
(2) Section 732 is amended by striking subsection (d) and
by redesignating subsections (e) and (f) as subsections (d) and
(e), respectively.
(3) Section 761(e)(2) is amended by striking ``optional''.
(4) Section 6031 is amended by striking subsection (f).
(5) The heading for section 743 is amended to read as
follows: ``adjustment to basis of partnership property.''
(6) The heading for subsection (a) (as redesignated by the
preceding provisions of this Act) of section 743 is amended by
striking ``Adjustment to Basis of Partnership Property'' and
inserting ``In General''.
(c) Effective Date.--The amendments made by this section shall
apply to transfers after December 31, 2014.
SEC. 3613. MANDATORY ADJUSTMENTS TO BASIS OF UNDISTRIBUTED PARTNERSHIP
PROPERTY.
(a) In General.--Section 734 is amended to read as follows:
``SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY.
``(a) In General.--In the case of any distribution to a partner,
the partnership shall adjust the basis of partnership property such
that each remaining partner's net liquidation amount immediately after
such distribution is equal to such partner's net liquidation amount
immediately before such distribution.
``(b) Distributions Other Than in Liquidation of a Partner's
Interest.--In the case of any distribution to a partner other than in
liquidation of such partner's interest, proper adjustment shall be made
under subsection (a) with respect to such partner to take into
account--
``(1) the amount of any gain recognized by such partner
with respect to such distribution under section 731(a), and
``(2) the amount of any gain or loss which would be
recognized by such partner if such partner sold the property
distributed at fair market value immediately after such
distribution.
``(c) Net Liquidation Amount.--For purposes of this section, the
term `net liquidation amount' means, with respect to any partner, the
net amount of gain or loss (if any) which would be taken into account
by the partner under section 702 if the partnership sold all of its
assets at fair market value (and no other amounts were taken into
account under such section).
``(d) Allocation of Basis.--
``(1) Decreases in basis.--Any decrease in the adjusted
basis of partnership property which is required under this
section--
``(A) shall be made in accordance with paragraph
(3) of section 732(c), and
``(B) shall be made first with respect to property
other than unrealized receivables (as defined in
section 751(c)) and inventory (as defined in section
751(d)) to the extent thereof.
If any such decrease is prevented by the absence of sufficient
adjusted basis of partnership property, each partner shall
recognize gain in the amount of such partner's distributive
share of such prevented decrease. Such gain shall be treated as
gain from the sale of the partner's partnership interest.
``(2) Increases in basis.--Any increase in the adjusted
basis of partnership property which is required under this
section--
``(A) shall be made in accordance with paragraph
(2) of section 732(c), and
``(B) shall be made only with respect to property
other than unrealized receivables (as defined in
section 751(c)) and inventory (as defined in section
751(d)).
If any such increase is prevented by the absence of property
described in subparagraph (B), each partners shall recognize a
loss in the amount of such partner's distributive share of such
prevented increase. Such loss shall be treated as a loss from
the sale of the partner's partnership interest.
``(e) No Allocation of Basis Decrease to Stock of Corporate
Partner.--In making an allocation under subsection (d) of any decrease
in the adjusted basis of partnership property required under subsection
(a)--
``(1) no allocation may be made to stock in a corporation
(or any person related (within the meaning of section 267(b) or
707(b)(1)) to such corporation) which is a partner in the
partnership, and
``(2) any amount not allocable to stock by reason of
paragraph (1) shall be allocated under subsection (d) to other
partnership property.
Gain shall be recognized by the partnership to the extent that the
amount required to be allocated to other partnership property under
subsection (e)(2) exceeds the aggregate adjusted basis of such other
property immediately before the allocation required by subsection
(a).''.
(b) Conforming Amendments.--
(1)(A) Subpart D of part II of subchapter K of chapter 1 is
amended by striking sections 754 and 755 (and by striking items
relating to such sections in the table of sections of such
subpart).
(B) Clause (ii) of section 706(d)(2)(D) is amended by
striking ``section 755'' and inserting ``section 743(b)''.
(2) Subsection (d) of section 1060 is amended--
(A) by striking ``section 755'' in paragraph (1)
and inserting ``sections 734 and 743'', and
(B) by striking ``section 755'' in paragraph (2)
and inserting ``section 734 or 743''.
(c) Effective Date.--The amendments made by this section shall
apply to distributions after December 31, 2014.
SEC. 3614. CORRESPONDING ADJUSTMENTS TO BASIS OF PROPERTIES HELD BY
PARTNERSHIP WHERE PARTNERSHIP BASIS ADJUSTED.
(a) In General.--Subpart B of part II of subchapter K of chapter 1,
as amended by the preceding provisions of this Act, is amended by
inserting after section 735 the following new section:
``SEC. 736. CORRESPONDING ADJUSTMENT TO BASIS OF PROPERTIES HELD BY
LOWER-TIER PARTNERSHIP IN CASE OF UPPER-TIER PARTNERSHIP
BASIS ADJUSTMENTS.
``(a) Distributions by Upper-Tier Partnership.--In the case of any
distribution of property to a partner by an upper-tier partnership, if
such distribution results in an adjustment in the upper-tier
partnership's adjusted basis in an interest in a lower-tier partnership
under section 734, then such lower-tier partnership shall make a
corresponding adjustment to the adjusted basis of its partnership
property.
``(b) Distributions of Interests in Lower-Tier Partnership.--In the
case of any distribution of an interest in a lower-tier partnership by
an upper-tier partnership--
``(1) if the adjusted basis of such interest in the hands
of the upper-tier partnership (determined immediately before
such distribution) exceeds the adjusted basis of such interest
in the hands of the distributee partner (determined immediately
after such distribution), then such lower-tier partnership
shall decrease the adjusted basis of its partnership property
by the amount of such excess, or
``(2) if the adjusted basis of such interest in the hands
of the distributee partner (determined immediately after such
distribution) exceeds the adjusted basis of such interest in
the hands of the upper-tier partnership (determined immediately
before such distribution), then such lower-tier partnership
shall increase the adjusted basis of its partnership property
by the amount of such excess.
``(c) Dispositions of Interests in Upper-Tier Partnership.--In the
case of a disposition of an interest in an upper-tier partnership which
holds an interest in a lower-tier partnership, if there is an
adjustment to the adjusted basis of the lower-tier partnership under
section 743, then such lower-tier partnership shall make a
corresponding adjustment to the adjusted basis of its partnership
property.
``(d) Multi-Tiered Partnerships.--In the case of any adjustment
under subsection (a), (b), or (c) in the adjusted basis of an interest
in another partnership, such other partnership shall make a
corresponding adjustment in the adjusted basis of its partnership
property.
``(e) Allocation of Basis; Recognition of Gain.--In the case of any
adjustment in the adjusted basis of partnership property--
``(1) under subsection (a), (b), (c), or (d), such
adjustment shall be made only with respect to the upper-tier
partnership's proportionate share (as determined under section
743(a)) of the adjusted basis of the lower-tier partnership's
property,
``(2) under subsection (a) or (b) (or so much of subsection
(d) as relates to either such subsection), rules similar to the
rules of section 734(d) shall apply, and
``(3) under subsection (c) (or so much of subsection (d) as
relates to such subsection), rules similar to the rules of
section 743(b) shall apply.
``(f) Reporting.--In the case of any adjustment in the adjusted
basis of partnership property by a lower-tier partnership under this
section by reason of a distribution by, or a disposition of an interest
in, an upper-tier partnership, such upper-tier partnership shall
furnish (in such manner as the Secretary shall prescribe) to such
lower-tier partnership such information as is necessary to enable such
lower-tier partnership to make such adjustment.
``(g) Upper- and Lower-Tier Partnerships.--For purposes of this
section--
``(1) Upper-tier partnership.--The term `upper-tier
partnership' means a partnership owning an interest in another
partnership.
``(2) Lower-tier partnership.--The term `lower-tier
partnership' means the partnership referred to in paragraph (1)
an interest in which is owned by the upper-tier partnership.''.
(b) Effective Dates.--The amendments made by this section shall
apply to distributions and transfers after December 31, 2014.
SEC. 3615. 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.--In determining the amount of any loss
under paragraph (1), there shall be taken into account as a
deduction the partner's distributive share of--
``(A) the adjusted basis of charitable
contributions described in paragraph (4) of section
702(a), and
``(B) the amount of taxes described in paragraph
(6) of such section.''.
(b) Effective Date.--The amendments made by this section shall
apply to partnership taxable years beginning after December 31, 2014.
SEC. 3616. REVISIONS RELATED TO UNREALIZED RECEIVABLES AND INVENTORY
ITEMS.
(a) Repeal of Requirement That Inventory Be Substantially
Appreciated in Certain Partnership Distributions Treated as Sale or
Exchange.--
(1) In general.--Clause (ii) of section 751(b)(1)(A) is
amended by striking ``which have appreciated substantially in
value''.
(2) Conforming amendment.--Section 751(b) is amended by
striking paragraph (3).
(3) Effective date.--The amendments made by this subsection
shall apply to distributions after December 31, 2014.
(b) Revision of Regulations Relating to Treatment of Unrealized
Receivables and Inventory Items.--The Secretary of the Treasury shall
revise regulations issued under section 751(b) of the Internal Revenue
Code of 1986 to take into account the partner's share of income and
gain rather than the partner's share of partnership assets.
(c) Simplification of Definition of Unrealized Receivables.--
(1) In general.--Section 751(c) is amended by striking all
that follows paragraph (2) and inserting the following:
``For purposes of this section and sections 731, 732, 734, and 741,
such term also includes any property other than inventory items, but
only to the extent of the amount which would be treated as ordinary
income if (at the time of the transaction described in the applicable
section) such property had been sold by the partnership for its fair
market value.''.
(2) Effective date.--The amendment made by this subsection
shall apply to partnership taxable years beginning after
December 31, 2014.
SEC. 3617. REPEAL OF TIME LIMITATION ON TAXING PRECONTRIBUTION GAIN.
(a) In General.--Subparagraph (B) of section 704(c)(1) is amended
by striking ``within 7 years of being contributed''.
(b) Conforming Amendment.--Paragraph (1) of section 737(b) is
amended by striking ``within 7 years of the distribution''.
(c) Effective Date.--The amendments made by this section shall
apply to property contributed to a partnership after December 31, 2014.
SEC. 3618. PARTNERSHIP INTERESTS CREATED BY GIFT.
(a) In General.--Section 761(b) is amended by adding at the end the
following: ``In the case of a capital interest in a partnership in
which capital is a material income-producing factor, whether a person
is a partner with respect to such interest shall be determined without
regard to whether such interest was derived by gift from any other
person.''.
(b) Conforming Amendments.--Section 704(e) is amended--
(1) by striking paragraph (1) and by redesignating
paragraphs (2) and (3) as paragraphs (1) and (2), respectively,
(2) by striking ``this section'' in paragraph (2) (as so
redesignated) and inserting ``this subsection'', and
(3) by striking ``Family Partnerships'' in the heading and
inserting ``Partnership Interests Created by Gift''.
(c) Effective Date.--The amendments made by this section shall
apply to partnership taxable years beginning after December 31, 2014.
SEC. 3619. REPEAL OF TECHNICAL TERMINATION.
(a) In General.--Paragraph (1) of section 708(b) is amended--
(1) by striking ``, or'' 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, 2014.
SEC. 3620. PUBLICLY TRADED PARTNERSHIP EXCEPTION RESTRICTED TO MINING
AND NATURAL RESOURCES PARTNERSHIPS.
(a) In General.--Subsection (d) of section 7704 is amended to read
as follows:
``(d) Qualifying Income.--For purposes of this section, the term
`qualifying income' means--
``(1) income and gains derived from the exploration,
development, mining or production, processing, refining,
transportation (including pipelines transporting gas, oil, or
products thereof), or the marketing of any mineral or natural
resource (including geothermal energy and excluding fertilizer
and timber) or industrial source carbon dioxide, and
``(2) any gain from the sale or disposition of a capital
asset (or property described in section 1231(b)) held for the
production of income described in paragraph (1).
For purposes of this subsection, the term `mineral or natural resource'
means any product of a character with respect to which a deduction for
depletion is allowable under section 611 (other than minerals from sea
water or the air (or similar inexhaustible sources), soil, sod, dirt,
turf, water, or mosses).''.
(b) Conforming Amendments.--Section 988(c)(1)(E) is amended--
(1) by striking ``income or gains described in subparagraph
(A), (B), or (G) of section 7704(d)(1)'' in clause (iii)(III)
and inserting ``qualifying income or gains'',
(2) by striking subclause (III) of clause (vi) and by
redesignating subclause (IV) as subclause (III),
(3) by redesignating clause (vi) (as amended by this
subparagraph) as clause (viii), and
(4) by inserting after clause (v) the following new
clauses:
``(vi) Qualifying income or gains.--The
term `qualifying income or gains' means--
``(I) interest,
``(II) dividends, and
``(III) in the case of a
partnership described in the second
sentence of section 7704(c)(3), income
and gains from commodities (not
described in section 1221(a)(1)) or
futures, forwards, and options with
respect to commodities.
``(vii) Inadvertent terminations.--If--
``(I) A partnership fails to meet
the gross income requirements of this
subparagraph,
``(II) the Secretary determines
that such failure was inadvertent,
``(III) no later than a reasonable
time after the discovery of such
failure, steps are taken so that such
partnership once more meets such gross
income requirements, and
``(IV) such partnership agrees to
make such adjustments (including
adjustments with respect to the
partners) or to pay such amounts as may
be required by the Secretary with
respect to such period,
then, notwithstanding such failure, such entity
shall be treated as continuing to meet such
gross income requirements for such period.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2016.
SEC. 3621. ORDINARY INCOME TREATMENT IN THE CASE OF PARTNERSHIP
INTERESTS HELD IN CONNECTION WITH PERFORMANCE OF
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:
``SEC. 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, so much
of--
``(1) the taxpayer's net capital gain with respect to such
interests for such taxable year, as does not exceed
``(2) the taxpayer's recharacterization account balance for
such taxable year,
shall be treated as ordinary income.
``(b) Net Capital Gain.--
``(1) In general.--For purposes of subsection (a)(1), net
capital gain shall be determined under section 1222, except
that such section shall be applied--
``(A) without regard to the recharacterization of
any item as ordinary income under this section,
``(B) by only taking into account items of gain and
loss--
``(i) taken into account by the taxpayer
under section 702 with respect to any
applicable partnership interest,
``(ii) recognized by the taxpayer on the
disposition of any such interest, or
``(iii) recognized by the taxpayer under
paragraph (4) on a distribution of property
with respect to such interest, and
``(C) in the case of a taxable year for which
section 1231 gains (as defined in section
1231(a)(3)(A)) exceed section 1231 losses (as defined
in section 1231(a)(3)(B)), by treating property which
is taken into account in determining such gains and
losses as capital assets held for more than 1 year.
``(2) Allocation to items of gain.--The amount treated as
ordinary income under subsection (a) shall be allocated ratably
among the items of long-term capital gain taken into account in
determining net capital gain under paragraph (1).
``(3) Recognition of gain on disposition of applicable
partnership interests.--Any gain on the disposition of any
applicable partnership interest shall be recognized
notwithstanding any other provision of this title.
``(4) Recognition of gain on distributions of partnership
property.--
``(A) In general.--In the case of any distribution
of property by a partnership with respect to any
applicable partnership interest, the partner receiving
such property shall recognize gain equal to the excess
(if any) of--
``(i) the fair market value of such
property at the time of such distribution, over
``(ii) the adjusted basis of such property
in the hands of such partner (determined
without regard to subparagraph (B)).
``(B) Adjustment of basis.--In the case of a
distribution to which subparagraph (A) applies, the
basis of the distributed property in the hands of the
distributee partner shall be the amount determined
under subparagraph (A)(i).
``(c) Recharacterization Account Balance.--
``(1) In general.--For purposes of this section, the term
`recharacterization account balance' means, with respect to any
taxpayer for any taxable year, the excess (if any) of--
``(A) the sum of--
``(i) the taxpayer's aggregate annual
recharacterization amounts with respect to
applicable partnership interests for such
taxable year, plus
``(ii) the taxpayer's recharacterization
account balance for the taxable year preceding
such taxable year, over
``(B) the sum of--
``(i) the taxpayer's net ordinary income
with respect to applicable partnership
interests for such taxable year (determined
without regard to this section), plus
``(ii) the amount treated as ordinary
income of the taxpayer under this section for
the taxable year preceding such taxable year.
``(2) Annual recharacterization amount.--For purposes of
this subsection--
``(A) In general.--The term `annual
recharacterization amount' means, with respect to any
applicable partnership interest for any partnership
taxable year, an amount equal to the product of--
``(i) the specified rate determined under
subparagraph (B) for the calendar year in which
such taxable year begins, multiplied by
``(ii) the excess (if any) of--
``(I) an amount equal to the
applicable percentage of the
partnership's aggregate invested
capital for such taxable year, over
``(II) the specified capital
contribution of the partner with
respect to the applicable partnership
interest for such taxable year.
If a taxpayer holds an applicable partnership interest
for less than the entire taxable year, the amount
determined under the preceding sentence shall be
ratably reduced.
``(B) Specified rate.--For purposes of subparagraph
(A), the term `specified rate' means, with respect to
any calendar year, a percentage equal to--
``(i) the Federal long-term rate determined
under section 1274(d)(1) for the last month of
the calendar year, plus
``(ii) 10 percentage points.
``(C) Applicable percentage.--
``(i) In general.--The term `applicable
percentage' means, with respect to any
applicable partnership interest, the highest
percentage of profits of the partnership that
could be allocated with respect to such
interest for the taxable year (consistent with
the partnership agreement and assuming such
facts and circumstances with respect to such
taxable year as would result in such highest
percentage).
``(ii) Secretarial authority.--The
Secretary shall prescribe rules for the
determination of the applicable percentage in
cases in which the percentage of profits of a
partnership that are to be allocated with
respect to an applicable partnership interest
varies on the basis of the aggregate amount of
such profits. Such rules may provide a
percentage which may be used in lieu of the
highest percentage determined under clause (i)
in cases where such other percentage is
consistent with the purposes of this section.
``(D) Aggregate invested capital.--
``(i) In general.--The term `aggregate
invested capital' means, with respect to any
taxable year, the average daily amount of
invested capital of the partnership for such
taxable year.
``(ii) Invested capital.--The term
`invested capital' means, with respect to any
partnership as of any day, the total cumulative
value, determined at the time of contribution,
of all money or other property contributed to
the partnership on or before such day.
``(iii) Reduction for liquidation of
partnership interests.--The invested capital of
a partnership shall be reduced by the aggregate
amount distributed in liquidation of interests
in the partnership.
``(iv) Treatment of certain indebtedness as
invested capital.--The following amounts shall
be treated as invested capital:
``(I) Partner loans.--The aggregate
value (determined as of the time of the
loan) of money or other property which
a partner loans to the partnership.
``(II) Indebtedness eligible to
share in equity of the partnership.--
The face amount of any convertible debt
of the partnership or any debt
obligation providing equity
participation in the partnership.
``(E) Specified capital contribution.--
``(i) In general.--The term `specified
capital contribution' means, with respect to
any applicable partnership interest for any
taxable year, the average daily amount of
contributed capital with respect to such
interest for such year.
``(ii) Contributed capital.--The term
`contributed capital' means, with respect to
applicable partnership interest as of any day,
the excess (if any) of--
``(I) the total cumulative value,
determined at the time of contribution,
of all money or other property
contributed by the partner to the
partnership with respect to such
interest as of such day, over
``(II) the total cumulative value,
determined at the time of distribution,
of all money or other property
distributed by the partnership to the
partner with respect to such interest
as of such day.
``(iii) Treatment of related party
borrowings.--Any amount borrowed directly or
indirectly from the partnership or any other
partner of the partnership or any person
related to such other partner or such
partnership shall not be taken into account
under this subparagraph. For purposes of the
preceding sentence, a person shall be treated
as related to another person if the
relationship between such persons would be
described in section 267(b) or 707(b) if such
sections and section 267(f) were applied by
substituting `10 percent' for `50 percent' each
place it appears.
``(F) Multiple interests.--If at any time during a
taxable year a taxpayer holds directly or indirectly
more than 1 applicable partnership interest in a single
partnership, such interests shall be treated as 1
applicable partnership interest for purposes of
applying this paragraph.
``(3) Net ordinary income.--For purposes of this
subsection, the net ordinary income with respect to applicable
partnership interests for any taxable year is the excess (if
any) of--
``(A) the taxpayer's distributive share of items of
income and gain under section 702 with respect to
applicable partnership interests for such taxable year
(determined without regard to any items of gain taken
into account in determining net capital gain under
subsection (b)(1)), over
``(B) the taxpayer's distributive share of items of
deduction and loss under section 702 with respect to
such interests for such taxable year (determined
without regard to any items of loss taken into account
in determining net capital gain under subsection
(b)(1)).
``(d) Applicable Partnership Interest.--For purposes of this
section--
``(1) In general.--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 services by the taxpayer,
or any other person, in any applicable trade or business.
``(2) Applicable trade or business.--
``(A) In general.--The term `applicable trade or
business' means any trade or business conducted on a
regular, continuous, and substantial basis which,
regardless of whether the activities are conducted in
one or more entities, consists, in whole or in part,
of--
``(i) raising or returning capital,
``(ii) investing in (or disposing of)
trades or businesses (or identifying trades or
businesses for such investing or disposition),
and
``(iii) developing such trades or
businesses.
``(B) Treatment of research and experimentation
activities.--Any activity involving research or
experimentation (within the meaning of section
469(c)(4)) shall be treated as a trade or business for
purposes of clauses (ii) and (iii) of subparagraph (A).
``(e) 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 ordinary income) so much of the taxpayer's
recharacterization account balance for such taxable year as is
allocable to such interest (determined in such manner as the
Secretary may provide and reduced by any amount treated as
ordinary income 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.
``(f) Reporting by Entity of Taxpayer's Annual Recharacterization
Amount.--A partnership shall report to the Secretary, and include with
the information required to be furnished under section 6031(b) to each
partner, the amount of the partner's annual recharacterization amount
for the taxable year, if any. A similar rule applies to any entity that
receives a report of an annual recharacterization amount for the
taxable year.
``(g) Regulations.--The Secretary shall issue such regulations or
other guidance as necessary to carry out this section, including
regulations--
``(1) to prevent the abuse of the purposes of this section,
including through--
``(A) the allocation of income to tax indifferent
parties, or
``(B) a reduction in the invested capital of the
partnership (including attempts to undervalue
contributed or loaned property),
``(2) which provide that partnership interests shall not
fail to be treated as transferred or held in connection with
the performance of services merely because the taxpayer also
made contributions to the partnership,
``(3) which provide for the application of this section in
cases where the taxpayer has more than 1 applicable interest in
a partnership, and
``(4) which provide for the application of this section in
cases of tiered structures of entities.''.
(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 a 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, 2014.
SEC. 3622. PARTNERSHIP AUDITS AND ADJUSTMENTS.
(a) Repeal of TEFRA Partnership Audit Rules.--Chapter 63 is amended
by striking subchapter C (and by striking the item relating to such
subchapter in the table of subchapters for such chapter).
(b) Repeal of Electing Large Partnership Rules.--
(1) In general.--Subchapter K of chapter 1 is amended by
striking part IV (and by striking the item relating to such
part in the table of parts for such subchapter).
(2) Assessment rules relating to electing large
partnerships.--Chapter 63 is amended by striking subchapter D
(and by striking the item relating to such subchapter in the
table of subchapters for such chapter).
(3) Effective date.--The amendments made by this section
shall apply to returns filed after December 31, 2014.
(c) Partnership Audit Reform.--
(1) In general.--Chapter 63, as amended by the preceding
provisions of this Act, is amended by inserting after
subchapter B the following new subchapter:
``Subchapter C--Treatment of Partnerships
``Part I--In General
``Part II--Partnership Adjustments
``Part III--Procedure
``Part IV--Definitions and Special Rules
``PART I--IN GENERAL
``Sec. 6221. Determination at partnership level.
``Sec. 6222. Partner's return must be consistent with partnership
return.
``Sec. 6223. Designation of partnership representative.
``SEC. 6221. DETERMINATION AT PARTNERSHIP LEVEL.
``(a) In General.--Items of income, gain, loss, deduction, or
credit of a partnership for a partnership taxable year (and any
partner's distributive share thereof) shall be audited, any tax
attributable thereto shall be assessed and collected, and the
applicability of any penalty, addition to tax, or additional amount
which relates to an adjustment to any such item or share shall be
determined, at the partnership level pursuant to this subchapter.
``(b) Election Out for Certain Partnerships With 100 or Fewer
Partners.--This subchapter shall not apply with respect to any
partnership for any taxable year if--
``(1) the partnership elects the application of this
subsection for such taxable year,
``(2) the partnership has 100 or fewer partners on the last
day of such taxable year,
``(3) each of the partners of such partnership is an
individual, a C corporation (other than a real estate
investment trust or a regulated investment company), any
foreign entity that would be treated as a C corporation were it
domestic, or an estate of a deceased partner,
``(4) the election--
``(A) is made with a timely filed return for such
taxable year, and
``(B) includes (in the manner prescribed by the
Secretary) a disclosure of the name and taxpayer
identification number of each partner of such
partnership, and
``(5) the partnership notifies each such partner of such
election in the manner prescribed by the Secretary.
For purposes of paragraph (4)(B), the Secretary may provide for
alternative identification of any foreign partners.
``SEC. 6222. PARTNER'S RETURN MUST BE CONSISTENT WITH PARTNERSHIP
RETURN.
``(a) In General.--A partner of any partnership shall, on the
partner's return, treat each item of income, gain, loss, deduction, or
credit attributable to such partnership in a manner which is consistent
with the treatment of such income, gain, loss, deduction, or credit on
the partnership return.
``(b) Underpayment Due to Inconsistent Treatment Assessed as Math
Error.--Any underpayment of tax by a partner by reason of failing to
comply with the requirements of subsection (a) shall be assessed and
collected in the same manner as if such underpayment were on account of
a mathematical or clerical error appearing on the partner's return.
Paragraph (2) of section 6213(b) shall not apply to any assessment of
an underpayment referred to in the preceding sentence.
``(c) Addition to Tax for Failure To Comply With Section.--For
addition to tax in the case of partner's disregard of the requirements
of this section, see part II of subchapter A of chapter 68.
``SEC. 6223. PARTNERS BOUND BY ACTIONS OF PARTNERSHIP.
``(a) Designation of Partner.--Each partnership shall designate (in
the manner prescribed by the Secretary) a partner (or other person) as
the partnership representative who shall have the sole authority to act
on behalf of the partnership under this subchapter. In any case in
which such a designation is not in effect, the Secretary may select any
partner as the partnership representative.
``(b) Binding Effect.--A partnership and all partners of such
partnership shall be bound--
``(1) by actions taken under this subchapter by the
partnership, and
``(2) by any decision in a proceeding brought under this
subchapter.
``PART II--PARTNERSHIP ADJUSTMENTS
``Sec. 6225. Partnership adjustment by Secretary.
``Sec. 6226. Administrative adjustment request by partnership.
``SEC. 6225. PARTNERSHIP ADJUSTMENT BY SECRETARY.
``(a) In General.--In the case of any adjustment by the Secretary
in the amount of any item of income, gain, loss, deduction, or credit
of a partnership, or any partner's distributive share thereof--
``(1) the partnership shall pay any imputed underpayment
with respect to such adjustment in the adjustment year as
provided in section 6232, and
``(2) any imputed overpayment shall be taken into account
by the partnership in the adjustment year as a reduction in
non-separately stated income or an increase in non-separately
stated loss (whichever is appropriate) under section 702(a)(8).
``(b) Determination of Imputed Underpayments and Overpayments.--For
purposes of this subchapter--
``(1) In general.--Except as provided in subsection (c),
any imputed underpayment or imputed overpayment with respect to
any partnership adjustment for any reviewed year shall be
determined--
``(A) by netting all adjustments of items of
income, gain, loss, or deduction and multiplying such
net amount by the highest rate of tax in effect for the
reviewed year under section 1 or 11,
``(B) by treating any net increase or decrease in
loss under subparagraph (A) as a decrease or increase,
respectively, in income, and
``(C) by taking into account any adjustments to
items of credit as an increase or decrease, as the case
may be, in the amount determined under subparagraph
(A).
``(2) Adjustments to distributive shares of partners not
netted.--In the case of any adjustment which reallocates the
distributive share of any item from one partner to another,
such adjustment shall be taken into account under paragraph (1)
by disregarding--
``(A) any decrease in any item of income or gain,
and
``(B) any increase in any item of deduction, loss,
or credit.
``(c) Modification of Imputed Underpayments.--
``(1) Method in general.--The Secretary shall establish
procedures under which the imputed underpayment amount may be
modified consistent with the requirements of this subsection.
``(2) Amended returns of partners.--Such procedures shall
provide that if--
``(A) one or more partners file returns for the
taxable year of the partners which includes the end of
the reviewed year of the partnership,
``(B) such returns take into account all
adjustments under subsection (a) properly allocable to
such partners (and for any other taxable year with
respect to which any tax attribute is affected by
reason of such adjustments), and
``(C) payment of any tax due is included with such
return,
then the imputed underpayment amount shall be determined
without regard to the portion of the adjustments so taken into
account.
``(3) Reallocation of distributive share.--In the case of
any adjustment which reallocates the distributive share of any
item from one partner to another, paragraph (2) shall apply
only if returns are filed by all partners affected by such
adjustment.
``(4) Year and day for submission to secretary.--Anything
required to be submitted pursuant to paragraph (1) shall be
submitted to the Secretary not later than the close the 180-day
period beginning on the date on which the notice of a proposed
partnership adjustment is mailed under section 6231 unless such
period is extended with the consent of the Secretary.
``(5) Decision of secretary.--Any modification of the
imputed underpayment amount under this subsection shall be made
only upon approval of such modification by the Secretary.
``(d) Definitions and Special Rule.--For purposes of this
subchapter--
``(1) Reviewed year.--The term `reviewed year' means the
partnership taxable year to which the item being adjusted
relates.
``(2) Adjustment year.--The term `adjustment year' means
the partnership taxable year in which--
``(A) in the case of an adjustment pursuant to the
decision of a court in a proceeding brought under
section 6234, such decision becomes final,
``(B) in the case of an administrative adjustment
request under section 6226, such administrative
adjustment request is made, or
``(C) in any other case, notice of the final
partnership adjustment is mailed under section 6231.
``SEC. 6226. ADMINISTRATIVE ADJUSTMENT REQUEST BY PARTNERSHIP.
``(a) In General.--A partnership may file a request for an
administrative adjustment in the amount of any item of income, gain,
loss, deduction, or credit of the partnership for any partnership
taxable year, but only to the extent such adjustment results in an
imputed underpayment.
``(b) Adjustment.--Any adjustment under subsection (a) shall be
determined and taken into account by the partnership under rules
similar to the rules of section 6225 (other than subsection (c)
thereof) for the partnership taxable year in which the administrative
adjustment request is made.
``(c) Period of Limitations.--A partnership may not file such a
request--
``(1) more than 3 years after the later of--
``(A) the date on which the partnership return for
such year is filed, or
``(B) the last day for filing the partnership
return for such year (determined without regard to
extensions), and
``(2) after any notice of an administrative proceeding with
respect to the taxable year is mailed under section 6231.
``PART III--PROCEDURE
``Sec. 6231. Notice of proceedings and adjustment.
``Sec. 6232. Assessment, collection, and payment.
``Sec. 6233. Penalties and interest.
``Sec. 6234. Judicial review of partnership adjustment.
``Sec. 6235. Period of limitations on making adjustments.
``SEC. 6231. NOTICE OF PROCEEDINGS AND ADJUSTMENT.
``(a) In General.--The Secretary shall mail to the partnership and
the partnership representative--
``(1) notice of any administrative proceeding initiated at
the partnership level with respect to an adjustment of any item
of income, gain, loss, deduction, or credit of a partnership
for a partnership taxable year, or any partner's distributive
share thereof,
``(2) notice of any proposed partnership adjustment
resulting from such proceeding, and
``(3) notice of any final partnership adjustment resulting
from such proceeding.
Any notice of a final partnership adjustment shall not be mailed
earlier than 180 days after the date on which the notice of the
proposed partnership adjustment is mailed. Such notices shall be
sufficient if mailed to the last known address of the partnership
representative or the partnership (even if the partnership has
terminated its existence). The first sentence shall apply to any
proceeding with respect to an administrative adjustment request filed
by a partnership under section 6226.
``(b) Further Notices Restricted.--If the Secretary mails a notice
of a final partnership adjustment to any partnership for any
partnership taxable year and the partnership files a petition under
section 6234 with respect to such notice, in the absence of a showing
of fraud, malfeasance, or misrepresentation of a material fact, the
Secretary shall not mail another such notice to such partnership with
respect to such taxable year.
``(c) Authority To Rescind Notice With Partnership Consent.--The
Secretary may, with the consent of the partnership, rescind any notice
of a partnership adjustment mailed to such partnership. Any notice so
rescinded shall not be treated as a notice of a partnership adjustment
for purposes of this subchapter, and the taxpayer shall have no right
to bring a proceeding under section 6234 with respect to such notice.
``SEC. 6232. ASSESSMENT, COLLECTION, AND PAYMENT.
``(a) In General.--Any imputed underpayment--
``(1) shall be assessed and collected in the same manner as
if it were a tax imposed for the adjustment year by subtitle A,
and
``(2) shall be paid on or before the return due date for
the adjustment year.
``(b) Limitation on Assessment.--Except as otherwise provided in
this chapter, no assessment of a deficiency may be made (and no levy or
proceeding in any court for the collection of any amount resulting from
such adjustment may be made, begun or prosecuted) before--
``(1) the close of the 90th day after the day on which a
notice of a final partnership adjustment was mailed, and
``(2) if a petition is filed under section 6234 with
respect to such notice, the decision of the court has become
final.
``(c) Premature Action May Be Enjoined.--Notwithstanding section
7421(a), any action which violates subsection (b) may be enjoined in
the proper court, including the Tax Court. The Tax Court shall have no
jurisdiction to enjoin any action under this subsection unless a timely
petition has been filed under section 6234 and then only in respect of
the adjustments that are the subject of such petition.
``(d) Exceptions to Restrictions on Adjustments.--
``(1) Adjustments arising out of math or clerical errors.--
``(A) In general.--If the partnership is notified
that, on account of a mathematical or clerical error
appearing on the partnership return, an adjustment to a
partnership item is required, rules similar to the
rules of paragraphs (1) and (2) of section 6213(b)
shall apply to such adjustment.
``(B) Special rule.--If a partnership is a partner
in another partnership, any adjustment on account of
such partnership's failure to comply with the
requirements of section 6222(a) with respect to its
interest in such other partnership shall be treated as
an adjustment referred to in subparagraph (A), except
that paragraph (2) of section 6213(b) shall not apply
to such adjustment.
``(2) Partnership may waive restrictions.--The partnership
may at any time (whether or not any notice of partnership
adjustment has been issued), by a signed notice in writing
filed with the Secretary, waive the restrictions provided in
subsection (b) on the making of any partnership adjustment.
``(e) Limit Where No Proceeding Begun.--If no proceeding under
section 6234 is begun with respect to any notice of a final partnership
adjustment during the 90-day period described in subsection (b)
thereof, the amount for which the partnership is liable under section
6225 shall not exceed the amount determined in accordance with such
notice.
``SEC. 6233. PENALTIES AND INTEREST.
``(a) Penalties and Interest Determined From Reviewed Year.--
``(1) In general.--In the case of an imputed underpayment
with respect to a partnership adjustment for a reviewed year,
the partnership--
``(A) shall pay to the Secretary interest computed
under paragraph (2), and
``(B) shall be liable for any penalty, addition to
tax, or additional amount as provided in paragraph (3).
``(2) Determination of amount of interest.--The interest
computed under this paragraph with respect to any partnership
adjustment is the interest which would be determined under
chapter 67--
``(A) on the imputed underpayment determined with
respect to such adjustment,
``(B) for the period beginning on the day after the
return due date for the reviewed year and ending on the
return due date for the adjustment year (or, if
earlier, the date payment of the imputed underpayment
is made).
Proper adjustments in the amount determined under the preceding
sentence shall be made for adjustments required for partnership
taxable years after the reviewed year and before the adjustment
year by reason of such partnership adjustment.
``(3) Penalties.--A partnership shall be liable for any
penalty, addition to tax, or additional amount for which it
would have been liable if such partnership had been an
individual subject to tax under chapter 1 for the reviewed year
and the imputed underpayment were an actual underpayment (or
understatement) for such year.
``(b) Interest and Penalties With Respect to Adjustment Year
Return.--
``(1) In general.--In the case of any failure to pay an
imputed underpayment on the date prescribed therefor, the
partnership shall be liable--
``(A) for interest as determined under paragraph
(2), and
``(B) for any penalty, addition to tax, or
additional amount as determined under paragraph (3).
``(2) Interest.--Interest determined under this paragraph
is the interest that would be determined by treating the
imputed underpayment as an underpayment of tax imposed in the
adjustment year.
``(3) Penalties.--Penalties, additions to tax, or
additional amounts determined under this paragraph are the
penalties, additions to tax, or additional amounts that would
be determined--
``(A) by applying section 6651(a)(2) to such
failure to pay.
``(B) by treating the imputed underpayment as an
underpayment of tax for purposes of part II of
subchapter A of chapter 68.
``SEC. 6234. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.
``(a) In General.--Within 90 days after the date on which a notice
of a final partnership adjustment is mailed under section 6231 with
respect to any partnership taxable year, the partnership may file a
petition for a readjustment for such taxable year with--
``(1) the Tax Court,
``(2) the district court of the United States for the
district in which the partnership's principal place of business
is located, or
``(3) the Claims Court.
``(b) Jurisdictional Requirement for Bringing Action in District
Court or Claims Court.--
``(1) In general.--A readjustment petition under this
section may be filed in a district court of the United States
or the Claims Court only if the partnership filing the petition
deposits with the Secretary, on or before the date the petition
is filed, the amount of the imputed underpayment (as of the
date of the filing of the petition) if the partnership
adjustment was made as provided by the notice of final
partnership adjustment. The court may by order provide that the
jurisdictional requirements of this paragraph are satisfied
where there has been a good faith attempt to satisfy such
requirement and any shortfall of the amount required to be
deposited is timely corrected.
``(2) Interest payable.--Any amount deposited under
paragraph (1), while deposited, shall not be treated as a
payment of tax for purposes of this title (other than chapter
67).
``(c) Scope of Judicial Review.--A court with which a petition is
filed in accordance with this section shall have jurisdiction to
determine all items of income, gain, loss, deduction, or credit of the
partnership for the partnership taxable year to which the notice of
final partnership adjustment relates, the proper allocation of such
items among the partners, and the applicability of any penalty,
addition to tax, or additional amount for which the partnership may be
liable under this subchapter.
``(d) Determination of Court Reviewable.--Any determination by a
court under this section shall have the force and effect of a decision
of the Tax Court or a final judgment or decree of the district court or
the Claims Court, as the case may be, and shall be reviewable as such.
The date of any such determination shall be treated as being the date
of the court's order entering the decision.
``(e) Effect of Decision Dismissing Action.--If an action brought
under this section is dismissed other than by reason of a rescission
under section 6231(c), the decision of the court dismissing the action
shall be considered as its decision that the notice of final
partnership adjustment is correct, and an appropriate order shall be
entered in the records of the court.
``SEC. 6235. PERIOD OF LIMITATIONS ON MAKING ADJUSTMENTS.
``(a) In General.--Except as otherwise provided in this section, no
adjustment under this subpart for any partnership taxable year may be
made after the date which is 3 years after the latest of--
``(1) the date on which the partnership return for such
taxable year was filed,
``(2) the return due date for the taxable year, or
``(3) the date on which the partnership filed an
administrative adjustment request with respect to such year
under section 6226.
``(b) Extension by Agreement.--The period described in subsection
(a) (including an extension period under this subsection) may be
extended by an agreement entered into by the Secretary and the
partnership before the expiration of such period.
``(c) Special Rule in Case of Fraud, etc.--
``(1) False return.--In the case of a false or fraudulent
partnership return with intent to evade tax, the adjustment may
be made at any time.
``(2) Substantial omission of income.--If any partnership
omits from gross income an amount properly includible therein
and such amount is described in section 6501(e)(1)(A),
subsection (a) shall be applied by substituting `6 years' for
`3 years'.
``(3) No return.--In the case of a failure by a partnership
to file a return for any taxable year, the adjustment may be
made at any time.
``(4) Return filed by secretary.--For purposes of this
section, a return executed by the Secretary under subsection
(b) of section 6020 on behalf of the partnership shall not be
treated as a return of the partnership.
``(d) Suspension When Secretary Mails Notice of Adjustment.--If
notice of a final partnership adjustment with respect to any taxable
year is mailed under section 6231, the running of the period specified
in subsection (a) (as modified by the other provisions of this section)
shall be suspended--
``(1) for the period during which an action may be brought
under section 6234 (and, if a petition is filed under such
section with respect to such notice, until the decision of the
court becomes final), and
``(2) for 1 year thereafter.
``PART IV--DEFINITIONS AND SPECIAL RULES
``Sec. 6241. Definitions and special rules.
``SEC. 6241. DEFINITIONS AND SPECIAL RULES.
``(a) Definitions and Special Rules.--For purposes of this
subchapter--
``(1) Partnership.--The term `partnership' means any
partnership required to file a return under section 6031(a).
``(2) Partner.--The term `partner' means--
``(A) a partner in the partnership, and
``(B) any other person whose income tax liability
under subtitle A is determined in whole or in part by
taking into account directly or indirectly income,
gain, deduction, or loss of the partnership.
``(b) Partnership Adjustment.--The term `partnership adjustment'
means any adjustment in the amount of any item of income, gain, loss,
deduction, or credit of a partnership, or any partner's distributive
share thereof.
``(c) Return Due Date.--The term `return due date' means, with
respect to the taxable year, the date prescribed for filing the
partnership return for such taxable year (determined without regard to
extensions).
``(d) Joint and Several Liability.--
``(1) In general.--The partnership and any partner of the
partnership shall be jointly and severally liable for any
imputed underpayment and any penalty, addition to tax, or
additional amount attributable thereto.
``(2) Period for assessment of partners.--The period for
assessment of an imputed underpayment with respect to a partner
of a partnership shall not expire earlier than 3 years after
the date on which an assessment of such imputed underpayment
was made with respect to the partnership.
``(3) Determining partners.--A person shall be treated as
partner of the partnership if such person is a partner of such
partnership at any time during the reviewed or adjustment year.
``(e) Payments Nondeductible.--No deduction shall be allowed under
subtitle A for any payment required to be made by a partnership under
this subchapter.
``(f) Special Rule for Deductions, Losses, and Credits of Foreign
Partnerships.--Except to the extent otherwise provided in regulations,
in the case of any partnership the partnership representative of which
resides outside the United States or the books of which are maintained
outside the United States, no deduction, loss, or credit shall be
allowable to any partner unless section 6031 is complied with for the
partnership's taxable year in which such deduction, loss, or credit
arose at such time as the Secretary prescribes by regulations.
``(g) Partnerships Having Principal Place of Business Outside
United States.--For purposes of sections 6234, a principal place of
business located outside the United States shall be treated as located
in the District of Columbia.
``(h) Partnerships in Cases Under Title 11 of United States Code.--
``(1) Suspension of period of limitations on making
adjustment, assessment, or collection.--The running of any
period of limitations provided in this subchapter on making a
partnership adjustment (or provided by section 6501 or 6502 on
the assessment or collection of any imputed underpayment
determined under this subchapter) shall, in a case under title
11 of the United States Code, be suspended during the period
during which the Secretary is prohibited by reason of such case
from making the adjustment (or assessment or collection) and--
``(A) for adjustment or assessment, 60 days
thereafter, and
``(B) for collection, 6 months thereafter.
A rule similar to the rule of section 6213(f)(2) shall apply
for purposes of section 6232(b).
``(2) Suspension of period of limitation for filing for
judicial review.--The running of the period specified in
section 6234 shall, in a case under title 11 of the United
States Code, be suspended during the period during which the
partnership is prohibited by reason of such case from filing a
petition under section 6234 and for 60 days thereafter.''.
(2) Clerical amendment.--The table of subchapters for
chapter 63 is amended by inserting after the item relating to
subchapter B the following new items:
``subchapter c. treatment of partnerships.''.
(d) Conforming Amendments.--
(1) Section 6422 is amended by striking paragraph (12).
(2) Section 6501(n) is amended by striking paragraphs (2)
and (3) and by striking ``Cross References'' and all that
follows through ``For period of limitations'' and inserting
``Cross Reference.--For period of limitations''.
(3) Section 6503(a)(1) is amended by striking ``(or section
6229'' and all that follows through ``of section 6230(a))''.
(4) Section 6504 is amended by striking paragraph (11).
(5) Section 6511 is amended by striking subsection (g).
(6) Section 6512(b)(3) is amended by striking the second
sentence.
(7) Section 6515 is amended by striking paragraph (6).
(8) Section 6601(c) is amended by striking the last
sentence.
(9) Section 7421(a) is amended by striking ``6225(b),
6246(b)'' and inserting ``6232(c)''.
(10) Section 7422 is amended by striking subsection (h).
(11) Section 7459(c) is amended by striking ``section
6226'' and all that follows through ``or 6252'' and inserting
``section 6234''.
(12) Section 7482(b)(1) is amended--
(A) in subparagraph (E), by striking ``section
6226, 6228, 6247, or 6252'' and inserting ``section
6234'',
(B) by striking subparagraph (F), by striking
``or'' at the end of subparagraph (E) and inserting a
period, and by inserting ``or'' at the end of
subparagraph (D), and
(C) in the last sentence, by striking ``section
6226, 6228(a), or 6234(c)'' and inserting ``section
6234''.
(13) Section 7485(b) is amended by striking ``section 6226,
6228(a), 6247, or 6252'' and inserting ``section 6234''.
(e) Effective Date.--The amendments made by this section shall
apply to returns filed for partnership taxable years ending after
December 31, 2014, except that a partnership may elect (at such time
and in such form and manner as the Secretary of the Treasury may
prescribe) for such amendments to apply to any return of the
partnership filed for partnership taxable years ending after the date
of the enactment of this Act and before January 1, 2015.
PART 3--REITS AND RICS
SEC. 3631. PREVENTION OF TAX-FREE SPINOFFS INVOLVING REITS.
(a) In General.--Section 355 is amended by adding at the end the
following new subsection:
``(h) Section Not To Apply to Distributions Involving Real Estate
Investment Trusts.--This section (and so much of section 356 as relates
to this section) shall not apply to any distribution if either the
distributing corporation or controlled corporation is a real estate
investment trust.''.
(b) Prevention of REIT Election Following Tax-Free Spin Off.--
Section 856(c) is amended by redesignating paragraph (8) as paragraph
(9) and by inserting after paragraph (7) the following new paragraph:
``(8) Election after tax-free reorganization.--If a
corporation was a distributing corporation or a controlled
corporation with respect to any distribution to which section
355 applied, such corporation (and any successor corporation)
shall not be eligible to make any election under subsection
(c)(1) for any taxable year prior to the 10th taxable year
which begins after the taxable year in which such distribution
was made.''.
(c) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
distributions on or after February 26, 2014.
(2) Transition rule.--The amendments made by this section
shall not apply to any distribution made pursuant to an
agreement which was binding on February 26, 2014, and at all
times thereafter.
SEC. 3632. EXTENSION OF PERIOD FOR PREVENTION OF REIT ELECTION
FOLLOWING REVOCATION OR TERMINATION.
(a) In General.--Section 856(g)(3) is amended by striking ``fifth''
and inserting ``10th''.
(b) Effective Date.--The amendments made by this section shall
apply to terminations and revocations after December 31, 2014.
SEC. 3633. CERTAIN SHORT-LIFE PROPERTY NOT TREATED AS REAL PROPERTY FOR
PURPOSES OF REIT PROVISIONS.
(a) In General.--Section 856(c)(5) is amended by adding at the end
the following new subparagraph:
``(L) Real property.--The term `real property'
shall not include any tangible property with a class
life of less than 27.5 years. For purposes of the
preceding sentence, class life of tangible property for
any taxable year shall be the greater of--
``(i) the class life of such property in
the hands of the real estate investment trust,
or
``(ii) the class life which would be
applicable to such property if such property
was placed in service in the taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2016.
SEC. 3634. REPEAL OF SPECIAL RULES FOR TIMBER HELD BY REITS.
(a) In General.--Section 856(c)(5)(L), as added by this Act, is
amended by inserting ``timber or'' after ``shall not include''.
(b) Conforming Amendments.--
(1) Section 856(c)(2) is amended by inserting ``and'' at
the end of subparagraph (G), by striking ``and'' at the end of
subparagraph (H), and by striking subparagraph (I).
(2) Section 856(c)(5), as amended by the preceding
provisions of this Act, is amended by striking subparagraphs
(H) and (I) and by redesignating subparagraphs (J), (K), and
(L) as subparagraphs (H), (I) and (J), respectively.
(3) Section 856(c), as amended by the preceding provisions
of this Act, is amended by striking paragraph (9).
(4) Section 857(b)(6) is amended by striking subparagraphs
(D), (G), and (H), and by redesignating subparagraphs (E) and
(F) as subparagraphs (D) and (E), respectively.
(5) Section 857(b)(6)(D), as redesignated by paragraph (4),
is amended by striking ``subparagraphs (C) and (D)'' and
inserting ``subparagraph (C)''.
(6) Section 857(b)(6)(E), as redesignated by paragraph (4),
is amended--
(A) by striking ``subparagraph (C) or (D)'' and
inserting ``subparagraph (C)'', and
(B) by striking ``subparagraphs (C), (D), and (E)''
and inserting ``subparagraphs (C) and (D)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2016.
SEC. 3635. LIMITATION ON FIXED PERCENTAGE RENT AND INTEREST EXCEPTIONS
FOR REIT INCOME TESTS.
(a) In General.--Section 856 is amended by adding at the end the
following new subsection:
``(o) Limitation on Fixed Percentage Rent and Interest
Exceptions.--
``(1) In general.--If the fixed percentage rent and
interest income received or accrued by a real estate investment
trust from a single C corporation (other than a taxable REIT
subsidiary of such real estate investment trust) for any
taxable year exceeds either--
``(A) 25 percent of the fixed percentage rent
income received or accrued by such real estate
investment trust for such taxable year, or
``(B) 25 percent of the fixed percentage interest
income received or accrued by such real estate
investment trust for such taxable year,
then, notwithstanding subsection (d)(2), none of the fixed
percentage rent income received or accrued from such
corporation which is attributable to leases entered into after
December 31, 2014, shall be treated as rents from real property
and, notwithstanding subsection (f), none of the fixed
percentage interest income received or accrued from such
corporation which is attributable to debt instruments acquired
after December 31, 2014, shall be treated as interest.
``(2) Fixed percentage rent and interest income.--For
purposes of this subsection--
``(A) Fixed percentage rent and interest income.--
The term `fixed percentage rent and interest income'
means the sum of the fixed percentage rent income plus
the fixed percentage interest income.
``(B) Fixed percentage rent income.--The term
`fixed percentage rent income' means amounts described
in subsection (d)(2)(A) which are based on a fixed
percentage or percentages of receipts or sales.
``(C) Fixed percentage interest income.--The term
`fixed percentage interest income' means amounts
described in subsection (f)(1) which are based on a
fixed percentage or percentages of receipts or sales.
``(3) Aggregation rule.--Members of the same affiliated
group (as defined in section 1504, applied by substituting `50
percent' for `80 percent' each place it appears therein) shall
be treated as 1 corporation for purposes of paragraph (1).
``(4) Treatment of modifications.--For purposes of
paragraph (1), any material modification (including any
extension of the term) of a lease or debt instrument shall be
treated as a new lease or debt instrument, as the case may be,
entered into on the date of such modification.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years ending after December 31, 2014.
SEC. 3636. REPEAL OF PREFERENTIAL DIVIDEND RULE FOR PUBLICLY OFFERED
REITS.
(a) In General.--Paragraph (1) of section 562(c), as amended by the
preceding provisions of this Act, is amended by inserting ``or a
publicly offered REIT'' after ``a publicly offered regulated investment
company''.
(b) Publicly Offered REIT.--Subsection (c) of section 562, as so
amended, is amended by adding at the end the following new paragraph:
``(3) Publicly offered reit.--For purposes of this
subsection, the term `publicly offered REIT' means a real
estate investment trust which is required to file annual and
periodic reports with the Securities and Exchange Commission
under the Securities Exchange Act of 1934.''.
(c) Effective Date.--The amendment made by this section shall apply
to distributions in taxable years beginning after December 31, 2014.
SEC. 3637. AUTHORITY FOR ALTERNATIVE REMEDIES TO ADDRESS CERTAIN REIT
DISTRIBUTION FAILURES.
(a) In General.--Subsection (e) of section 562 is amended--
(1) by striking ``In the case of a real estate investment
trust'' and inserting the following:
``(1) Determination of earnings and profits for purposes of
dividends paid deduction.--In the case of a real estate
investment trust'', and
(2) by adding at the end the following new paragraph:
``(2) Authority to provide alternative remedies for certain
failures.--In the case of a failure of a distribution by a real
estate investment trust to comply with the requirements of
subsection (c), the Secretary may provide an appropriate remedy
to cure such failure in lieu of not considering the
distribution to be a dividend for purposes of computing the
dividends paid deduction if--
``(A) the Secretary determines that such failure is
inadvertent or is due to reasonable cause and not due
to willful neglect, or
``(B) such failure is of a type of failure which
the Secretary has identified for purposes of this
paragraph as being described in subparagraph (A).''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions in taxable years beginning after December 31,
2014.
SEC. 3638. LIMITATIONS ON DESIGNATION OF DIVIDENDS BY REITS.
(a) In General.--Section 857 is amended by redesignating subsection
(g) as subsection (h) and by inserting after subsection (f) the
following new subsection:
``(g) Limitations on Designation of Dividends.--
``(1) Overall limitation.--The aggregate amount of
dividends designated by a real estate investment trust under
subsections (b)(3)(C) and (c)(2)(A) with respect to any taxable
year may not exceed the dividends paid by such trust with
respect to such year. For purposes of the preceding sentence,
dividends paid after the close of the taxable year described in
section 858 shall be treated as paid with respect to such year.
``(2) Proportionality.--The Secretary may prescribe
regulations or other guidance requiring the proportionality of
the designation of particular types of dividends among shares
or beneficial interests of a real estate investment trust.''.
(b) Effective Date.--The amendments made by this section shall
apply to distributions in taxable years beginning after December 31,
2014.
SEC. 3639. NON-REIT EARNINGS AND PROFITS REQUIRED TO BE DISTRIBUTED BY
REIT IN CASH.
(a) In General.--Section 857, as amended by the preceding
provisions of this Act, is amended by redesignating subsection (h) as
subsection (i) and by inserting after subsection (g) the following new
subsection:
``(h) Determination of Earnings and Profits Accumulated in Non-REIT
Years.--
``(1) In general.--For purposes of subsection (a)(2)(B),
distributions during the transition period shall be taken into
account in determining accumulated earning and profits only if
such distributions are made in cash.
``(2) Transition period.--For purposes of this subsection,
the term `transition period' means the period of taxable years
beginning with the last taxable year (other than a short
taxable year) which was a non-REIT year (as defined in
subsection (a)) and ending with the first taxable year to which
the provisions of this part apply.''.
(b) Conforming Amendment.--Section 857(a)(2)(B) is amended by
inserting ``(determined as provided in subsection (h))'' before the
period at the end.
(c) Effective Date.--The amendments made by this section shall
apply to distributions made on or after February 26, 2014.
SEC. 3640. DEBT INSTRUMENTS OF PUBLICLY OFFERED REITS AND MORTGAGES
TREATED AS REAL ESTATE ASSETS.
(a) Debt Instruments of Publicly Offered REITs Treated as Real
Estate Assets.--
(1) In general.--Subparagraph (B) of section 856(c)(5) is
amended--
(A) by striking ``and shares'' and inserting ``,
shares'', and
(B) by inserting ``, and debt instruments issued by
publicly offered REITs'' before the period at the end
of the first sentence.
(2) Income from nonqualified debt instruments of publicly
offered reits not qualified for purposes of satisfying the 75
percent gross income test.--Subparagraph (H) of section
856(c)(3) is amended by inserting ``(other than a nonqualified
publicly offered REIT debt instrument)'' after ``real estate
asset''.
(3) 25 percent asset limitation on holding of nonqualified
debt instruments of publicly offered reits.--Subparagraph (B)
of section 856(c)(4) is amended by redesignating clause (iii)
as clause (iv) and by inserting after clause (ii) the following
new clause:
``(iii) not more than 25 percent of the
value of its total assets is represented by
nonqualified publicly offered REIT debt
instruments, and''.
(4) Definitions related to debt instruments of publicly
offered reits.--Paragraph (5) of section 856(c), as amended by
the preceding provisions of this Act, is amended by adding at
the end the following new subparagraph:
``(K) Definitions related to debt instruments of
publicly offered reits.--
``(i) Publicly offered reit.--The term
`publicly offered REIT' has the meaning given
such term by section 562(c)(3).
``(ii) Nonqualified publicly offered reit
debt instrument.--The term `nonqualified
publicly offered REIT debt instrument' means
any real estate asset which would cease to be a
real estate asset if subparagraph (B) were
applied without regard to the reference to
`debt instruments issued by publicly offered
REITs'.''.
(b) Interests in Mortgages on Interests in Real Property Treated as
Real Estate Assets.--Subparagraph (B) of section 856(c)(5) is amended
by inserting ``or on interests in real property'' after ``interests in
mortgages on real property''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3641. ASSET AND INCOME TEST CLARIFICATION REGARDING ANCILLARY
PERSONAL PROPERTY.
(a) In General.--Subsection (c) of section 856 is amended by adding
at the end the following new paragraph:
``(9) Special rules for certain personal property which is
ancillary to real property.--
``(A) Certain personal property leased in
connection with real property.--Personal property shall
be treated as a real estate asset for purposes of
paragraph (4)(A) to the extent that rents attributable
to such personal property are treated as rents from
real property under subsection (d)(1)(C).
``(B) Certain personal property mortgaged in
connection with real property.--In the case of an
obligation secured by a mortgage on both real property
and personal property, if the fair market value of such
personal property does not exceed 15 percent of the
total fair market value of all such property, such
personal property shall be treated as real property for
purposes of applying paragraphs (3)(B) and (4)(A). For
purposes of the preceding sentence, the fair market
value of all such property shall be determined in the
same manner as the fair market value of real property
is determined for purposes of apportioning interest
income between real property and personal property
under paragraph (3)(B).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3642. HEDGING PROVISIONS.
(a) Modification To Permit the Termination of a Hedging Transaction
Using an Additional Hedging Instrument.--Subparagraph (G) of section
856(c)(5) is amended by striking ``and'' at the end of clause (i), by
striking the period at the end of clause (ii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iii) if--
``(I) a real estate investment
trust enters into one or more positions
described in clause (i) with respect to
indebtedness described in clause (i) or
one or more positions described in
clause (ii) with respect to property
which generates income or gain
described in paragraph (2) or (3),
``(II) any portion of such
indebtedness is extinguished or any
portion of such property is disposed
of, and
``(III) in connection with such
extinguishment or disposition, such
trust enters into one or more
transactions which would be hedging
transactions described in subparagraph
(B) or (C) of section 1221(b)(2) with
respect to any position referred to in
subclause (I) if such position were
ordinary property,
any income of such trust from any position
referred to in subclause (I) and from any
transaction referred to in subclause (III)
(including gain from the termination of any
such position or transaction) shall not
constitute gross income under paragraphs (2)
and (3) to the extent that such transaction
hedges such position.''.
(b) Identification Requirements.--
(1) In general.--Subparagraph (G) of section 856(c)(5), as
amended by subsection (a), is amended by striking ``and'' at
the end of clause (ii), by striking the period at the end of
clause (iii) and inserting ``, and'', and by adding at the end
the following new clause:
``(iv) clauses (i), (ii), and (iii) shall
not apply with respect to any transaction
unless such transaction satisfies the
identification requirement described in section
1221(b)(3)(A) (determined after taking into
account any curative provisions provided under
the regulations referred to therein).''.
(2) Conforming amendments.--Subparagraph (G) of section
856(c)(5) is amended--
(A) by striking ``which is clearly identified
pursuant to section 1221(a)(7)'' in clause (i), and
(B) by striking ``, but only if such transaction is
clearly identified as such before the close of the day
on which it was acquired, originated, or entered into
(or such other time as the Secretary may prescribe)''
in clause (ii).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3643. MODIFICATION OF REIT EARNINGS AND PROFITS CALCULATION TO
AVOID DUPLICATE TAXATION.
(a) Earnings and Profits Not Increased by Amounts Allowed in
Computing Taxable Income in Prior Years.--
(1) In general.--Paragraph (1) of section 857(d) is amended
to read as follows:
``(1) In general.--The earnings and profits of a real
estate investment trust for any taxable year (but not its
accumulated earnings) shall not be reduced by any amount
which--
``(A) is not allowable in computing its taxable
income for such taxable year, and
``(B) was not allowable in computing its taxable
income for any prior taxable year.''.
(2) Exception for purposes of determining dividends paid
deduction.--Paragraph (1) of section 562(e), as amended by the
preceding provisions of this Act, is amended--
(A) by striking ``deduction, the earnings'' and
inserting the following: ``deduction--
``(A) the earnings'',
(B) by striking the period at the end and inserting
``, and'', and
(C) by adding at the end the following new
subparagraph:
``(B) section 857(d)(1) shall be applied without
regard to subparagraph (B) thereof.''.
(3) Conforming amendments.--Subsection (d) of section 857
is amended by adding at the end the following new paragraphs:
``(4) Real estate investment trust.--For purposes of this
subsection, the term `real estate investment trust' includes a
domestic corporation, trust, or association which is a real
estate investment trust determined without regard to the
requirements of subsection (a).
``(5) Special rules for determining earnings and profits
for purposes of the deduction for dividends paid.--For special
rules for determining the earnings and profits of a real estate
investment trust for purposes of the deduction for dividends
paid, see section 562(e)(1).''.
(b) Treatment of Gain on Sales of Real Property.--Subparagraph (A)
of section 562(e)(1), as amended by the preceding provisions of this
Act, is amended to read as follows:
``(A) the earnings and profits of such trust for
any taxable year (but not its accumulated earnings)
shall be increased by the amount of gain (if any) on
the sale or exchange of real property which is taken
into account in determining the taxable income of such
trust for such taxable year (and not otherwise taken
into account in determining such earnings and profits),
and''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3644. REDUCTION IN PERCENTAGE LIMITATION ON ASSETS OF REIT WHICH
MAY BE TAXABLE REIT SUBSIDIARIES.
(a) In General.--Section 856(c)(4)(B)(ii) is amended by striking
``25 percent'' and inserting ``20 percent''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2016.
SEC. 3645. TREATMENT OF CERTAIN SERVICES PROVIDED BY TAXABLE REIT
SUBSIDIARIES.
(a) Taxable REIT Subsidiaries Treated in Same Manner as Independent
Contractors for Certain Purposes.--
(1) Marketing and development expenses under rental
property safe harbor.--Clause (v) of section 857(b)(6)(C) is
amended by inserting ``or by a taxable REIT subsidiary'' before
the period at the end.
(2) Foreclosure property grace period.--Subparagraph (C) of
section 856(e)(4) is amended by inserting ``or through a
taxable REIT subsidiary'' after ``receive any income''.
(b) Tax on Redetermined TRS Service Income.--
(1) In general.--Subparagraph (A) of section 857(b)(7) is
amended by striking ``and excess interest'' and inserting
``excess interest, and redetermined TRS service income''.
(2) Redetermined trs service income.--Paragraph (7) of
section 857(b) is amended by redesignating subparagraphs (E)
and (F) as subparagraphs (F) and (G), respectively, and
inserting after subparagraph (D) the following new
subparagraph:
``(E) Redetermined trs service income.--
``(i) In general.--The term `redetermined
TRS service income' means gross income of a
taxable REIT subsidiary of a real estate
investment trust attributable to services
provided to, or on behalf of, such trust (less
deductions properly allocable thereto) to the
extent the amount of such income (less such
deductions) would (but for subparagraph (F)) be
increased on distribution, apportionment, or
allocation under section 482.
``(ii) Coordination with redetermined
rents.--Clause (i) shall not apply with respect
to gross income attributable to services
furnished or rendered to a tenant of the real
estate investment trust (or to deductions
properly allocable thereto).''.
(3) Conforming amendments.--Subparagraphs (B)(i) and (C) of
section 857(b)(7) are each amended by striking ``subparagraph
(E)'' and inserting ``subparagraph (F)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3646. STUDY RELATING TO TAXABLE REIT SUBSIDIARIES.
The Secretary of the Treasury (or the Secretary's designee) shall,
biannually--
(1) conduct a study to determine--
(A) how many taxable REIT subsidiaries are in
existence and the aggregate amount of taxes paid by
such subsidiaries, and
(B) the amount by which transactions between a REIT
and a taxable REIT subsidiary reduce taxable income of
the taxable REIT subsidiary (whether or not such
transactions are conducted at arms length), and
(2) submit a report to the Committee on Ways and Means of
the House of Representatives and the Committee on Finance of
the Senate describing the results of such study.
SEC. 3647. C CORPORATION ELECTION TO BECOME, OR TRANSFER ASSETS TO, A
RIC OR REIT.
(a) In General.--Part IV of subchapter O of chapter 1, as amended
by the preceding provisions of this Act, is amended by redesignating
section 1062 as section 1063 and by inserting after section 1061 the
following new section:
``SEC. 1062. RECOGNITION OF GAIN OR LOSS UPON C CORPORATION ELECTION TO
BECOME, OR TRANSFER ASSETS TO, A REGULATED INVESTMENT
COMPANY OR A REAL ESTATE INVESTMENT TRUST.
``(a) In General.--If a C corporation elects to become a regulated
investment company or a real estate investment trust for a taxable
year, such corporation shall recognize gain or loss as if all its
assets were sold by such corporation at their fair market value
immediately before the close of the last taxable year before such
corporation becomes a regulated investment company or real estate
investment trust (as the case may be).
``(b) Application to Transfers of Assets.--In the case of a C
corporation which transfers to a regulated investment company or a real
estate investment trust one or more assets the basis of which is
determined (in whole or in part) by reference to the basis of such
asset or assets in the hands of the C corporation, such corporation
shall recognize gain or loss as if such assets were sold by such
corporation at their fair market value as of the end of the day before
the day of the transfer.
``(c) Nonapplication to Net Loss.--Subsections (a) and (b) shall
not apply if their application would result in the recognition of a net
loss. For purposes of the preceding sentence, the term `net loss' means
the excess of aggregate losses over aggregate gains (including items of
income) without regard to character.
``(d) Basis Adjustment.--If any asset is treated as sold under
subsection (a) or (b), the basis of such asset immediately after such
deemed sale shall be equal to the fair market value of such asset as
determined under such subsection.
``(e) C Corporation.--For purposes of this section, the term `C
corporation' does not include a regulated investment company or a real
estate investment trust.''.
(b) Clerical Amendment.--The table of sections for part IV of
subchapter O of chapter 1 is amended by redesignating the item relating
to section 1062 as an item relating to section 1063 and by inserting
after the item relating to section 1061 the following new item:
``Sec. 1062. Recognition of gain or loss upon C corporation election to
become, or transfer assets to, a regulated
investment company or a real estate
investment trust.''.
(c) Effective Date.--The amendment made by this section shall apply
to elections and transfers on or after February 26, 2014.
SEC. 3648. INTERESTS IN RICS AND REITS NOT EXCLUDED FROM DEFINITION OF
UNITED STATES REAL PROPERTY INTERESTS.
(a) In General.--Section 897(c)(1)(B) is amended by striking
``and'' at the end of clause (i), by striking the period at the end of
clause (ii)(II) and inserting ``, and'', and by adding at the end the
following new clause:
``(iii) neither such corporation nor any
predecessor of such corporation was a regulated
investment company or a real estate investment
company at any time during the period described
in subparagraph (A)(ii).''.
(b) Effective Date.--The amendment made by this section shall apply
to dispositions after December 31, 2014.
SEC. 3649. DIVIDENDS DERIVED FROM RICS AND REITS INELIGIBLE FOR
DEDUCTION FOR UNITED STATES SOURCE PORTION OF DIVIDENDS
FROM CERTAIN FOREIGN CORPORATIONS.
(a) In General.--Section 245(a) is amended by adding at the end the
following new paragraph:
``(12) Dividends derived from rics and reits ineligible for
deduction.--Regulated investment companies and real estate
investment trusts shall not be treated as domestic corporations
for purposes of paragraph (5)(B).''.
(b) Effective Date.--The amendment made by this section shall apply
to dividends received from regulated investment companies and real
estate investment trusts on or after February 26, 2014.
PART 4--PERSONAL HOLDING COMPANIES
SEC. 3661. EXCLUSION OF DIVIDENDS FROM CONTROLLED FOREIGN CORPORATIONS
FROM THE DEFINITION OF PERSONAL HOLDING COMPANY INCOME
FOR PURPOSES OF THE PERSONAL HOLDING COMPANY RULES.
(a) In General.--Paragraph (1) of section 543(a) is amended--
(1) by redesignating subparagraphs (C) and (D) as
subparagraphs (D) and (E), respectively, and
(2) by inserting after subparagraph (B) the following:
``(C) dividends received by a United States
shareholder (as defined in section 951(b)) from a
controlled foreign corporation (as defined in section
957(a)),''.
(b) Effective Date.--The amendments made by this Act shall apply to
taxable years beginning after December 31, 2014.
Subtitle H--Taxation of Foreign Persons
SEC. 3701. PREVENTION OF AVOIDANCE OF TAX THROUGH REINSURANCE WITH NON-
TAXED AFFILIATES.
(a) In General.--Part III of subchapter L of chapter 1 is amended
by adding at the end the following new section:
``SEC. 849. SPECIAL RULES FOR REINSURANCE OF NON-LIFE CONTRACTS WITH
NON-TAXED AFFILIATES.
``(a) In General.--The taxable income under section 831(a) or the
life insurance company taxable income under section 801(b) (as the case
may be) of an insurance company shall be determined by not taking into
account--
``(1) any non-taxed reinsurance premium,
``(2) any additional amount paid by such insurance company
with respect to the reinsurance for which such non-taxed
reinsurance premium is paid, to the extent such additional
amount is properly allocable to such non-taxed reinsurance
premium, and
``(3) any return premium, ceding commission, reinsurance
recovered, or other amount received by such insurance company
with respect to the reinsurance for which such non-taxed
reinsurance premium is paid, to the extent such return premium,
ceding commission, reinsurance recovered, or other amount is
properly allocable to such non-taxed reinsurance premium.
``(b) Non-Taxed Reinsurance Premiums.--For purposes of this
section--
``(1) In general.--The term `non-taxed reinsurance premium'
means any reinsurance premium paid directly or indirectly to an
affiliated corporation with respect to reinsurance of risks
(other than excepted risks), to the extent that the income
attributable to the premium is not subject to tax under this
subtitle (either as the income of the affiliated corporation or
as amounts included in gross income by a United States
shareholder under section 951).
``(2) Excepted risks.--The term `excepted risks' means any
risk with respect to which reserves described in section
816(b)(1) are established.
``(c) Affiliated Corporations.--For purposes of this section, a
corporation shall be treated as affiliated with an insurance company if
both corporations would be members of the same controlled group of
corporations (as defined in section 1563(a)) if section 1563 were
applied--
``(1) by substituting `at least 50 percent' for `at least
80 percent' each place it appears in subsection (a)(1), and
``(2) without regard to subsections (a)(4), (b)(2)(C),
(b)(2)(D), and (e)(3)(C).
``(d) Election To Treat Reinsurance Income as Effectively
Connected.--
``(1) In general.--A specified affiliated corporation may
elect for any taxable year to treat specified reinsurance
income as--
``(A) income effectively connected with the conduct
of a trade or business in the United States, and
``(B) for purposes of any treaty between the United
States and any foreign country, income attributable to
a permanent establishment in the United States.
``(2) Effect of election.--In the case of any specified
reinsurance income with respect to which the election under
this subsection applies--
``(A) Deduction allowed for reinsurance premiums.--
For exemption from subsection (a), see definition of
non-taxed reinsurance premiums in subsection (b).
``(B) Exception from excise tax.--The tax imposed
by section 4371 shall not apply with respect to any
income treated as effectively connected with the
conduct of a trade or business in the United States
under paragraph (1).
``(C) Taxation under this subchapter.--Such income
shall be subject to tax under this subchapter to the
same extent and in the same manner as if such income
were the income of a domestic insurance company.
``(D) Coordination with foreign tax credit
provisions.--For purposes of subpart A of part III of
subchapter N and sections 78 and 960--
``(i) such specified reinsurance income
shall be treated as derived from sources
without the United States, and
``(ii) subsections (a), (b), and (c) of
section 904, and section 960, shall be applied
separately with respect to each item of such
income.
The Secretary may issue regulations or other guidance
which provide that related items of specified
reinsurance income may be aggregated for purposes of
applying clause (ii).
``(3) Specified affiliated corporation.--For purposes of
this subsection, the term `specified affiliated corporation'
means any affiliated corporation which is a foreign corporation
and which meets such requirements as the Secretary shall
prescribe to ensure that tax on the specified reinsurance
income of such corporation is properly determined and paid.
``(4) Specified reinsurance income.--For purposes of this
paragraph, the term `specified reinsurance income' means all
income of a specified affiliated corporation which is
attributable to reinsurance with respect to which subsection
(a) would (but for the election under this subsection) apply.
``(5) 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.
``(e) Exception for Amounts Subject to Foreign Tax.--An amount
shall not be treated as described in paragraph (1), (2), or (3) of
subsection (a) if the taxpayer demonstrates to the satisfaction of the
Secretary that such amount was subject to an effective rate of income
tax imposed by a foreign country which is not less than 100 percent of
the maximum rate of tax specified in section 11.
``(f) Regulations.--The Secretary shall prescribe such regulations
or other guidance as may be appropriate to carry out, or to prevent the
avoidance of the purposes of, this section, including regulations or
other guidance which provide for the application of this section to
alternative reinsurance transactions, fronting transactions, conduit
and reciprocal transactions, and any economically equivalent
transactions.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter L of chapter 1 is amended by adding at the end the following
new item:
``Sec. 849. Special rules for reinsurance of non-life contracts with
non-taxed affiliates.''.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 3702. TAXATION OF PASSENGER CRUISE GROSS INCOME OF FOREIGN
CORPORATIONS AND NONRESIDENT ALIEN INDIVIDUALS.
(a) In General.--Section 882 is amended by redesignating subsection
(f) as subsection (g) and by inserting after subsection (e) the
following new subsection:
``(f) Treatment of Passenger Cruise Gross Income.--
``(1) In general.--For purposes of this title, the
effectively connected passenger cruise gross income of a
foreign corporation shall be treated as gross income which is
effectively connected with the conduct of a trade or business
in the United States.
``(2) Effectively connected passenger cruise gross
income.--For purposes of this subsection, the term `effectively
connected passenger cruise gross income' means, with respect to
the operation of any ship in a covered voyage, the United
States territorial waters percentage of the gross income
(determined without regard to section 883(a)(1)) derived from
such operation, including any amount received with respect to
the provision of any on- or off-board activities, services, or
sales, with respect to passengers incidental to such operation
(or with respect to any agreement with any person with respect
to the provision of any such activities, services, or sales).
``(3) United states territorial waters percentage.--For
purposes of this subsection--
``(A) In general.--The term `United States
territorial waters percentage' means, with respect to
the operation of any ship in any covered voyage, the
ratio (expressed as a percentage) of--
``(i) the number of days during such voyage
such ship was operated in the territorial
waters of the United States, divided by
``(ii) the total number of days of such
voyage.
``(B) Calendar day rule.--If a ship--
``(i) is operated in a covered voyage, or
``(ii) is operated in the territorial
waters of the United States during a covered
voyage,
for any portion of a calendar day, such ship shall be
treated as having operated in a covered voyage, or as
having operated in such territorial waters,
respectively, for the entirety of such day.
``(C) Territorial waters.--The territorial waters
of the United States shall be treated as consisting of
those waters which are--
``(i) within the international boundary
line between the United States and any
contiguous foreign country, or
``(ii) within 12 nautical miles from low
tide on the coastline of the United States.
``(4) Covered voyage.--For purposes of this subsection--
``(A) In general.--The term `covered voyage' has
the meaning given such term by section 4472(1).
``(B) Anti-abuse rule.--Except as otherwise
provided by the Secretary, if passengers embark a ship
in the United States and more than 10 percent of such
passengers disembark in the United States, the
operation of such ship at all times between such events
shall be treated as a covered voyage. Nothing in the
preceding sentence shall preclude any operation of a
ship (including any operation of a ship before or after
such events) which would otherwise be treated as part
of a covered voyage from being so treated.
``(5) Treatment of otherwise effectively connected
income.--Gross income which would, without regard to this
subsection, be gross income which is effectively connected with
the conduct of a trade or business in the United States--
``(A) shall be so treated, and
``(B) shall not be taken into account as gross
income under paragraph (2).''.
(b) Application to Nonresident Alien Individuals.--Section 871 is
amended by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new subsection:
``(n) Treatment of Passenger Cruise Gross Income.--
``(1) In general.--For purposes of this title, the
effectively connected passenger cruise gross income of a
nonresident alien individual shall be treated as gross income
which is effectively connected with the conduct of a trade or
business in the United States.
``(2) Definitions and special rules.--For purposes of this
subsection--
``(A) Definitions.--Terms used in this subsection
which are also used in section 882(f) shall have the
same meaning as when used in such section, except that
section 882(f)(2) shall be applied by substituting
`section 872(b)(1)' for `section 883(a)(1)'.
``(B) Treatment of otherwise effectively connected
income.--Rules similar to the rules of section
882(f)(5) shall apply for purposes of this
subsection.''.
(c) Coordination With Reciprocal Exemptions for Shipping Income.--
(1) In general.--Section 883(a)(1) is amended by striking
``Gross income'' and inserting ``Except as provided in section
882(f), gross income''.
(2) Nonresident alien individuals.--Section 872(b)(1) is
amended by striking ``Gross income'' and inserting ``Except as
provided in section 871(n), gross income''.
(d) Coordination With Tax on Gross Transportation Income.--Section
887(b)(4) is amended by adding at the end the following new flush text:
``The preceding sentence shall not apply to any United States
source gross transportation income which is effectively
connected passenger cruise gross income (within the meaning of
section 871(n) or 882(f)).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 3703. 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 corporation if--
``(i) such corporation would be subject to
tax under subchapter L if such corporation were
a domestic corporation,
``(ii) more than 50 percent of such
corporation's gross receipts for the taxable
year consist of premiums, and
``(iii) the applicable insurance
liabilities of such corporation constitute more
than 35 percent of its total assets as reported
on the corporation's applicable financial
statement for the year with which or in which
the taxable year ends,''.
(b) Applicable Insurance Liabilities; Applicable Financial
Statement.--
(1) In general.--Section 1297(b) is amended by adding at
the end the following new paragraph:
``(3) Definitions.--For purposes of this subsection--
``(A) Applicable insurance liabilities.--The term
`applicable insurance liabilities' means, with respect
to any life or property and casualty insurance
business--
``(i) loss and loss adjustment expenses,
``(ii) unearned premiums, and
``(iii) reserves (other than deficiency or
contingency reserves) for life and health
insurance risks and life and health insurance
claims with respect to contracts providing
coverage for mortality or morbidity risks (not
to exceed the amount of such reserve that is
required to be reported to the home country
insurance regulatory body).
``(B) 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 home country insurance regulatory body, but
only if there is no statement which meets the
requirements of clause (i) or (ii).''.
(2) Conforming amendment.--Section 1297(b) is amended--
(A) by striking the last sentence in paragraph (2)
thereof, and
(B) by adding at the end of paragraph (3) thereof
(as added by paragraph (1)), the following new
subparagraph:
``(C) Related person.--The term `related person'
has the meaning given such term by section 954(d)(3)
determined by substituting `foreign corporation' for
`controlled foreign corporation' each place it appears
therein.''.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 3704. MODIFICATION OF LIMITATION ON EARNINGS STRIPPING.
(a) In General.--Section 163(j)(2)(B)(i)(II) is amended by striking
``50 percent'' and inserting ``40 percent''.
(b) No New Excess Limitation Carryforwards.--Section
163(j)(2)(B)(ii) is amended by striking ``for any taxable year'' and
inserting ``for any taxable year beginning before January 1, 2015''.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 3705. LIMITATION ON TREATY BENEFITS FOR CERTAIN DEDUCTIBLE
PAYMENTS.
(a) In General.--Section 894 of the Internal Revenue Code of 1986
(relating to income affected by treaty) 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.
Subtitle I--Provisions Related to Compensation
PART 1--EXECUTIVE COMPENSATION
SEC. 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:
``SEC. 409B. NONQUALIFIED DEFERRED COMPENSATION.
``(a) In General.--Any compensation which is deferred under a
nonqualified deferred compensation plan shall be includible in gross
income when there is no substantial risk of forfeiture of the rights 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 individual.
``(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 a right to compensation based on
the appreciation in value of a specified number of
equity units of the service recipient or stock options.
``(3) Qualified employer plan.--The term `qualified
employer plan' means any plan, contract, pension, account, or
trust described in 408(p)(2)(D)(ii).
``(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 6 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) 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) 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 amendments.--
(i) Section 26(b)(2) is amended by striking
subparagraph (V).
(ii) Section 3401(a) is amended by striking
the flush sentence at the end.
(iii) Section 6041 is amended by striking
subsection (g).
(iv) Section 6051(a), as amended by the
preceding provisions of this Act, is amended by
striking paragraph (12), by inserting ``and''
at the end of paragraph (11), and by
redesignating paragraph (13) as paragraph (12).
(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, 2014, 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, 2014.''.
(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).
(c) 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.''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
amounts which are attributable to services performed after
December 31, 2014.
(2) Application to existing deferrals.--In the case of any
amount deferred to which the amendments made by this section do
no apply solely by reason of the fact that the amount is
attributable to services performed before January 1, 2015, to
the extent such amount is not includible in gross income in a
taxable year beginning before 2023, such amounts shall be
includible in gross income in the later of--
(A) the last taxable year beginning before 2023, or
(B) the taxable year in which there is no
substantial risk of forfeiture of the rights to such
compensation (determined in the same manner as
determined for purposes of section 409B of the Internal
Revenue Code of 1986, as added by this section).
(3) 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, 2014, 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.
(4) 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, 2014, 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.
(5) 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.
SEC. 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.--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
chief executive officer or the chief 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, 2013.''.
(c) 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.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 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:
``SEC. 4960. TAX ON EXCESS TAX-EXEMPT ORGANIZATION EXECUTIVE
COMPENSATION.
``(a) Tax Imposed.--There is hereby imposed a tax equal to 25
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), or
``(C) has income excluded from taxation under
section 115(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, 2013.
``(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 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.''.
(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, 2014.
SEC. 3804. DENIAL OF DEDUCTION AS RESEARCH EXPENDITURE FOR STOCK
TRANSFERRED PURSUANT TO AN INCENTIVE STOCK OPTION.
(a) In General.--Paragraph (2) of section 421(a) is amended by
striking ``under section 162 (relating to trade or business
expenses)''.
(b) Effective Date.--The amendment made by this section shall apply
to stock transferred on or after February 26, 2014.
PART 2--WORKER CLASSIFICATION
SEC. 3811. DETERMINATION OF WORKER CLASSIFICATION.
(a) In General.--Chapter 79, as amended by the preceding provisions
of this Act, is amended by adding at the end the following new section:
``SEC. 7707. DETERMINATION OF WORKER CLASSIFICATION.
``(a) In General.--For purposes of this title (and notwithstanding
any provision of this title not contained in this section to the
contrary), if the requirements of subsections (b), (c), and (d) are met
with respect to any service performed by a service provider, then with
respect to such service--
``(1) the service provider shall not be treated as an
employee,
``(2) the service recipient shall not be treated as an
employer,
``(3) any payor shall not be treated as an employer, and
``(4) the compensation paid or received for such service
shall not be treated as paid or received with respect to
employment.
``(b) General Service Provider Requirements.--
``(1) In general.--The requirements of this subsection are
met with respect to any service if the service provider
either--
``(A) meets the requirements of paragraph (2) with
respect to such service, or
``(B) in the case a service provider engaged in the
trade or business of selling (or soliciting the sale
of) goods or services, meets the requirements of
paragraph (3) with respect to such service.
``(2) General requirements.--The requirements of this
paragraph are met with respect to any service if the service
provider, in connection with performing the service--
``(A) incurs significant unreimbursed expenses,
``(B) agrees to perform the service for a
particular amount of time, to achieve a specific
result, or to complete a specific task,
``(C) is primarily compensated on a basis not tied
to the number of hours worked, and
``(D) at least one of the following:
``(i) has a significant investment in
assets or training,
``(ii) is not required to perform services
exclusively for the service recipient, or
``(iii) has not performed services for the
service recipient as an employee during the 1-
year period ending with the date of the
commencement of services under the contract
described in subsection (d).
``(3) Alternative requirements with respect to sales
persons.--In the case of a service provider engaged in the
trade or business of selling (or soliciting the sale of) goods
or services, the requirements of this paragraph are met with
respect to any service provided in the ordinary course of such
trade or business if--
``(A) the service provider is compensated primarily
on a commission basis, and
``(B) substantially all the compensation for such
service is directly related to sales of goods or
services rather than to the number of hours worked.
``(c) Place of Business or Own Equipment Requirement.--The
requirement of this subsection is met with respect to any service if
the service provider--
``(1) has a principal place of business,
``(2) does not primarily provide the service in the service
recipient's place of business,
``(3) pays a fair market rent for use of the service
recipient's place of business, or
``(4) provides the service primarily using equipment
supplied by the service provider.
``(d) Written Contract Requirement.--The requirements of this
subsection are met with respect to any service if such service is
performed pursuant to a written contract between the service provider
and the service recipient (or payor) which meets the following
requirements:
``(1) The contract includes each of the following:
``(A) The service provider's name, taxpayer
identification number, and address.
``(B) A statement that the service provider will
not be treated as an employee with respect to the
services provided pursuant to the contract for purposes
of this title.
``(C) A statement that the service recipient (or
the payor) will withhold upon and report to the
Internal Revenue Service the compensation payable
pursuant to the contract consistent with the
requirements of this title.
``(D) A statement that the service provider is
responsible for payment of Federal, State, and local
taxes, including self-employment taxes, on compensation
payable pursuant to the contract.
``(E) A statement that the contract is intended to
be considered a contract described in this subsection.
``(2) The term of the contract does not exceed 1 year. The
preceding sentence shall not prevent one or more subsequent
written renewals of the contract from satisfying the
requirements of this subsection if the term of each such
renewal does not exceed 1 year and if the information required
under paragraph (1)(A) is updated in connection with each such
renewal.
``(3) The contract (or renewal) is signed by both the
service recipient (or payor) and the service provider not later
than the date on which the aggregate payments made by the
service recipient to the service provider exceeds $600 for the
year covered by the contract (or renewal).
``(e) Reporting Requirements.--If any service recipient or payor
fails to meet the applicable reporting requirements of section 6041(a)
or 6041A(a) for any taxable year with respect to any service provider,
this section shall not apply for purposes of making any determination
with respect to the liability of such service recipient or payor for
any tax with respect to such service provider for such period. For
purposes of the preceding sentence, such reporting requirements shall
be treated as met if the failure to satisfy such requirements is due to
reasonable cause and not willful neglect.
``(f) Exception for Services Provided by Owner.--This section shall
not apply with respect to any service provided by a service provider to
a service recipient if the service provider owns any interest in the
service recipient or any payor with respect to the service provided.
The preceding sentence shall not apply in the case of a service
recipient the stock of which is regularly traded on an established
securities market.
``(g) Exception for Services Not Received in Course of a Trade or
Business.--This section shall not apply with respect to any service
unless such service is performed in the ordinary course of a trade or
business of the service recipient.
``(h) Limitation on Reclassification by Secretary.--For purposes of
this title--
``(1) Effect of reclassification on recipients and
payors.--A determination by the Secretary that a service
recipient or a payor should have treated a service provider as
an employee shall be effective with respect to the service
recipient or payor no earlier than the notice date if--
``(A) the service recipient or the payor entered
into a written contract with the service provider which
meets the requirements of subsection (d),
``(B) the service recipient or the payor satisfied
the applicable reporting requirements of section
6041(a) or 6041A(a) for all relevant taxable years with
respect to the service provider,
``(C) the service recipient or the payor collected
and paid over all applicable taxes imposed under
subtitle C for all relevant taxable years with respect
to the service provider,
``(D) the service recipient or the payor
demonstrates a reasonable basis for having determined
that the service provider should not be treated as an
employee under this section and that such determination
was made in good faith.
``(2) Effect of reclassification on service providers.--A
determination by the Secretary that a service provider should
have been treated as an employee shall be effective with
respect to the service provider no earlier than the notice date
if--
``(A) the service provider entered into a written
contract with the service recipient or payor which
meets the requirements of subsection (d),
``(B) the service provider satisfied the applicable
reporting requirements of sections 6012(a) and 6017 for
all relevant taxable years with respect to the service
recipient or payor, and
``(C) the service provider demonstrates a
reasonable basis for determining that the service
provider is not an employee under this section and that
such determination was made in good faith.
``(3) Notice date.--For purposes of this subsection, the
term `notice date' means the 30th day after the earliest of--
``(A) the date on which the first letter of
proposed deficiency which allows the service provider,
the service recipient, or the payor an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals is sent,
``(B) the date on which a deficiency notice under
section 6212 is sent, or
``(C) the date on which a notice of determination
under section 7436(b)(2) is sent.
``(4) Reasonable cause exception.--The requirements of
paragraphs (1)(B) and (2)(B) shall be treated as met if the
failure to satisfy such requirements is due to reasonable cause
and not willful neglect.
``(5) No restriction on administrative or judicial
review.--Nothing in this subsection shall be construed as
limiting any provision of law which provides an opportunity for
administrative or judicial review of a determination by the
Secretary.
``(i) Definitions.--For purposes of this section--
``(1) Service provider.--
``(A) In general.--The term `service provider'
means any qualified person who performs service for
another person.
``(B) Qualified person.--The term `qualified
person' means--
``(i) any natural person, and
``(ii) any entity if any of the services
referred to in subparagraph (A) are performed
by one or more natural persons who directly own
interests in such entity.
``(2) Service recipient.--The term `service recipient'
means the person for whom the service provider performs such
service.
``(3) Payor.--The term `payor' means any person who pays
the service provider for performing such service.
``(j) Regulations.--Notwithstanding section 530(d) of the Revenue
Act of 1978, the Secretary shall issue such regulations as the
Secretary determines are necessary to carry out the purposes of this
section.''.
(b) Withholding by Payor in Case of Certain Persons Classified as
Not Employees.--Section 3402 is amended by redesignating subsection (s)
as subsection (t) and inserting after subsection (r) the following new
subsection:
``(s) Extension of Withholding to Payments to Certain Persons
Classified as Not Employees.--
``(1) In general.--For purposes of this chapter and so much
of subtitle F as relates to this chapter, compensation paid
pursuant to a contract described in section 7707(d) shall be
treated as if it were a payment of wages by an employer to an
employee.
``(2) Amount withheld.--Except as otherwise provided under
subsection (i), the amount to be deducted and withheld pursuant
to paragraph (1) with respect to compensation paid pursuant to
any such contract during any calendar year shall be an amount
equal to 5 percent of so much of the amount of such
compensation as does not exceed $10,000.''.
(c) Reporting.--Section 6041A is amended by adding at the end the
following new subsection:
``(g) Special Rules for Certain Persons Classified as Not
Employees.--In the case of any service recipient required to make a
return under subsection (a) with respect to compensation to which
section 7707(a) applies--
``(1) such return shall include--
``(A) the aggregate amount of such compensation
paid to each person whose name is required to be
included on such return,
``(B) the aggregate amount deducted and withheld
under section 3402(s) with respect to such
compensation, and
``(C) an indication of whether a copy of the
contract described in section 7707(d) is on file with
the service recipient or payor, and
``(2) the statement required to be furnished under
subsection (e) shall include the information described in
paragraph (1) with respect to the service provider to whom such
statement is furnished.
Terms used in this subsection which are also used in section 7707 shall
have the same meaning as when used in such section.''.
(d) Clerical Amendment.--The table of sections for chapter 79, as
amended by the preceding provisions of this Act, is amended by adding
at the end the following new item:
``Sec. 7707. Determination of worker classification.''.
(e) Effective Date.--The amendments made by this section shall
apply to services performed after December 31, 2014 (and to payments
made for such services after such date).
Subtitle J--Zones and Short-Term Regional Benefits
SEC. 3821. REPEAL OF PROVISIONS RELATING TO EMPOWERMENT ZONES AND
ENTERPRISE COMMUNITIES.
(a) In General.--Chapter 1 is amended by striking subchapter U (and
by striking the item relating to such subchapter in the table of
subchapters for such chapter).
(b) Conforming Amendments.--
(1)(A) Section 38(b) is amended by striking paragraph (9).
(B) Section 280C(a) is amended by striking ``1396(a),''.
(2) Section 179(e) is amended by striking paragraph (3) and
by redesignating paragraph (4) as paragraph (3).
(3) Section 1202(a)(2)(A) is amended by inserting ``(as in
effect before its repeal by the Tax Reform Act of 2014)'' after
``section 1397C(b)''.
(c) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendment made by this section shall take
effect on the date of the enactment of this Act.
(2) Rollovers.--So much of subsection (a) as relates to the
repeal of section 1397B of the Internal Revenue Code of 1986
shall apply to sales after the date of the enactment of this
Act.
(3) Savings provision.--The amendments made by this section
shall not apply to obligations described in section 1394 of the
Internal Revenue Code of 1986 (as in effect before its repeal)
which were issued before January 1, 2014.
SEC. 3822. REPEAL OF DC ZONE PROVISIONS.
(a) In General.--Chapter 1 is amended by striking subchapter W (and
by striking the item relating to such subchapter in the table of
subchapters for such chapter).
(b) Conforming Amendments.--
(1)(A) Section 1202(a)(2)(B) is amended by inserting ``(as
in effect before its repeal by the Tax Reform Act of 2014)''
after ``1400B(b)''.
(2) Section 25(e)(1)(C) is amended by striking ``sections
23, 25D, and 1400C'' and inserting ``section 23''.
(3) Section 1016(a) is amended by striking paragraph (27).
(c) Effective Date.--
(1) In general.--Except as otherwise provided in paragraph
(2), the amendments made by this section shall take effect on
the date of the enactment of this Act.
(2) Savings provision.--The amendments made by this section
shall not apply to--
(A) in the case of the repeal of section 1400A of
the Internal Revenue Code of 1986, obligations
described in section 1394 of such Code (as in effect
before its repeal) which were issued before January 1,
2012,
(B) in the case of the repeal of section 1400B of
such Code, DC Zone assets (as defined in such section,
as in effect before its repeal) which were acquired by
the taxpayer before January 1, 2012, and
(C) in the case of the repeal of section 1400C of
such Code, principal residences acquired before January
1, 2012.
SEC. 3823. REPEAL OF PROVISIONS RELATING TO RENEWAL COMMUNITIES.
(a) In General.--Chapter 1 is amended by striking subchapter X (and
by striking the item relating to such subchapter in the table of
subchapters for such chapter).
(b) Conforming Amendments.--
(1)(A) Section 469(i)(3), as amended by the preceding
provisions of this Act, is amended by striking subparagraph (C)
and by redesignating subparagraphs (D), (E), and (F) as
subparagraphs (B), (C), and (D).
(B) Section 469(i)(3)(C), as so redesignated, is amended to
read as follows:
``(C) Ordering rule.--If subparagraph (B) applies
for a taxable year, paragraph (1) shall be applied--
``(i) first to the portion of the passive
activity loss to which such subparagraph does
not apply, and
``(ii) then to the portion of such loss to
which such subparagraph does apply.''.
(C) Section 469(i)(6)(B), as amended by the preceding
provisions of this Act, is amended--
(i) by striking ``commercial revitalization
deduction'' in the heading,
(ii) by striking ``in the case of--'' and all that
follows through ``any credit'' in clause (i),
(iii) by striking ``year, or'' in clause (i) and
inserting ``year.'', and
(iv) by striking clause (iii).
(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.
(2) Savings provision.--The amendments made by this section
shall not apply to--
(A) in the case of the repeal of section 1400F of
the Internal Revenue Code of 1986, qualified community
assets (as defined in such section, as in effect before
its repeal) which were acquired by the taxpayer before
January 1, 2010,
(B) in the case of the repeal section 1400H of such
Code, wages paid or incurred before January 1, 2010,
(C) in the case of the repeal of section 1400I of
such Code, qualified revitalization buildings (as
defined in such section, as in effect before its
repeal) which were placed in service before January 1,
2010, and
(D) in the case of the repeal of section 1400J of
such Code, property acquired before January 1, 2010.
SEC. 3824. REPEAL OF VARIOUS SHORT-TERM REGIONAL BENEFITS.
(a) In General.--Chapter 1 is amended by striking subchapter Y (and
by striking the item relating to such subchapter in the table of
subchapters for such chapter).
(b) Conforming Amendments.--Section 38(b) is amended by striking
paragraphs (27), (28), (29) and (30).
(c) Effective Dates.--
(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.
(2) Savings provision.--The amendments made by this section
shall not apply to--
(A) in the case of the repeal of section 1400L(a)
of the Internal Revenue Code of 1986, qualified wages
(as defined in such section, as in effect before its
repeal) which were paid or incurred before January 1,
2004,
(B) in the case of the repeal of subsections (b)
and (f) of section 1400L of such Code, qualified New
York Liberty Zone property (as defined in section
1400L(b) of such Code, as in effect before its repeal)
placed in service before January 1, 2010,
(C) in the case of the repeal of section 1400L(c)
of such Code, qualified New York Liberty Zone leasehold
improvement property (as defined in such section, as in
effect before its repeal) placed in service before
January 1, 2007,
(D) in the case of the repeal of section 1400L(d)
of such Code, qualified New York Liberty bonds (as
defined in such section, as in effect before its
repeal) issued before January 1, 2014,
(E) in the case of the repeal of section 1400L(e)
of such Code, advanced refundings before January 1,
2006,
(F) in the case of the repeal of section 1400L(g)
of such Code, property which is compulsorily or
involuntarily converted as a result of the terrorist
attacks on September 11, 2001,
(G) in the case of the repeal of section 1400N(a)
of such Code, obligations issued before January 1,
2012,
(H) in the case of the repeal of section 1400N(b)
of such Code, advanced refundings before January 1,
2011,
(I) in the case of the repeal of section 1400N(d)
of such Code, property placed in service before January
1, 2012,
(J) in the case of the repeal of section 1400N(e)
of such Code, property placed in service before January
1, 2009,
(K) in the case of the repeal of subsections (f)
and (g) of section 1400N of such Code, amounts paid or
incurred before January 1, 2008,
(L) in the case of the repeal of section 1400N(h)
of such Code, amounts paid or incurred before January
1, 2012,
(M) in the case of the repeal of section 1400N(l)
of such Code, bonds issued before January 1, 2007,
(N) in the case of the repeal of section 1400Q(a)
of such Code, distributions before January 1, 2007,
(O) in the case of the repeal of section 1400Q(b)
of such Code, contributions before March 1, 2006,
(P) in the case of the repeal of section 1400Q(c)
of such Code, loans made before January 1, 2007,
(Q) in the case of the repeal of section 1400R of
such Code, wages paid or incurred before January 1,
2006,
(R) in the case of the repeal of section 1400S(a)
of such Code, contributions paid before January 1,
2006,
(S) in the case of the repeal of section 1400T of
such Code, financing provided before January 1, 2011,
and
(T) in the case of the repeal of part III of
subchapter Y of chapter 1 of such Code, obligations
issued before January 1, 2011.
TITLE IV--PARTICIPATION EXEMPTION SYSTEM FOR THE TAXATION OF FOREIGN
INCOME
Subtitle A--Establishment of Exemption System
SEC. 4001. DEDUCTION FOR DIVIDENDS RECEIVED BY DOMESTIC CORPORATIONS
FROM CERTAIN FOREIGN CORPORATIONS.
(a) In General.--Part VIII of subchapter B of chapter 1 is amended
by inserting after section 245 the following new section:
``SEC. 245A. DIVIDENDS RECEIVED BY DOMESTIC CORPORATIONS FROM CERTAIN
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 95 percent of 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 if any domestic corporation
owns directly, or indirectly through a chain of ownership described
under section 958(a), 10 percent or more of the voting stock of such
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
dividends as--
``(A) the post-1986 undistributed foreign earnings,
bears to
``(B) the total post-1986 undistributed earnings.
``(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
without regard to the phrase `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.
``(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.--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) 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 section 245A, the holding
period requirement of this subsection shall be treated
as met only if--
``(i) the specified 10-percent owned
corporation referred to in section 245A(a) is a
specified 10-percent owned corporation at all
times during such period, and
``(ii) the taxpayer is a United States
shareholder with respect to such specified 10-
percent owned 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, as amended by the preceding provisions of this Act,
is amended by redesignating paragraph (2) as paragraph (1) and by
adding at the end the following new paragraph:
``(2) 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) Paragraph (4) of section 245(a) is amended by striking
``section 902(c)(1)'' and inserting ``section 245A(c)(2)''.
(2) Subsection (b) of section 951 is amended by striking
``subpart'' and inserting ``title''.
(3) Subsection (a) of section 957 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 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, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4002. 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 in such taxable year or any subsequent taxable year, the
basis of such domestic corporation in the stock of such foreign
corporation shall be reduced 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, 2014.
(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, as
amended by the preceding provisions of this Act, is amended by
adding at the end the following new section:
``SEC. 92. 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) 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, 2014, 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.--
``(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.
``(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 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.--Subparagraph (C) of section 367(a)(3) is
amended by striking ``outside'' in the last sentence and
inserting ``within''.
(3) Clerical amendment.--The table of subparts for such
part, as amended by the preceding provisions of this Act, is
amended by adding at the end the following new item:
``Sec. 92. 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, 2014.
SEC. 4003. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO
PARTICIPATION EXEMPTION SYSTEM OF TAXATION.
(a) In General.--Section 965 is amended to read as follows:
``SEC. 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, 2015, the subpart F income
of such foreign corporation (as otherwise determined for such taxable
year under section 952) shall be increased by the accumulated post-1986
deferred foreign income of such corporation determined as of the close
of such taxable year.
``(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 February 26, 2014--
``(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).
``(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) 90 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) 75 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, 2015, 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 February 26, 2014, 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) 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 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 foreign pass-thru entities
taken into account.--Any foreign entity which would be
a specified foreign corporation of a United States
shareholder if such entity were a corporation shall be
treated as a specified foreign corporation of such
United States shareholder for purposes of determining
such United States shareholder's aggregate foreign cash
position.
``(F) 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 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,
``(B) if distributed, would--
``(i) in the case of a controlled foreign
corporation, be excluded from the gross income
of a United States shareholder under section
959, or
``(ii) in the case of any passive foreign
investment company (as defined in section 1297)
other than a controlled foreign corporation, be
treated as a distribution which is not a
dividend, or
``(C) in the case of any passive foreign investment
company (as so defined), is properly attributable to an
unreversed inclusion of a United States person under
section 1296.
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)(i) is such shareholders were
United States shareholders. Such regulations or other guidance
may provide a similar rule for purposes of subparagraph (B)(ii)
and (C).
``(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 close the taxable year referred to
in subsection (a), and
``(B) without diminution by reason of dividends
distributed during such taxable year.
``(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 Reform Act of 2014).
``(2) Application to section 902 corporations.--For
purposes of section 951, 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 (f)).
``(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) 0.9 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) 0.75 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 (b) 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 pay timely assessed with respect to 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 described in subsection (a),
over
``(ii) such taxpayer's net income tax for
such taxable year determined without regard to
this section.
``(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.
``(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), subsection (h) shall be applied--
``(A) 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) 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.
``(j) Inclusion of Deferred Foreign Income Under This Section Not
To Trigger Recapture of Overall Foreign Loss.--For purposes of section
904(f)(1), 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 shall be determined
without regard to this section.
``(k) 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) Dedication of Revenues to Highway Trust Fund.--
(1) In general.--Section 9503(f) is amended by
redesignating paragraph (5) as paragraph (6) and by inserting
after paragraph (4) the following new paragraph:
``(5) Appropriation to trust fund of net tax liabilities
received under section 965.--
``(A) In general.--Out of money in the Treasury not
otherwise appropriated, there are hereby appropriated
to the Highway Trust Fund amounts equivalent to the
aggregate net tax liabilities under section 965 (as
defined in such section) received in the Treasury.
``(B) Monthly transfers based on estimates.--For
rule providing for the monthly transfer of amounts
appropriated under subparagraph (A) based on estimates
of the Secretary, see section 9601.''.
(2) Transfers to mass transit account.--Section 9503(e)(2)
is amended by striking ``the mass transit portion'' and
inserting ``, 20 percent of the amounts appropriated to the
Highway Trust Fund under subsection (f)(5), and the mass
transit portion''.
(c) 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.''.
SEC. 4004. 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, 2013, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
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.
(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:
``SEC. 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 the item of income so included.
``(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 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 (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 shall provide such regulations 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:
``SEC. 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 section 960 (relating to deemed paid credit for
subpart F inclusions) 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).''.
(2) Section 245(a)(10) is amended by striking ``902,''.
(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) Paragraph (1) of section 814(f) 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) Subparagraph (B) of section 864(h)(1) is amended by
striking ``902,''.
(6) Subsection (a) of section 901 is amended by striking
``sections 902 and 960'' and inserting ``section 960''.
(7) Paragraph (2) of section 901(e) 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) Subsection (f) of section 901 is amended by striking
``sections 902 and 960'' and inserting ``section 960''.
(9) Subparagraph (A) of section 901(j)(1) is amended by
striking ``902 or''.
(10) Subparagraph (B) of section 901(j)(1) is amended by
striking ``sections 902 and 960'' and inserting ``section
960''.
(11) Paragraph (2) of section 901(k) is amended by striking
``902,''.
(12) Paragraph (6) of section 901(k) is amended by striking
``902 or''.
(13) Subparagraph (A) of section 904(h)(10) is amended by
striking ``sections 902, 907, and 960'' and inserting
``sections 907 and 960''.
(14) Section 904 is amended by striking subsection (k).
(15) Paragraph (1) of section 905(c) is amended by striking
the last sentence.
(16) Subclause (I) of section 905(c)(2)(B)(i) is amended by
striking ``section 902 or''.
(17) Subsection (a) of section 906 is amended by striking
``(or deemed, under section 902, paid or accrued during the
taxable year)''.
(18) Subsection (b) of section 906 is amended by striking
paragraphs (4) and (5).
(19) Subparagraph (B) of section 907(b)(2) is amended by
striking ``902 or''.
(20) Paragraph (3) of section 907(c) 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''.
(21) Paragraph (5) of section 907(c) is amended by striking
``902 or''.
(22) Clause (i) of section 907(f)(2)(B) is amended by
striking ``902 or''.
(23) Subsection (a) of section 908 is amended by striking
``902 or''.
(24) Subsection (b) of section 909 is amended--
(A) by striking ``section 902 corporation'' in the
matter preceding paragraph (1) and inserting
``specified 10-percent owned foreign 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 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''.
(25) Subsection (d) of section 909 is amended by striking
paragraph (5).
(26) Paragraph (1) of section 958(a) is amended by striking
``960(a)(1)'' and inserting ``960''.
(27) Subsection (d) of section 959 is amended by striking
``Except as provided in section 960(a)(3), any'' and inserting
``Any''.
(28) Subsection (e) of section 959 is amended by striking
``and section 960(b)''.
(29) Subparagraph (A) of section 1291(g)(2) 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''.
(30) Section 1293 is amended by striking subsection (f).
(31) Subparagraph (B) of section 6038(c)(1) 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''.
(32) Paragraph (4) of section 6038(c) is amended by
striking subparagraph (C).
(33) 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.
(34) 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, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4102. FOREIGN TAX CREDIT LIMITATION APPLIED BY ALLOCATING ONLY
DIRECTLY ALLOCABLE DEDUCTIONS TO FOREIGN SOURCE INCOME.
(a) In General.--Subsection (b) of section 904, as amended by the
preceding provisions of this Act, is amended by adding at the end the
following new paragraph:
``(3) Deductions allocable to foreign source income only if
directly allocable.--For purposes of subsection (a), the
taxpayer's taxable income from sources without the United
States shall be determined by allocating deductions to such
income only if such deductions are directly allocable to such
income.''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4103. PASSIVE CATEGORY INCOME EXPANDED TO INCLUDE OTHER MOBILE
INCOME.
(a) Treatment of Foreign Base Company Intangible Income and Foreign
Base Company Sales Income as Mobile Category Income.--Clause (i) of
section 904(d)(2)(A) is amended by striking ``and specified passive
category income'' and inserting ``specified passive category income,
foreign base company sales income (as defined in section 954(d)), and
foreign base company intangible income (as defined in section
954(f))''.
(b) Repeal of Special Rules Treating Financial Services Income as
General Category Income.--Paragraph (2) of section 904(d) is amended by
striking subparagraphs (C) and (D) and by redesignating subparagraphs
(E) through (K) as subparagraphs (C) through (I), respectively.
(c) Conforming Amendments.--
(1) Relating to references to passive income.--
(A) Section 904(d)(1)(A) is amended by striking
``passive category income'' and inserting ``mobile
category income''.
(B) Section 904(d)(2)(A)(i), as amended by
subsection (a), is amended--
(i) by striking ``Passive category income''
in the heading thereof and inserting ``Mobile
category income'',
(ii) by striking ``passive category
income'' and inserting ``mobile category
income'',
(iii) by striking ``passive income'' and
inserting ``mobile income'', and
(iv) by striking ``specified passive
category income'' and inserting ``specified
mobile category income''.
(C) Section 904(d)(2)(A)(ii) is amended by striking
``passive category income'' and inserting ``mobile
category income''.
(D) Section 904(d)(2)(B) is amended--
(i) by striking ``Passive income'' in the
heading thereof and inserting ``Mobile
income'',
(ii) by striking ``passive income'' in
clauses (i), (ii), and (iii) and inserting
``mobile income'',
(iii) by striking ``Specified passive
category income'' in the heading of clause (iv)
and inserting ``Specified mobile category
income'', and
(iv) by striking ``specified passive
category income'' in clause (iv) and inserting
``specified mobile category income''.
(E) Section 904(d)(2)(D), as redesignated by
subsection (b), is amended by striking ``passive
income'' and inserting ``mobile income''.
(F) Section 904(d)(3)(A) is amended by striking
``passive category income'' and inserting ``mobile
category income''.
(G) Section 904(d)(3)(B) is amended by striking
``passive category income'' both places it appears and
inserting ``mobile category income''.
(H) Section 904(d)(3)(C) is amended by striking
``passive category income'' both places it appears and
inserting ``mobile category income''.
(I) Section 904(d)(3)(D) is amended by striking
``passive category income'' both places it appears and
inserting ``mobile category income''.
(J) Section 904(d)(3)(E) is amended--
(i) by striking ``passive category income''
both places it appears and inserting ``mobile
category income'', and
(ii) by striking ``passive income'' and
inserting ``mobile income''.
(K) Section 904(d)(3)(F) is amended by striking
``passive category income'' both places it appears and
inserting ``mobile category income''.
(2) Other conforming amendments.--
(A) Subparagraph (B) of section 864(f)(5) is
amended by inserting ``(as in effect before its
repeal)'' after ``section 904(d)(2)(D)(ii)''.
(B) Subparagraph (B) of section 954(c)(2) is
amended by striking ``section 904(d)(2)(G)'' and
inserting ``section 904(d)(2)(E)''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after
December 31, 2014, and to taxable years of United States
shareholders in which or with which such taxable years of
foreign corporations end.
(2) Treatment of carryforwards and carrybacks.--For
purposes of section 904 of the Internal Revenue Code of 1986--
(A) the amendments made by this section shall apply
to any taxes carried from any taxable year beginning
before January 1, 2015, to any taxable year beginning
on or after such date, and
(B) the Secretary of the Treasury, or his designee,
may by regulations provide for the allocation of any
carryback of taxes with respect to income from a
taxable year beginning on or after January 1, 2015, to
a taxable year beginning before such date for purposes
of allocating such income among the separate categories
in effect under section 904(d) for the taxable year to
which carried.
SEC. 4104. SOURCE OF INCOME FROM SALES OF INVENTORY DETERMINED SOLELY
ON BASIS OF PRODUCTION ACTIVITIES.
(a) In General.--Subsection (b) of section 863 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, 2014.
Subtitle C--Rules Related to Passive and Mobile Income
PART 1--MODIFICATION OF SUBPART F PROVISIONS
SEC. 4201. SUBPART F INCOME TO ONLY INCLUDE LOW-TAXED FOREIGN INCOME.
(a) In General.--Subsection (a) of section 954 is amended--
(1) by redesignating paragraphs (1), (2), (3), and (5) as
subparagraphs (A) through (D), respectively,
(2) by striking ``For purposes of'' and inserting the
following:
``(1) In general.--For purposes of'', and
(3) by adding at the end the following new paragraph:
``(2) Application only to foreign base company income
subject to a low foreign effective rate of tax.--
``(A) In general.--Foreign base company income
shall only include items of income received by a
controlled foreign corporation which are subject to an
effective rate of income tax imposed by a foreign
country which is less than 100 percent of the maximum
rate of tax specified in section 11.
``(B) Application to foreign base company income
subject to reduced domestic rate of tax.--
``(i) Foreign base company sales income.--
In the case of foreign base company sales
income, subparagraph (A) shall be applied by
substituting `50 percent' for `100 percent'.
``(ii) Foreign base company intangible
income.--In the case of foreign base company
intangible income, subparagraph (A) shall be
applied--
``(I) by substituting `the
applicable percentage of the foreign
percentage (determined under section
250(c) with respect to the controlled
foreign corporation)' for `100
percent', and
``(II) by treating the foreign base
company intangible income as a single
item of income.
``(iii) Applicable percentage.--For
purposes of clause (ii)(I), the term
`applicable percentage' means, with respect to
any taxable year of a controlled foreign
corporation, the percentage determined in
accordance with the following table:
----------------------------------------------------------------------------------------------------------------
``In the case of any taxable year beginning in: The applicable percentage is:
----------------------------------------------------------------------------------------------------------------
2015....................................................... 45 percent
2016....................................................... 48 percent
2017....................................................... 52 percent
2018....................................................... 56 percent
2019 or thereafter......................................... 60 percent.''.
----------------------------------------------------------------------------------------------------------------
(b) Insurance Income.--Subsection (a) of section 953 is amended by
redesignating paragraph (2) as paragraph (3) and by inserting after
paragraph (1) the following new paragraph:
``(2) Application only to insurance income subject to a low
foreign effective rate of tax.--Insurance income shall only
include items of income received by a controlled foreign
corporation which are subject to an effective rate of income
tax imposed by a foreign country which is less than the maximum
rate of tax specified in section 11.''.
(c) Conforming Amendments.--
(1) Section 954(b)(3)(B) is amended by striking
``paragraphs (4) and (5)'' and inserting ``subsection (a)(2),
section 953(a)(2), and paragraph (5)''
(2) Section 954(b) is amended by striking paragraph (4).
(3) Section 954(c)(1) is amended by striking ``subsection
(a)(1)'' and inserting ``this section''.
(4) Section 954(d)(1) is amended by striking ``subsection
(a)(2)'' and inserting ``this section''.
(5) Section 954(e)(1) is amended by striking ``subsection
(a)(3)'' and inserting ``this section''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4202. FOREIGN BASE COMPANY SALES INCOME.
(a) 50-Percent Exclusion for Low-Taxed Foreign Base Company Sales
Income.--
(1) In general.--Subparagraph (B) of section 954(a)(1), as
amended by the preceding provisions of this Act, is amended by
inserting ``50 percent of'' before ``the foreign base company
sales income''.
(2) Preservation of deemed paid foreign tax credit on low-
taxed foreign base company income.--Section 960, as amended by
this Act, is amended by redesignating subsection (c) as
subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Deemed Paid Credit Determined Without Regard to Certain
Exclusions From Subpart F Income.--Solely for purposes of subsection
(a), section 954(a)(1)(B) shall be applied by substituting `100
percent' for `50 percent' in determining amounts included under section
951(a)(1).''.
(b) Exception From Foreign Base Company Sales Income for Foreign
Corporations Eligible for Benefits Under Comprehensive Income Tax
Treaties.--Section 954(d) is amended by adding at the end the following
new paragraph:
``(5) Exception for foreign corporations eligible for
benefits under comprehensive income tax treaties.--No portion
of the gross income of a controlled foreign corporation shall
be treated as foreign base company sales income if such
controlled foreign corporation is eligible as a qualified
resident for all of the benefits provided under a comprehensive
income tax treaty with the United States.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4203. INFLATION ADJUSTMENT OF DE MINIMIS EXCEPTION FOR FOREIGN
BASE COMPANY INCOME.
(a) In General.--Paragraph (3) of section 954(b) is amended by
adding at the end the following new subparagraph:
``(D) Inflation adjustment.--In the case of any
taxable year beginning after 2015, 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,
determined by substituting `calendar year 2014'
for `calendar year 2012' in clause (ii)
thereof.
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, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4204. ACTIVE FINANCING EXCEPTION EXTENDED WITH LIMITATION FOR LOW-
TAXED FOREIGN INCOME.
(a) Extension of Active Financing Exception.--
(1) In general.--Paragraph (9) of section 954(h) is amended
by striking ``January 1, 2014'' and inserting ``January 1,
2019''.
(2) Exempt insurance income.--Paragraph (10) of section
953(e) is amended--
(A) by striking ``January 1, 2014'' and inserting
``January 1, 2019'', and
(B) by striking ``December 31, 2013'' and inserting
``December 31, 2018''.
(b) Limitation for Low-Taxed Foreign Income.--
(1) In general.--Paragraph (1) of section 954(h) is amended
to read as follows:
``(1) In general.--For purposes of subsection (c)(1), in
the case of an eligible controlled foreign corporation, foreign
personal holding company income shall not include--
``(A) qualified banking or financing income which
is subject to an effective rate of income tax imposed
by a foreign country which is at least 50 percent of
the maximum rate of tax specified in section 11, and
``(B) 50 percent of any other qualified banking or
financing income of such eligible controlled foreign
corporation.''.
(2) Insurance business income.--Paragraph (1) of section
954(i) is amended to read as follows:
``(1) In general.--For purposes of subsection (c)(1), in
the case of a qualifying insurance company, foreign personal
holding company income shall not include--
``(A) any qualified insurance income which is
subject to an effective rate of income tax imposed by a
foreign country which is at least 50 percent of the
maximum rate of tax specified in section 11, and
``(B) 50 percent of any other qualified insurance
income of such qualifying insurance company.''.
(3) Preservation of deemed paid foreign tax credit on high-
taxed foreign income.--Subsection (c) of section 960, as
amended by the preceding provisions of this Act, is amended by
striking ``Solely for purposes of subsection (a)'' and all that
following and inserting the following: ``Solely for purposes of
subsection (a)--
``(1) section 954(a)(1)(B) shall be applied by substituting
`100 percent' for `50 percent', and
``(2) the exclusions under subsections (h)(1)(B) and
(i)(1)(B) of section 954 shall not apply,
in determining amounts included under section 951(a)(1).''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years of foreign corporations beginning after December
31, 2013, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
SEC. 4205. 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) Subparagraph (A) of section 951(a)(1), as amended by
this Act, 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) Paragraph (3) of 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) Clause (i) of section 952(c)(1)(B) is amended by
striking ``section 951(a)(1)(A)(i)'' and inserting ``section
951(a)(1)(A)''.
(D) Subparagraph (C) of section 953(c)(1) is amended by
striking ``section 951(a)(1)(A)(i)'' and inserting ``section
951(a)(1)(A)''.
(2) Subsection (a) of section 951 is amended by striking
paragraph (3).
(3) Subclause (II) of section 953(d)(4)(B)(iv) is amended
by striking ``or amounts referred to in clause (ii) or (iii) of
section 951(a)(1)(A)''.
(4) Subsection (b) of section 964 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, 2014, and to taxable years of United States shareholders in which
or with which such taxable years of foreign corporations end.
PART 2--PREVENTION OF BASE EROSION
SEC. 4211. FOREIGN INTANGIBLE INCOME SUBJECT TO TAXATION AT REDUCED
RATE; INTANGIBLE INCOME TREATED AS SUBPART F INCOME.
(a) Foreign Base Company Intangible Income Treated as Subpart F
Income.--
(1) Treatment as subpart f income.--Paragraph (1) of
section 954(a), as amended by the preceding provisions of this
Act, is amended by redesignating subparagraph (D) as
subparagraph (E) and by inserting after subparagraph (C) the
following new subparagraph:
``(D) the foreign base company intangible income
for the taxable year (determined under subsection (f)
and reduced as provided in subsection (b)(5)), and''.
(2) Foreign base company intangible income defined.--
Section 954 of such Code is amended by inserting after
subsection (e) the following new subsection:
``(f) Foreign Base Company Intangible Income.--For purposes of this
section--
``(1) In general.--The term `foreign base company
intangible income' means, with respect to any corporation for
any taxable year, the excess of--
``(A) so much of the adjusted gross income of the
corporation as exceeds 10 percent of the corporation's
qualified business asset investment, over
``(B) the applicable percentage of such
corporation's foreign personal holding company income,
foreign base company sales income, foreign base company
services income, and foreign base company oil related
income.
``(2) Applicable percentage.--For purposes of paragraph
(1), the term `applicable percentage' means, with respect to
any corporation for any taxable year, the ratio (expressed as a
percentage) of--
``(A) the excess described in paragraph (1)(A),
divided by
``(B) the adjusted gross income of the corporation.
``(3) Qualified business asset investment.--
``(A) In general.--The term `qualified business
asset investment' means, with respect to any
corporation for any taxable year, 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--
``(i) used in a trade or business of the
corporation, and
``(ii) of a type with respect to which a
deduction is allowable under section 168.
``(B) Determination of adjusted basis.--For
purposes of subparagraph (A), 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.
``(C) Regulations.--The Secretary shall issue such
regulations or other guidance as the Secretary
determines appropriate to prevent the avoidance of the
purposes of this paragraph, including regulations or
other guidance which provide for the treatment of
property if--
``(i) such property is transferred, or
held, temporarily, or
``(ii) the avoidance of the purposes of
this paragraph is a factor in the transfer or
holding of such property.
``(4) Adjusted gross income; specified tangible property.--
For purposes of this subsection--
``(A) Adjusted gross income.--
``(i) In general.--The term `adjusted gross
income' means, with respect to any corporation,
the gross income of such corporation reduced by
such corporation's commodities gross income.
``(ii) Commodities gross income.--The term
`commodities gross income' means, with respect
to any corporation, the gross income of such
corporation which is derived from commodities
which are produced or extracted by such
corporation.
``(B) Specified tangible property.--The term
`specified tangible property' means any tangible
property unless such property is used in the production
of commodities gross income. In the case of property
which is used in the production of commodities gross
income and other gross income, such property shall be
treated as specified tangible property in the same
proportion that the adjusted gross income produced with
respect to such property bears to the total gross
income produced with respect to such property.
``(C) Commodity.--The term `commodity' means any
commodity described in section 475(e)(2).''.
(3) Application only to foreign base company intangible
income subject to a low foreign effective rate of tax.--
Paragraph (2) of section 954(a), as amended by preceding
provisions of this Act, is amended by inserting ``or foreign
base company intangible income'' after ``foreign base company
sales income''.
(4) Conforming amendment.--Paragraph (5) of section 954(b)
is amended by inserting ``the foreign base company intangible
income,'' before ``and the foreign base company oil related
income''.
(b) Deduction for Foreign Intangible Income.--
(1) In general.--Part VIII of subchapter B of chapter 1 is
amended by adding at the end the following new section:
``SEC. 250. FOREIGN INTANGIBLE INCOME.
``(a) 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 applicable percentage of the lesser of--
``(1) the sum of--
``(A) the foreign percentage multiplied by the net
imputed intangible income of such domestic corporation
for such taxable year, plus
``(B) in the case of a domestic corporation which
is a United States shareholder with respect to any
controlled foreign corporation, the foreign percentage
(determined with respect to such controlled foreign
corporation) multiplied by any foreign base company
intangible income (as defined in section 954(f)) of
such controlled foreign corporation which is included
in the gross income of such domestic corporation under
section 951 for such taxable year, or
``(2) taxable income of such domestic corporation
(determined without regard to this section) for the taxable
year.
``(b) Net Imputed Intangible Income.--For purposes of this
subsection, the term `net imputed intangible income' means the excess
of--
``(1) the excess described in section 954(f)(1)(A), over
``(2) the deductions properly allocable to the amount
described in paragraph (1).
``(c) Foreign Percentage.--For purposes of this section--
``(1) In general.--The term `foreign percentage' means,
with respect to any corporation for any taxable year, the ratio
(expressed as a percentage) of--
``(A) the foreign-derived adjusted gross income of
such corporation for such taxable year, over
``(B) the adjusted gross income of such corporation
for such taxable year.
``(2) Foreign-derived adjusted gross income.--
``(A) In general.--The term `foreign-derived
adjusted gross income' means, with respect to any
corporation for any taxable year, any adjusted gross
income of such corporation which is derived in
connection with--
``(i) property which is sold for use,
consumption, or disposition outside the United
States, or
``(ii) services provided with respect to
persons or property located outside the United
States.
``(B) Special rules.--
``(i) Ultimate disposition.--Property shall
not be treated as sold for use, consumption, or
disposition outside the United States if the
taxpayer knew, or had reason to know, that such
property would be ultimately sold for use,
consumption, or disposition in the United
States.
``(ii) Sales to related parties.--If
property is sold to a related party, such sale
shall not be treated as for use, consumption or
disposition outside the United States unless--
``(I) such property is ultimately
sold for use, consumption or
disposition outside the United States,
or
``(II) such property is resold to
an unrelated party outside the United
States and no related party knew or had
reason to know that such property would
be ultimately sold for use,
consumption, or disposition in the
United States.
``(iii) Application to services.--Rules
similar to the rules of clauses (i) and (ii)
shall apply with respect to services described
in subparagraph (A)(ii).
``(C) 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).
``(3) Adjusted gross income.--The term `adjusted gross
income' has the meaning given such term by section 954(f)(4).
``(d) Applicable Percentage.--For purposes of this section, the
term `applicable percentage' means, with respect to any taxable year of
the domestic corporation referred to in subsection (a), the percentage
determined in accordance with the following table:
----------------------------------------------------------------------------------------------------------------
``In the case of any taxable year beginning in: The applicable percentage is:
----------------------------------------------------------------------------------------------------------------
2015....................................................... 55 percent
2016....................................................... 52 percent
2017....................................................... 48 percent
2018....................................................... 44 percent
2019 or thereafter......................................... 40 percent.
----------------------------------------------------------------------------------------------------------------
``(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.''.
(2) Conforming amendments.--
(A) Clause (i) of section 163(j)(6)(A), as amended
by the preceding provisions of this Act, is amended by
striking ``and'' at the end of subclause (II) and by
adding at the end the following new subclause:
``(IV) any deduction allowable
under section 250, and''.
(B) Subparagraph (C) of section 170(b)(2) 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 250, and''.
(C) Subsection (d) of section 172, as amended by
the preceding provisions of this Act, is amended by
adding at the end the following new paragraph:
``(7) Deduction for foreign intangible income.--The
deduction under section 250 shall not be allowed.''.
(D) Paragraph (1) of section 246(b) is amended by
striking ``and 247'' and inserting ``247, and 250''.
(E) Clause (iii) of section 469(i)(3)(D), as
amended by the preceding provisions of this Act, is
amended by striking ``and 222'' and inserting ``222,
and 250''.
(c) Effective Date.--
(1) Treatment as subpart f income.--The amendments made by
subsection (a) shall apply to taxable years of foreign
corporations beginning after December 31, 2014, and to taxable
years of United States shareholders in which or with which such
taxable years of foreign corporations end.
(2) Deduction for foreign intangible income.--The
amendments made by subsection (b) shall apply to taxable years
beginning after December 31, 2014.
SEC. 4212. 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 United States shareholder (as defined in section
951(b)) with respect to any foreign corporation both of which
are members of the same 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 lesser of--
``(A) the product of--
``(i) the net interest expense of such
domestic corporation, multiplied by
``(ii) the debt-to-equity differential
percentage of such worldwide affiliated group,
or
``(B) the excess (if any) of--
``(i) such net interest expense, over
``(ii) 40 percent of the adjusted taxable
income (as defined in subsection (j)(6)(A)) of
such domestic corporation.
``(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 (and shall not be
treated as disqualified interest for purposes of applying
subsection (j)).
``(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, the excess (if any) of--
``(i) the money and all other assets of
such corporations, over
``(ii) the total indebtedness of such
corporations.
``(D) Special rules for determining debt and
equity.--For purposes of this paragraph--
``(i) Application of certain general
rules.--Rules similar to the rules of clauses
(i), (ii), and (iii) of subsection (j)(2)(C)
shall apply.
``(ii) Intragroup debt and equity interests
disregarded.--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.--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.
``(4) Other definitions.--For purposes of this subsection--
``(A) Worldwide affiliated group.--The term
`worldwide affiliated group' has the meaning which
would be given such term by section 864(f)(1)(C) if
section 1504(a) were applied by substituting `more than
50 percent' for `at least 80 percent' each place it
appears.
``(B) Net interest expense.--The term `net interest
expense' has the meaning given such term by subsection
(j)(6)(B).
``(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 1 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, and
``(D) providing for the reallocation of shares of
partnership indebtedness, or distributive shares of the
partnership's interest income or interest expense.''.
(b) Coordination With Limitation on Related Party Indebtedness.--
Paragraph (1) of section 163(j) is amended by adding at the end the
following new subparagraph:
``(C) Coordination with limitation on excess
domestic indebtedness.--The amount disallowed under
subparagraph (A) with respect to any corporation for
any taxable year shall be reduced by any amount
disallowed under subsection (n)(1) with respect to such
corporation for such taxable year.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
TITLE V--TAX EXEMPT ENTITIES
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).
(a) In General.--Subparagraph (A) of section 511(a)(2) is amended
by adding at the end the following: ``For purposes of the preceding
sentence, an organization 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) Clerical Amendment.--The heading for subparagraph (A) of
section 511(a)(2) is amended to read as follows: ``Organizations exempt
from taxation by reason of section 501(a).''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5002. NAME AND LOGO ROYALTIES TREATED AS UNRELATED BUSINESS
TAXABLE INCOME.
(a) In General.--Section 513 is amended by adding at the end the
following new subsection:
``(k) Name and Logo Royalties.--Any sale or licensing by an
organization of any name or logo of the organization (including any
trademark or copyright relating to such name or logo) shall be treated
as an unrelated trade or business regularly carried on by such
organization.''.
(b) Calculation of Unrelated Business Taxable Income.--Subsection
(b) of section 512 is amended by adding at the end the following new
paragraph:
``(20) Special rule for name and logo royalties.--
Notwithstanding paragraph (1), (2), (3), or (5), any income
derived from any sale or licensing described in section 513(k)
shall be included as an item of gross income derived from an
unrelated trade or business.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5003. 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 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, and
``(D) the net operating loss deduction shall only
be allowed with respect to the trade or business from
which the net operating loss arose.''.
(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, 2014.
(2) Net operating losses.--
(A) Certain carryovers.--In the case of any net
operating loss arising in a taxable year beginning
before January 1, 2015, that is carried over to a
taxable year beginning on or after such date, section
512(a)(6)(D) of the Internal Revenue Code of 1986, as
added by this Act, shall not apply.
(B) Certain carrybacks.--In the case of any net
operating loss arising in a taxable year beginning
after December 31, 2014, and carried back to any
taxable year beginning on or before such date, in
computing unrelated business taxable income of an
organization under section 512(a) of such Code for the
taxable year, the net operating loss deduction shall be
allowed only with respect to the trade or business from
which the net operating loss arose.
SEC. 5004. EXCLUSION OF RESEARCH INCOME LIMITED TO PUBLICLY AVAILABLE
RESEARCH.
(a) In General.--Paragraph (9) of section 512(b) 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, 2014.
SEC. 5005. PARITY OF CHARITABLE CONTRIBUTION LIMITATION BETWEEN TRUSTS
AND CORPORATIONS.
(a) In General.--Paragraph (11) of section 512(b) is amended by
striking the second sentence and inserting the following: ``The
deduction allowed by this paragraph shall not exceed 10 percent of the
unrelated business taxable income computed without the benefit of this
paragraph.''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2014.
SEC. 5006. INCREASED SPECIFIC DEDUCTION.
(a) In General.--Paragraph (12) of section 512(b) is amended by
striking ``$1,000'' each place it appears and inserting ``$10,000''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5007. REPEAL OF EXCLUSION OF GAIN OR LOSS FROM DISPOSITION OF
DISTRESSED PROPERTY.
(a) In General.--Subsection (b) of section 512 is amended by
striking paragraph (16).
(b) Effective Date.--The amendment made by this section shall apply
to property acquired after December 31, 2014.
SEC. 5008. QUALIFIED SPONSORSHIP PAYMENTS.
(a) Repeal of Use or Acknowledgment of Product Lines for Qualified
Sponsorship Payments.--Subparagraphs (A) and (B)(ii)(I) of section
513(i)(2) are each amended by striking ``(or product lines)''.
(b) Use or Acknowledgment Limited in Case of Certain Events.--
Subparagraph (B) of section 513(i)(2) is amended by adding at the end
the following new clause:
``(iii) Use or acknowledgment limited in
case of certain events.--In the case of an
event with respect to which an organization
receives an aggregate amount of qualified
sponsorship payments greater than $25,000, a
payment shall not be treated as a qualified
sponsorship payment for purposes of paragraph
(1) unless the use or acknowledgment of the
sponsor's name or logo appears with, and in
substantially the same manner as, the names of
a significant portion of other donors to the
organization. For purposes of the preceding
sentence, whether a number of donors is a
significant portion shall be determined based
on the total number of donors and the total
contributed with respect to the event, but in
no event shall fewer than 2 other donors be
treated as a significant portion of other
donors.''.
(c) Clerical Amendment.--The heading for clause (ii) of section
513(i)(2)(B) is amended to read as follows: ``Periodicals and qualified
convention and trade show activities.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
Subtitle B--Penalties
SEC. 5101. INCREASE IN INFORMATION RETURN PENALTIES.
(a) Failure To File Return.--
(1) Organization.--Subparagraph (A) of section 6652(c)(1)
is amended--
(A) by striking ``$20'' each place it appears and
inserting ``$40'', and
(B) by striking ``$100'' and inserting ``$200''.
(2) Managers.--Clause (ii) of section 6652(c)(1)(B) is
amended by striking ``$10'' and inserting ``$20''.
(b) Failure To Make Returns, Reports, and Applications Available
for Public Inspection.--Subparagraphs (C) and (D) of section 6652(c)(1)
are each amended by striking ``$20'' and inserting ``$40''.
(c) Failure To File Returns Under Section 6034 or 6043.--Paragraph
(2) of section 6652(c) is amended--
(1) by striking ``$10'' each place it appears in
subparagraphs (A) and (B) and inserting ``$20'', and
(2) by striking ``substituting `$100' for `$20','' in
subparagraph (C)(ii) and inserting ``substituting `$200' for
`$40',''.
(d) Failure To File Disclosure Under Section 6033(a)(2).--
(1) Organization.--Subparagraph (A) of section 6652(c)(3)
is amended by striking ``$100'' and inserting ``$200''.
(2) Managers.--Subparagraph (B) of section 6652(c)(3) is
amended by striking ``$100'' and inserting ``$200''.
(e) Effective Date.--The amendments made by this section shall
apply with respect to information returns required to be filed on or
after January 1, 2015.
SEC. 5102. MANAGER-LEVEL ACCURACY-RELATED PENALTY ON UNDERPAYMENT OF
UNRELATED BUSINESS INCOME TAX.
(a) In General.--Section 6662 is amended by adding at the end the
following new subsection:
``(k) Manager-Level Penalty for Substantial Underpayment of
Unrelated Business Income Tax.--
``(1) In general.--In the case of any substantial
underpayment of income tax which is attributable to the tax
imposed by section 511 on the unrelated business taxable income
of an organization for the taxable year, there is hereby
imposed a tax with respect to such organization an amount equal
to 5 percent of such underpayment to which the underpayment
relates. Such tax shall be paid by any manager of the
organization.
``(2) Manager.--For purposes of this subsection, the term
`manager' means any officer, director, trustee, employee, or
other individual who is under a duty to perform an act in
respect of which the underpayment relates.
``(3) Joint and several liability.--If more than one person
is liable under paragraph (1) with respect to an underpayment,
all such persons shall be jointly and severally liable under
such paragraph with respect to such underpayment
``(4) Limit.--With respect to any substantial underpayment
of income tax for a taxable year, the maximum amount of the tax
added by paragraph (1) shall not exceed $20,000.''.
(b) Reportable Transactions.--Section 6662A is amended by adding at
the end the following new subsection:
``(f) Manager-Level Penalty in Case of Unrelated Business Income
Tax.--
``(1) In general.--In the case of any portion of a
reportable transaction understatement of the tax imposed by
section 511 to which this section applies, there is hereby
imposed a tax in an amount equal to 10 percent of such portion
of the underpayment to which the reportable transaction
understatement occurs. Such tax shall be paid by any manager of
the organization.
``(2) Manager.--For purposes of this subsection, the term
`manager' means any officer, director, trustee, employee, or
other individual who is under a duty to perform an act in
respect of which such understatement occurs.
``(3) Joint and several liability.--If more than one person
is liable under paragraph (1) with respect to an
understatement, all such persons shall be jointly and severally
liable under such paragraph with respect to such
understatement.
``(4) Limit.--With respect to any understatement of tax to
which this section applies, the maximum amount of the tax added
by paragraph (1) shall not exceed $40,000''.
(c) Coordination.--Section 6662 is amended--
(1) by striking the flush matter at the end of subsection
(b), and
(2) by adding at the end the following new subsection:
``(l) Coordination With Other Penalties.--This section shall not
apply to any portion of an underpayment on which a penalty is imposed
under section 6663. Except as provided in paragraph (1) or (2)(B) of
section 6662A(e), this section shall not apply to the portion of any
underpayment which is attributable to a reportable transaction
understatement on which a penalty is imposed under section 6662A.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
Subtitle C--Excise Taxes
SEC. 5201. MODIFICATION OF INTERMEDIATE SANCTIONS.
(a) Organization Level Tax.--Subsection (a) of section 4958 is
amended by adding at the end the following new paragraph:
``(3) On the organization.--In any case in which a tax is
imposed by paragraph (1), there is hereby imposed on the
organization a tax equal to 10 percent of the excess
benefit.''.
(b) Minimum Standards of Organization Due Diligence.--Subsection
(d) of section 4958 is amended by adding at the end the following new
paragraph:
``(3) Minimum standards of organization due diligence.--
``(A) In general.--Subsection (a)(3) shall not
apply to a transaction, if--
``(i) the organization establishes that the
minimum standards of due diligence described in
subparagraph (B) were met with respect to the
transaction, or
``(ii) the organization establishes to the
satisfaction of the Secretary that such other
reasonable procedures were used to ensure that
no excess benefit was provided.
``(B) Minimum standards.--An organization shall be
treated as satisfying the minimum standards of due
diligence described in this subparagraph with respect
to any transaction, if--
``(i) the transaction was approved in
advance by an authorized body of the
organization composed entirely of individuals
who did not have a conflict of interest with
respect to the transaction,
``(ii) the authorized body obtained and
relied upon appropriate data as to
comparability prior to approval of the
transaction, and
``(iii) the authorizing body adequately and
concurrently documented the basis for approving
the transaction.
``(C) No presumption as to reasonableness.--Meeting
the requirements of clause (i) or (ii) of subparagraph
(A) with respect to a transaction shall not give rise
to a presumption of reasonableness for purposes of the
taxes imposed by paragraphs (1) or (2) of subsection
(a) and shall not, by itself, support a conclusion that
a manager did not act knowingly for purposes of
subsection (a)(2).''.
(c) Repeal of Exception for Manager Reliance on Professional
Advice.--Section 4958 is amended by adding at the end the following new
subsection:
``(g) No Safe Harbor for Reliance on Professional Advice.--An
organization manager's reliance on a written opinion of a professional
with respect to elements of a transaction within the professional's
expertise shall not, by itself, preclude the manager from being treated
as participating in the transaction knowingly.''.
(d) Athletic Coaches and Investment Managers Treated as
Disqualified Persons.--
(1) Athletic coaches.--
(A) In general.--Paragraph (1) of section 4958(f)
is amended by striking ``and'' at the end of
subparagraph (E), by striking the period at the end of
subparagraph (F) and inserting ``, and'', and by adding
at the end the following new subparagraph:
``(G) any person who performs services as an
athletic coach for the organization.''.
(B) Family members.--Subparagraph (B) of section
4958(f)(1) is amended by inserting ``or (G)'' after
``subparagraph (A)''.
(2) Investment advisors.--
(A) In general.--Subparagraph (F) of section
4958(f)(1) is amended--
(i) by striking ``which involves a
sponsoring organization (as defined in section
4966(d)(1)),'', and
(ii) by striking ``such sponsoring
organization (as so defined)'' and inserting
``the organization''.
(B) Investment advisor definition.--Subparagraph
(B) of section 4958(f)(8) is amended to read as
follows:
``(B) Investment advisor defined.--For purposes of
subparagraph (A), the term `investment advisor' means--
``(i) with respect to any organization, any
person who is compensated by such organization
and is primarily responsible for managing the
investment of, or providing investment advice
with respect to, assets of such organization,
and
``(ii) with respect to any sponsoring
organization (as defined in section
4966(d)(1)), any person (other than an employee
of such organization) compensated by such
organization for managing the investment of, or
providing investment advice with respect to,
assets maintained in donor advised funds (as
defined in section 4966(d)(2)) owned by such
organization.''.
(e) Application to Unions and Trade Associations.--Paragraph (1) of
section 4958(e) is amended by inserting ``(5), (6),'' after ``(4),''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5202. MODIFICATION OF TAXES ON SELF-DEALING.
(a) Organization Level Tax.--Subsection (a) of section 4941 is
amended by adding at the end the following new paragraph:
``(3) On the foundation.--In any case in which a tax is
imposed by paragraph (1), there is hereby imposed on the
foundation a tax equal to 2.5 percent (10 percent in the case
payment of compensation) of the amount involved with respect to
the act of self-dealing for each year (or part thereof) in the
taxable period.''.
(b) Repeal of Exception for Manager Reliance on Advice From
Counsel.--Section 4941 is amended by adding at the end the following
new subsection:
``(f) No Safe Harbor for Reliance on Advice of Counsel.--A
foundation manager's reliance on a written legal opinion by legal
counsel that an act is not an act of self-dealing shall not, by itself,
preclude the manager from being treated as participating in the act
knowingly.''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5203. EXCISE TAX ON FAILURE TO DISTRIBUTE WITHIN 5 YEARS
CONTRIBUTION TO DONOR ADVISED FUND.
(a) In General.--Subchapter G of chapter 42 is amended by adding at
the end the following new section:
``SEC. 4968. FAILURE TO DISTRIBUTE CONTRIBUTIONS WITHIN 5 YEARS.
``(a) In General.--In the case of a contribution which is held in a
donor advised fund, there is hereby imposed a tax equal to 20 percent
of so much of the portion of such contribution as has not been
distributed by the sponsoring organization in an eligible distribution
before the beginning of the 6th (or succeeding) taxable year beginning
after the taxable year during which such contribution was made. The tax
imposed by this subsection shall be paid by such sponsoring
organization.
``(b) Treatment of Distributions.--For purposes of this section--
``(1) Eligible distribution.--The term `eligible
distribution' means any distribution to an organization
described in section 170(b)(1)(A) (other than an organization
described in section 509(a)(3) or any fund or account described
in section 4966(d)(2).
``(2) Accounting.--Distributions shall be treated as made
from contributions (and any earnings attributable thereto) on a
first-in, first-out basis.''.
(b) Conforming Amendment.--The table of sections for subchapter G
of chapter 42 is amended by adding at the end the following new item:
``Sec. 4968. Failure to distribute contributions within 5 years.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to contributions
made after December 31, 2014.
(2) Transition rule.--In the case of any contribution--
(A) which was made before January 1, 2015, and
(B) any portion of which (including any earnings
attributable thereto) is held in a donor advised fund
on such date,
such portion shall be treated as contributed on such date.
SEC. 5204. SIMPLIFICATION OF EXCISE TAX ON PRIVATE FOUNDATION
INVESTMENT INCOME.
(a) Rate Reduction.--Subsection (a) of section 4940 is amended by
striking ``2 percent'' and inserting ``1 percent''.
(b) Repeal of Special Rules for Certain Private Foundations.--
Section 4940 is amended by striking subsections (d) and (e).
(c) Conforming Amendment.--Section 4945(d)(4)(A) is amended by
striking clause (iii) and by inserting ``or'' at the end of clause (i).
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5205. REPEAL OF EXCEPTION FOR PRIVATE OPERATING FOUNDATION FAILURE
TO DISTRIBUTE INCOME.
(a) In General.--Subsection (a) of section 4942 is amended--
(1) by striking ``a private foundation--'' and all that
follows through ``(2) to the extent'' and inserting ``a private
foundation to the extent'', and
(2) by redesignating subparagraphs (A), (B), (C), and (D)
as paragraphs (1), (2), (3), and (4), respectively, and by
moving such paragraphs, as so redesignated, two ems to the
left.
(b) Conforming Amendments.--
(1) Section 4942(j) is amended by striking paragraphs (3),
(4), and (5).
(2) Section 170(b)(1)(F)(i) is amended by striking ``(as
defined in section 4942(j)(3))'',
(3) Section 170(b)(1) is amended by adding at the end the
following new subparagraphs:
``(H) Private operating foundation.--For purposes
of this paragraph, the term `private operating
foundation' means any organization--
``(i) which makes qualifying distributions
(within the meaning of paragraph (1) or (2) of
section 4942(g)) directly for the active
conduct of the activities constituting the
purpose or function for which it is organized
and operated equal to substantially all of the
lesser of--
``(I) its adjusted net income (as
defined in subsection section 4942(f)),
or
``(II) its minimum investment
return, and
``(ii)(I) substantially more than half of
the assets of which are devoted directly to
such activities or to functionally related
businesses, or to both, or are stock of a
corporation which is controlled by the
foundation and substantially all of the assets
of which are so devoted,
``(II) which normally makes qualifying
distributions (within the meaning of paragraph
(1) or (2) of section 4942(g)) directly for the
active conduct of the activities constituting
the purpose or function for which it is
organized and operated in an amount not less
than two-thirds of its minimum investment
return (as defined in section 4942(e)), or
``(III) substantially all of the support
(other than gross investment income as defined
in section 509(e)) of which is normally
received from the general public and from 5 or
more exempt organizations which are not
described in section 4946(a)(1)(H) with respect
to each other or the recipient foundation; not
more than 25 percent of the support (other than
gross investment income) of which is normally
received from any one such exempt organization;
and not more than half of the support of which
is normally received from gross investment
income.
Notwithstanding the provisions of clause (i), if the
qualifying distributions (within the meaning of
paragraph (1) or (2) of section 4942(g)) of an
organization for the taxable year exceed the minimum
investment return for the taxable year, subclause (II)
of clause (i) shall not apply unless substantially all
of such qualifying distributions are made directly for
the active conduct of the activities constituting the
purpose or function for which it is organized and
operated.
``(I) Functionally related business.--For purposes
of subparagraph (H), the term `functionally related
business' means--
``(i) a trade or business which is not an
unrelated trade or business (as defined in
section 513), or
``(ii) an activity which is carried on
within a larger aggregate of similar activities
or within a larger complex of other endeavors
which is related (aside from the need of the
organization for income or funds or the use it
makes of the profits derived) to the exempt
purposes of the organization.''.
(4) Section 170(e)(3)(A) is amended by striking ``as
defined in section 4942(j)(3)'' and inserting ``as defined in
subsection (b)(1)(H)''.
(5) Section 150(b)(3)(F), as redesignated by this Act, is
amended--
(A) by striking ``4942 (relating to the excise tax
on a failure to distribute income) and'',
(B) by striking ``section 4942(j)(4)'' and
inserting ``section 170(b)(1)(I)''.
(6) Section 2055(e)(4)(D) is amended by striking ``section
4942(j)(3)'' and inserting ``section 170(b)(1)(H)''.
(7) Section 2503(g)(2)(B) is amended by striking ``section
4942(j)(3)'' and inserting ``section 170(b)(1)(H)''.
(8) Section 4942(g)(1)(A) is amended by striking ``which is
not an operating foundation (as defined in subsection
(j)(3))''.
(9) Section 4942(g)(3)(A) is amended by striking ``which is
not an operating foundation''.
(10) Section 4942(g)(4)(A) is amended by striking ``which
is not an operating foundation''.
(11) Section 4943(d)(3)(A) is amended by striking ``section
4942(j)(4)'' and inserting ``section 170(b)(1)(I)''.
(12) Section 6110(l)(2)(A) is amended by striking ``section
4942(j)(3)'' and inserting ``section 170(b)(1)(H)''.
(13) Section 7428(a)(1)(C) is amended by striking ``section
4942(j)(3)'' and inserting ``section 170(b)(1)(H)''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5206. 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:
``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.
``SEC. 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 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 is not described in the first sentence
of section 511(a)(2)(B) (relating to State colleges and
universities), and
``(B) 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 (or held for
use) 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)(B), 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, 2014.
Subtitle D--Requirements for Organizations Exempt From Tax
SEC. 5301. REPEAL OF TAX-EXEMPT STATUS FOR PROFESSIONAL SPORTS LEAGUES.
(a) In General.--Paragraph (6) of section 501(c) is amended--
(1) by striking ``, boards of trade, or professional'' and
all that follows through ``players)'' and inserting ``, or
boards of trade'', and
(2) by adding at the end the following: ``This paragraph
shall not apply to any professional sports league (whether or
not administering a pension fund for players).''.
(b) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
SEC. 5302. REPEAL OF EXEMPTION FROM TAX FOR CERTAIN INSURANCE COMPANIES
AND CO-OP HEALTH INSURANCE ISSUERS.
(a) In General.--Section 501(c) is amended by striking paragraphs
(15) and (29).
(b) Conforming Amendments.--
(1) Section 831(d), as amended by the preceding provisions
of this Act, is amended to read as follows:
``(d) Cross Reference.--For taxation of foreign corporations
carrying on an insurance business within the United States, see section
842.''.
(2) Section 4958(e)(1) is amended by striking ``(4), or
(29)'' and inserting ``or (4)''.
(3) Section 6033 is amended by striking subsection (m) and
redesignating subsection (n) as subsection (m).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2014.
(d) Transition Rules.--In the case of any organization described in
paragraph (15) or (29) of section 501(c) of the Internal Revenue Code
of 1986 (as in effect immediately before the enactment of this Act)--
(1) no adjustment shall be made under section 481 (or any
other provision) of the Internal Revenue Code of 1986 on
account of a change in its method of accounting for its 1st
taxable year beginning after December 31, 2014, and
(2) for purposes of determining gain or loss, the adjusted
basis of any asset held on the 1st day of such taxable year
shall be treated as equal to its fair market value as of such
day.
SEC. 5303. IN-STATE REQUIREMENT FOR WORKMEN'S COMPENSATION INSURANCE
ORGANIZATION.
(a) In General.--Clause (ii) of section 501(c)(27)(B) is amended by
inserting before the comma at the end the following: ``, and must not
offer any other insurance''.
(b) Effective Date.--The amendment made by this section shall apply
to insurance policies issued, and renewals, after December 31, 2014.
SEC. 5304. REPEAL OF TYPE II AND TYPE III SUPPORTING ORGANIZATIONS.
(a) In General.--Subparagraph (B) of section 509(a)(3) is amended--
(1) by inserting ``and'' at the end of clause (i),
(2) by striking clauses (ii) and (iii), and
(3) by striking ``is--'' and all that follows through
``operated, supervised, or controlled'' and inserting ``is
operated, supervised, or controlled''.
(b) Conforming Amendments.--
(1) Section 170(f)(18)(A) is amended by striking ``is not--
'' and all that follows through ``, and'' and inserting the
following: ``is not described in paragraph (3), (4), or (5) of
subsection (c), and''.
(2)(A)(i) Section 509(f) is amended by striking paragraph
(1) and by redesignating paragraphs (2) and (3) as paragraphs
(1) and (2), respectively.
(ii) Section 4942(g)(4)(A)(ii)(I) is amended by striking
``section 509(f)(3)'' and inserting ``section 509(f)(2)''.
(iii) Section 4958(c)(3)(C)(ii)(II) is amended by striking
``section 509(f)(3)'' and inserting ``section 509(f)(2)''.
(iv) Section 4966(d)(4)(A)(ii)(I) is amended by striking
``section 509(f)(3)'' and inserting ``section 509(f)(2)''.
(B) Section 509(f)(1)(A), as so redesignated, is amended by
striking ``shall not be considered to be--'' and all that
follows through ``if such organization'' and inserting the
following: ``shall not be considered to be operated,
supervised, or controlled by any organization described in
paragraph (1) or (2) of subsection (a), if such organization''.
(3) Section 2055(e)(5)(A) is amended by striking ``is not--
'' and all that follows through ``, and'' and inserting the
following: ``is not described in paragraph (3) or (4) of
subsection (a), and''.
(4) Section 2522(c)(5)(A) is amended by striking ``is not--
'' and all that follows through ``, and'' and inserting the
following: ``is not described in paragraph (3) or (4) of
subsection (a), and''.
(5)(A) Section 4942(g)(4)(A), as amended by the preceding
provision of this Act, is amended--
(i) by redesignating subclauses (I) and
(II) of clause (ii) as clauses (i) and (ii),
respectively, and moving such redesignated
clauses 2 ems to the left,
(ii) by striking ``paid by a private
foundation to--'' and all that follows through
``any organization which'' and inserting the
following: ``paid by a private foundation to
any organization which'', and
(iii) by striking ``subparagraph (B) or
(C)'' and inserting ``subparagraph (B)''.
(B) Section 4942(g)(4)(B) is amended--
(i) by striking clause (ii),
(ii) by striking ``section 509(a), or'' and
inserting ``section 509(a).'',
(iii) by striking ``and is--'' and all that follows
through ``operated, supervised, or controlled by'' and
inserting the following: ``and is operated, supervised,
or controlled by'', and
(iv) by striking ``Type i and type ii'' in the
heading thereof.
(C) Section 4942(g)(4) is amended by striking subparagraph
(C).
(D) Section 4945(d)(4)(A)(ii) is amended by striking
``clause (i) or (ii) of section 4942(g)(4)(A)'' and inserting
``section 4942(g)(4)(A)''.
(6) Section 4943 is amended by striking subsection (f).
(7)(A) Section 4966(d)(4)(A), as amended by this Act, is
amended--
(i) by redesignating subclauses (I) and
(II) of clause (ii) as clauses (i) and (ii),
respectively, and moving such redesignated
clauses 2 ems to the left,
(ii) by striking ``with respect to any
distribution--'' and all that follows through
``any organization which'' and inserting the
following: ``with respect to any distribution,
any organization which'', and
(iii) by striking ``subparagraph (B) or
(C)'' and inserting ``subparagraph (B)''.
(B) Section 4966(d)(4)(B) is amended--
(i) by striking clause (ii),
(ii) by striking ``section 509(a), or'' and
inserting ``section 509(a).'',
(iii) by striking ``and is--'' and all that follows
through ``operated, supervised, or controlled by'' and
inserting the following: ``and is operated, supervised,
or controlled by'', and
(iv) by striking ``Type i and type ii'' in the
heading thereof.
(C) Section 4966(d)(4) is amended by striking subparagraph
(C).
(8) Section 6033(l) is amended by inserting ``and'' at the
end of paragraph (1), by striking paragraph (2), and by
redesignating paragraph (3) as paragraph (2).
(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.
(2) Delay for current supporting organizations.--In the
case of an organization which, as of the date of the enactment
of this Act, meets the requirements of subparagraphs (A) and
(C) of section 509(a)(3) of the Internal Revenue Code of 1986
and is--
(A) supervised or controlled in connection with one
or more organizations described in paragraph (1) or (2)
of section 509(a) of such Code, or
(B) is operated in connection with one or more such
organizations,
the amendments made by this section shall apply to taxable
years beginning after December 31, 2015.
TITLE VI--TAX ADMINISTRATION AND COMPLIANCE
Subtitle A--IRS Investigation-Related Reforms
SEC. 6001. ORGANIZATIONS REQUIRED TO NOTIFY SECRETARY OF INTENT TO
OPERATE AS 501(C)(4).
(a) In General.--Part I of subchapter F of chapter 1 is amended by
adding at the end the following new section:
``SEC. 506. ORGANIZATIONS REQUIRED TO NOTIFY SECRETARY OF INTENT TO
OPERATE AS 501(C)(4).
``(a) In General.--An organization described in section 501(c)(4)
shall, not later than 60 days after the organization is established,
notify the Secretary (in such manner as the Secretary shall by
regulation prescribe) that it is operating as such.
``(b) Contents of Notice.--The notice required under subsection (a)
shall include the following information:
``(1) The name, address, and taxpayer identification number
of the organization.
``(2) The date on which, and the State under the laws of
which, the organization was organized.
``(3) A statement of the purpose of the organization.
``(c) Acknowledgment of Receipt.--Not later than 60 days after
receipt of such a notice, the Secretary shall send to the organization
an acknowledgment of such receipt.
``(d) Extension for Reasonable Cause.--The Secretary may, for
reasonable cause, extend the 60-day period described in subsection (a).
``(e) User Fee.--The Secretary shall impose a reasonable user fee
for submission of the notice under subsection (a).
``(f) Request for Determination.--Upon request by an organization
to be treated as an organization described in section 501(c)(4), the
Secretary may issue a determination with respect to such treatment.
Such request shall be treated for purposes of section 6104 as an
application for exemption from taxation under section 501(a).''.
(b) Supporting Information With First Return.--Paragraph (1) of
section 6033(f) is amended--
(1) by striking the period at the end and inserting ``,
and'',
(2) by striking ``include on the return required under
subsection (a) the information'' and inserting the following:
``include on the return required under subsection (a)--
``(1) the information'', and
(3) by adding at the end the following new paragraph:
``(2) in the case of the first such return filed by such an
organization after submitting a notice to the Secretary under
section 506(a), such information as the Secretary shall by
regulation require in support of the organization's treatment
as an organization described in section 501(c)(4).''.
(c) Failure To File Initial Notification.--Subsection (c) of
section 6652 is amended by redesignating paragraphs (4) and (5) as
paragraphs (5) and (6), respectively, and by inserting after paragraph
(3) the following new paragraph:
``(4) Notices under section 506.--
``(A) Penalty on organization.--In the case of a
failure to submit a notice required under section
506(a) (relating to organizations required to notify
Secretary of intent to operate as 501(c)(4)) on the
date and in the manner prescribed therefor, there shall
be paid by the organization failing to so submit $20
for each day during which such failure continues, but
the total amount imposed under this subparagraph on any
organization for failure to submit any one notice shall
not exceed $5,000.
``(B) Managers.--The Secretary may make written
demand on an organization subject to penalty under
subparagraph (A) specifying in such demand a reasonable
future date by which the notice shall be submitted for
purposes of this subparagraph. If such notice is not
submitted on or before such date, there shall be paid
by the person failing to so submit $20 for each day
after the expiration of the time specified in the
written demand during which such failure continues, but
the total amount imposed under this subparagraph on all
persons for failure to submit any one notice shall not
exceed $5,000.''.
(d) Clerical Amendment.--The table of sections for part I of
subchapter F of chapter 1 is amended by adding at the end the following
new item:
``Sec. 506. Organizations required to notify Secretary of intent to
operate as 501(c)(4).''.
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to organizations which are described in section 501(c)(4)
of the Internal Revenue Code of 1986 and organized after
December 31, 2014.
(2) Certain existing organizations.--In the case of any
other organization described in section 501(c)(4) of such Code,
the amendments made by this section shall apply to such
organization only if, on or before the date of the enactment of
this Act--
(A) such organization has not applied for a written
determination of recognition as an organization
described in section 501(c)(4) of such Code, and
(B) such organization has not filed at least one
annual return or notice required under subsection
(a)(1) or (i) (as the case may be) of section 6033 of
such Code.
In the case of any organization to which the amendments made by
this section apply by reason of the preceding sentence, such
organization shall submit the notice required by section 506(a)
of such Code, as added by this Act, not later than 180 days
after the date of the enactment of this Act.
SEC. 6002. DECLARATORY JUDGMENTS FOR 501(C)(4) ORGANIZATIONS.
(a) In General.--Paragraph (1) of section 7428(a) is amended by
striking ``or'' at the end of subparagraph (C) and by inserting after
subparagraph (D) the following new subparagraph:
``(E) with respect to the initial classification or
continuing classification of an organization described
in section 501(c)(4) which is exempt from tax under
section 501(a), or''.
(b) Effective Date.--The amendments made by this section shall
apply to pleadings filed after the date of the enactment of this Act.
SEC. 6003. RESTRICTION ON DONATION REPORTING FOR CERTAIN 501(C)(4)
ORGANIZATIONS.
(a) In General.--Subsection (f) of section 6033, as amended by this
Act, is amended--
(1) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B), respectively, and by moving such
subparagraphs 2 ems to the right,
(2) by striking ``in Section 501(c)(4).--Every
organization'' and inserting the following: ``in Section
501(c)(4).--
``(1) In general.--Every organization'', and
(3) by adding at the end the following new paragraph:
``(2) Restriction on donation reporting.--In the case of
any such organization, information relating to contributions
and gifts may only be required to be included on a return
required under subsection (a) if the contribution or gift is
made by an officer or director of the organization (or an
individual having powers or responsibilities similar to those
of officers or directors) or any covered employee (as defined
in section 4960(c)(2)) of the organization.''.
(b) Effective Date.--The amendments made by this section shall
apply to returns for taxable years beginning after December 31, 2013.
SEC. 6004. MANDATORY ELECTRONIC FILING FOR ANNUAL RETURNS OF EXEMPT
ORGANIZATIONS.
(a) In General.--Section 6033, as amended by the preceding
provisions of this Act, is amended by redesignating subsection (m) as
subsection (n) and by inserting after subsection (l) the following new
subsection:
``(m) Mandatory Electronic Filing.--Any organization required to
file a return under this section shall file such return in electronic
form.''.
(b) Inspection of Electronically Filed Annual Returns.--Subsection
(b) of section 6104 is amended by adding at the end the following:
``Any annual return required to be filed electronically under section
6033(m) shall be made available by the Secretary to the public in
machine readable format as soon as practicable.''.
(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 the date of the enactment of this Act.
(2) Transitional relief.--
(A) Small organizations.--
(i) In general.--In the case of any small
organizations, or any other organizations for
which the Secretary determines the application
of the amendments made by subsection (a) would
cause undue burden without a delay, the
Secretary may delay the application of such
amendments, but not later than taxable years
beginning 2 years after the date of the
enactment of this Act.
(ii) Small organization.--For purposes of
clause (i), the term ``small organization''
means any organization--
(I) the gross receipts of which for
the taxable year are less than
$200,000, and
(II) the aggregate gross assets of
which at the end of the taxable year
are less than $500,000.
(B) Organizations filing form 990-t.--In the case
of any organization described in section 511(a)(2) of
the Internal Revenue Code of 1986 which is subject to
the tax imposed by section 511(a)(1) of such Code on
its unrelated business taxable income, or any
organization required to file a return under section
6033 of such Code and include information under
subsection (e) thereof, the Secretary may delay the
application of the amendments made by this section, but
not later than taxable years beginning 2 years after
the date of the enactment of this Act.
SEC. 6005. DUTY TO ENSURE THAT IRS EMPLOYEES ARE FAMILIAR WITH AND ACT
IN ACCORD WITH CERTAIN TAXPAYER RIGHTS.
Section 7803(a) is amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph (2) the following new
paragraph:
``(3) Execution of duties in accord with taxpayer rights.--
In discharging his duties, the Commissioner shall ensure that
employees of the Internal Revenue Service are familiar with and
act in accord with taxpayer rights as afforded by other
provisions of this title, including--
``(A) the right to be informed,
``(B) the right to be assisted,
``(C) the right to be heard,
``(D) the right to pay no more than the correct
amount of tax,
``(E) the right of appeal,
``(F) the right to certainty,
``(G) the right to privacy,
``(H) the right to confidentiality,
``(I) the right to representation, and
``(J) the right to a fair and just tax system.''.
SEC. 6006. TERMINATION OF EMPLOYMENT OF IRS EMPLOYEES FOR TAKING
OFFICIAL ACTIONS FOR POLITICAL PURPOSES.
Paragraph (10) of section 1203(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 is amended to read as follows:
``(10) performing, delaying, or failing to perform (or
threatening to perform, delay, or fail to perform) any official
action (including any audit) with respect to a taxpayer for
purpose of extracting personal gain or benefit or for a
political purpose.''.
SEC. 6007. RELEASE OF INFORMATION REGARDING THE STATUS OF CERTAIN
INVESTIGATIONS.
(a) In General.--Subsection (e) of section 6103 is amended by
adding at the end the following new paragraph:
``(11) Disclosure of information regarding status of
investigation of violation of this section.--In the case of a
person who provides to the Secretary information indicating a
violation of section 7213, 7213A, or 7214 with respect to any
return or return information of such person, the Secretary may
disclose to such person (or such person's designee)--
``(A) whether an investigation based on the
person's provision of such information has been
initiated and whether it is open or closed,
``(B) whether any such investigation substantiated
such a violation by any individual, and
``(C) whether any action has been taken with
respect to such individual (including whether a
referral has been made for prosecution of such
individual).''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 6008. REVIEW OF IRS EXAMINATION SELECTION PROCEDURES.
(a) In General.--The Comptroller General of the United States shall
conduct a study of each Internal Revenue Service operating division to
assess the process used for determining how enforcement cases are
selected and processed. Such study shall include a review of the
following:
(1) The standards each such operating division has
established for enforcement case selection (including any
automated or discretionary selection processes) and case work,
and whether such standards meet the objectives of impartiality,
objectivity, compliance, and minimizing taxpayer burden.
(2) The extent to which any cases are initiated by
referrals or complaints from inside or outside of the operating
division (including from outside of the Internal Revenue
Service).
(3) The Internal Revenue Service controls (including
management reviews and regular updates) for assuring that its
standards for enforcement cases (and handling of referrals and
complaints) in each operating division are sufficient for
achieving the objectives described in paragraph (1).
(4) The Internal Revenue Service controls (including
training, monitoring, and quality assessments) for assuring
that its standards are adhered to by all division personnel and
the effectiveness of such controls.
(5) Whether the existing standards and controls provide
reasonable assurance that each division's enforcement processes
meet the Internal Revenue Service objectives of impartiality,
objectivity, compliance, and minimizing taxpayer burden.
(b) Initial Report.--Not later than 1 year after the date of the
enactment of this section, the Comptroller General shall submit to the
Committee on Ways and Means of the House of Representatives, the
Committee on Finance of the Senate, and the Secretary of the Treasury a
report on the results of such study. Such report shall include such
recommendations as the Comptroller General may deem advisable.
(c) Follow-Up on Recommendations.--Not later than 180 days after a
report is submitted with respect to an operating division under
subsection (b), the Comptroller General shall conduct a follow-up
study, and submit to the Committee on Ways and Means of the House of
Representatives, the Committee on Finance of the Senate, and the
Secretary of the Treasury a report, on whether any recommendations to
improve case selection and case work processes have been implemented
and are working as intended.
(d) Continuing Case Management Studies and Reports.--
(1) In general.--After a report is submitted under
subsection (b), the Comptroller General shall conduct follow-up
studies and reports in the same manner as provided in
subsections (a) and (b) with respect to each operating division
of the Internal Revenue Service and shall include in such study
and report a review of whether any previous recommendations to
improve case selection and case work processes have been
implemented and are working as intended.
(2) Frequency.--Each such report with respect to an
operating division shall be submitted not later than 4 years
after the date the most recent report was submitted with
respect to such operating division under subsection (b) or this
subsection. The Comptroller General shall submit no fewer than
1 such report each year.
SEC. 6009. IRS EMPLOYEES PROHIBITED FROM USING PERSONAL EMAIL ACCOUNTS
FOR OFFICIAL BUSINESS.
No officer or employee of the Internal Revenue Service may use a
personal email account to conduct any official business of the
Government.
SEC. 6010. MORATORIUM ON IRS CONFERENCES.
The Internal Revenue Service shall not hold any conference until
the Treasury Inspector General for Tax Administration submits a report
to Congress--
(1) certifying that the Internal Revenue Service has
implemented all of the recommendations set out in such
Inspector General's report titled ``Review of the August 2010
Small Business/Self-Employed Division's Conference in Anaheim,
California'', and
(2) describing such implementation.
SEC. 6011. APPLICABLE STANDARD FOR DETERMINATIONS OF WHETHER AN
ORGANIZATION IS OPERATED EXCLUSIVELY FOR THE PROMOTION OF
SOCIAL WELFARE.
(a) In General.--The standard and definitions as in effect on
January 1, 2010, which are used to determine whether an organization is
operated exclusively for the promotion of social welfare for purposes
of section 501(c)(4) of the Internal Revenue Code of 1986 shall apply
for purposes of determining the status of organizations under section
501(c)(4) of the Internal Revenue Code of 1986 after the date of the
enactment of this Act.
(b) Prohibition on Modification of Standard.--The Secretary of the
Treasury may not (nor may any delegate of such Secretary) issue,
revise, or finalize any regulation (including the proposed regulations
published at 78 Fed. Reg. 71535 (November 29, 2013)), revenue ruling,
or other guidance not limited to a particular taxpayer relating to the
standard and definitions specified in subsection (a).
(c) Application to Organizations.--Except as provided in subsection
(d), this section shall apply with respect to any organization claiming
tax exempt status under section 501(c)(4) of the Internal Revenue Code
of 1986 which was created on, before, or after the date of the
enactment of this Act.
(d) Sunset.--This section shall not apply after the one-year period
beginning on the date of the enactment of this Act.
Subtitle B--Taxpayer Protection and Service Reforms
SEC. 6101. EXTENSION OF IRS AUTHORITY TO REQUIRE TRUNCATED SOCIAL
SECURITY NUMBERS ON FORM W-2.
(a) In General.--Paragraph (2) of section 6051(a) is amended by
striking ``his social security number'' and inserting ``an identifying
number for the employee''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 6102. FREE ELECTRONIC FILING.
(a) In General.--The Secretary of the Treasury shall, in
cooperation with the private sector technology industry, maintain a
program that provides free individual income tax preparation and
electronic filing services to low-income taxpayers and elderly
taxpayers.
(b) Requirements of Program.--The Secretary shall by regulation or
other guidance prescribe with respect to the program--
(1) the qualifications, selection process, and contract
term for businesses participating in the program,
(2) a process for periodic review of businesses
participating in the program,
(3) procedures for terminating business participation in
the program for failure to comply with any program
requirements, and
(4) such other procedures as the Secretary determines are
necessary or appropriate to carry out the purposes of the
program.
(c) Free File Program.--The Internal Revenue Service Free File
program, as set forth in the notice published in the Federal Register
on November 4, 2002 (67 Fed. Reg. 67247), shall be treated as meeting
the requirements of subsection (a).
SEC. 6103. PRE-POPULATED RETURNS PROHIBITED.
Except to the extent provided in section 6014, 6020, or 6201(d) of
the Internal Revenue Code of 1986, the Secretary of the Treasury shall
not provide to any person a proposed final return or statement for use
by such person to satisfy a filing or reporting requirement under such
Code.
SEC. 6104. FORM 1040SR FOR SENIORS.
(a) In General.--The Secretary of the Treasury (or the Secretary's
delegate) shall make available a form, to be known as ``Form 1040SR'',
for use by individuals to file the return of tax imposed by chapter 1
of the Internal Revenue Code of 1986. Such form shall be as similar as
practicable to Form 1040EZ, except that--
(1) the form shall be available to individuals who have
attained age 65 as of the close of the taxable year,
(2) the form may be used even if income for the taxable
year includes--
(A) social security benefits (as defined in section
86(d) of the Internal Revenue Code of 1986),
(B) distributions from qualified retirement plans
(as defined in section 4974(c) of such Code), annuities
or other such deferred payment arrangements,
(C) interest and dividends, or
(D) capital gains and losses taken into account in
determining the deduction for adjusted net capital gain
under section 169 of such Code, and
(3) the form shall be available without regard to the
amount of any item of taxable income or the total amount of
taxable income for the taxable year.
(b) Effective Date.--The form required by subsection (a) shall be
made available for taxable years beginning after December 31, 2014.
SEC. 6105. INCREASED REFUND AND CREDIT THRESHOLD FOR JOINT COMMITTEE ON
TAXATION REVIEW OF C CORPORATION RETURN.
(a) In General.--Subsections (a) and (b) of section 6405 are each
amended by inserting ``($5,000,000 in the case of a C corporation)''
after ``$2,000,000''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act, except that such
amendment shall not apply with respect to any refund or credit with
respect to a report that has been made before such date under section
6405 of the Internal Revenue Code of 1986.
Subtitle C--Tax Return Due Date Simplification
SEC. 6201. DUE DATES FOR RETURNS OF PARTNERSHIPS, S CORPORATIONS, AND C
CORPORATIONS.
(a) Partnerships and S Corporations.--
(1) In general.--So much of subsection (b) of 6072 as
precedes the second sentence thereof is amended to read as
follows:
``(b) Returns of Partnerships and S Corporations.--Returns of
partnerships under section 6031 and returns of S corporations under
sections 6012 and 6037 made on the basis of the calendar year shall be
filed on or before the 15th day of March following the close of the
calendar year, and such returns made on the basis of a fiscal year
shall be filed on or before the 15th day of the third month following
the close of the fiscal year.''.
(2) Conforming amendment.--Section 6072(a) is amended by
striking ``6017, or 6031'' and inserting ``or 6017''.
(b) Conforming Amendments Relating to C Corporation Due Date of
15th Day of Fourth Month Following Taxable Year.--
(1) Section 170(a)(3)(B), as redesignated by the preceding
provisions of this Act, is amended by striking ``third month''
and inserting ``fourth month''.
(2) Section 563 is amended by striking ``third month'' each
place it appears and inserting ``fourth month''.
(3) Section 1354(d)(1)(B)(i) is amended by striking ``3d
month'' and inserting ``4th month''.
(4) Subsection (a) and (c) of section 6167 are each amended
by striking ``third month'' and inserting ``fourth month''.
(5) Section 6425(a)(1) is amended by striking ``third
month'' and inserting ``fourth month''.
(6) Subsections (b)(2)(A), (g)(3), and (h)(1) of section
6655 are each amended by striking ``3rd month'' and inserting
``4th month''.
(c) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to returns for
taxable years beginning after December 31, 2014.
(2) Special rule for c corporations with fiscal years
ending on june 30.--In the case of any C corporation with a
fiscal year ending on June 30, the amendments made by this
section shall not apply to any taxable year beginning in 2022.
SEC. 6202. MODIFICATION OF DUE DATES BY REGULATION.
In the case of returns for taxable years beginning after December
31, 2014, the Secretary of the Treasury, or the Secretary's designee,
shall modify appropriate regulations to provide as follows:
(1) The maximum extension for the returns of partnerships
filing Form 1065 shall be a 6-month period ending on September
15 for calendar year taxpayers.
(2) The maximum extension for the returns of trusts filing
Form 1041 shall be a 5\1/2\-month period ending on September 30
for calendar year taxpayers.
(3) The maximum extension for the returns of employee
benefit plans filing Form 5500 shall be an automatic 3\1/2\-
month period ending on November 15 for calendar year plans.
(4) The maximum extension for the returns of organizations
exempt from income tax filing Form 990 shall be an automatic 6-
month period ending on November 15 for calendar year filers.
(5) The due date of Form 3520-A (relating to the Annual
Information Return of Foreign Trust with a United States Owner)
for calendar year filers shall be April 15 with a maximum
extension for a 6-month period ending on October 15.
(6) The due date of Form TD F 90-22.1 (relating to Report
of Foreign Bank and Financial Accounts) shall be April 15 with
a maximum extension for a 6-month period ending on October 15
and with provision for an extension under rules similar to the
rules in Treas. Reg. section 1.6081-5. For any taxpayer
required to file such Form for the first time, any penalty for
failure to timely request for, or file, an extension, may be
waived by the Secretary.
SEC. 6203. CORPORATIONS PERMITTED STATUTORY AUTOMATIC 6-MONTH EXTENSION
OF INCOME TAX RETURNS.
(a) In General.--Section 6081(b) is amended by striking ``3
months'' and inserting ``6 months''.
(b) Effective Date.--The amendments made by this section shall
apply to returns for taxable years beginning after December 31, 2014.
Subtitle D--Compliance Reforms
SEC. 6301. PENALTY FOR FAILURE TO FILE.
(a) In General.--Section 6651(a) is amended by striking ``$135'' in
the flush material at the end and inserting ``$400''.
(b) Effective Date.--The amendments made by this section shall
apply to returns the due date for the filing of which (including
extension) is after December 31, 2014.
SEC. 6302. PENALTY FOR FAILURE TO FILE CORRECT INFORMATION RETURNS AND
PROVIDE PAYEE STATEMENTS.
(a) In General.--Section 6721(a)(1) is amended--
(1) by striking ``$100'' and inserting ``$250'', and
(2) by striking ``$1,500,000'' and inserting
``$3,000,000''.
(b) Reduction Where Correction in Specified Period.--
(1) Correction within 30 days.--Section 6721(b)(1) is
amended--
(A) by striking ``$30'' and inserting ``$50'',
(B) by striking ``$100'' and inserting ``$250'',
and
(C) by striking ``$250,000'' and inserting
``$500,000''.
(2) Failures corrected on or before august 1.--Section
6721(b)(2) is amended--
(A) by striking ``$60'' and inserting ``$100'',
(B) by striking ``$100'' (prior to amendment by
subparagraph (A)) and inserting ``$250'', and
(C) by striking ``$500,000'' and inserting
``$1,500,000''.
(c) Lower Limitation for Persons With Gross Receipts of Not More
Than $5,000,000.--Section 6721(d)(1) is amended--
(1) in subparagraph (A)--
(A) by striking ``$500,000'' and inserting
``$1,000,000'', and
(B) by striking ``$1,500,000'' and inserting
``$3,000,000'',
(2) in subparagraph (B)--
(A) by striking ``$75,000'' and inserting
``$175,000'', and
(B) by striking ``$250,000'' and inserting
``$500,000'', and
(3) in subparagraph (C)--
(A) by striking ``$200,000'' and inserting
``$500,000'', and
(B) by striking ``$500,000'' (prior to amendment by
subparagraph (A)) and inserting ``$1,500,000''.
(d) Penalty in Case of Intentional Disregard.--Section 6721(e) is
amended--
(1) by striking ``$250'' in paragraph (2) and inserting
``$500'', and
(2) by striking ``$1,500,000'' in paragraph (3)(A) and
inserting ``$3,000,000''.
(e) Failure To Furnish Correct Payee Statements.--
(1) In general.--Section 6722(a)(1) is amended--
(A) by striking ``$100'' and inserting ``$250'',
and
(B) by striking ``$1,500,000'' and inserting
``$3,000,000''.
(2) Reduction where correction in specified period.--
(A) Correction within 30 days.--Section 6722(b)(1)
is amended--
(i) by striking ``$30'' and inserting
``$50'',
(ii) by striking ``$100'' and inserting
``$250'', and
(iii) by striking ``$250,000'' and
inserting ``$500,000''.
(B) Failures corrected on or before august 1.--
Section 6722(b)(2) is amended--
(i) by striking ``$60'' and inserting
``$100'',
(ii) by striking ``$100'' (prior to
amendment by clause (i)) and inserting
``$250'', and
(iii) by striking ``$500,000'' and
inserting ``$1,500,000''.
(3) Lower limitation for persons with gross receipts of not
more than $5,000,000.--Section 6722(d)(1) is amended--
(A) in subparagraph (A)--
(i) by striking ``$500,000'' and inserting
``$1,000,000'', and
(ii) by striking ``$1,500,000'' and
inserting ``$3,000,000'',
(B) in subparagraph (B)--
(i) by striking ``$75,000'' and inserting
``$175,000'', and
(ii) by striking ``$250,000'' and inserting
``$500,000'', and
(C) in subparagraph (C)--
(i) by striking ``$200,000'' and inserting
``$500,000'', and
(ii) by striking ``$500,000'' (prior to
amendment by subparagraph (A)) and inserting
``$1,500,000''.
(4) Penalty in case of intentional disregard.--Section
6722(e) is amended--
(A) by striking ``$250'' in paragraph (2) and
inserting ``$500'', and
(B) by striking ``$1,500,000'' in paragraph (3)(A)
and inserting ``$3,000,000''.
(f) Effective Date.--The amendments made by this section shall
apply with respect to returns and statements required to be filed after
December 31, 2014.
SEC. 6303. CLARIFICATION OF 6-YEAR STATUTE OF LIMITATIONS IN CASE OF
OVERSTATEMENT OF BASIS.
(a) In General.--Subparagraph (B) of section 6501(e)(1) is
amended--
(1) by striking ``and'' at the end of clause (i), by
redesignating clause (ii) as clause (iii), and by inserting
after clause (i) the following new clause:
``(ii) An understatement of gross income by
reason of an overstatement of unrecovered cost
or other basis is an omission from gross
income; and'', and
(2) by inserting ``(other than in the case of an
overstatement of unrecovered cost or other basis)'' in clause
(iii) (as so redesignated) after ``In determining the amount
omitted from gross income''.
(b) Effective Date.--The amendments made by this section shall
apply to--
(1) returns filed after the date of the enactment of this
Act, and
(2) returns filed on or before such date if the period
specified in section 6501 of the Internal Revenue Code of 1986
(determined without regard to such amendments) for assessment
of the taxes with respect to which such return relates has not
expired as of such date.
SEC. 6304. REFORM OF RULES RELATED TO QUALIFIED TAX COLLECTION
CONTRACTS.
(a) Requirement To Collect Certain Inactive Tax Receivables Under
Qualified Tax Collection Contracts.--Section 6306 is amended by
redesignating subsections (c) through (f) as subsections (d) through
(g), respectively, and by inserting after subsection (b) the following
new subsection:
``(c) Collection of Inactive Tax Receivables.--
``(1) In general.--Notwithstanding any other provision of
law, the Secretary shall enter into one or more qualified tax
collection contracts for the collection of all outstanding
inactive tax receivables.
``(2) Inactive tax receivables.--For purposes of this
section--
``(A) In general.--The term `inactive tax
receivable' means any tax receivable if--
``(i) at any time after assessment, the
Internal Revenue Service removes such
receivable from the active inventory for lack
of resources or inability to locate the
taxpayer,
``(ii) more than \1/3\ of the period of the
applicable statute of limitation has lapsed and
no employee of the Internal Revenue Service has
been assigned such receivable for collection,
or
``(iii) in the case of a receivable which
has been assigned for collection, more than 365
days have passed without interaction with the
taxpayer or a third party for purposes of
furthering the collection of such receivable.
``(B) Tax receivable.--The term `tax receivable'
means any outstanding assessment which the Internal
Revenue Service includes in potentially collectible
inventory.''.
(b) Certain Tax Receivables Not Eligible for Collection Under
Qualified Tax Collection Contracts.--Section 6306, as amended by
subsection (a), is amended by redesignating subsections (d) through (g)
as subsections (e) through (h), respectively, and by inserting after
subsection (c) the following new subsection:
``(d) Certain Tax Receivables Not Eligible for Collection Under
Qualified Tax Collections Contracts.--A tax receivable shall not be
eligible for collection pursuant to a qualified tax collection contract
if such receivable--
``(1) is subject to a pending or active offer-in-compromise
or installment agreement,
``(2) is classified as an innocent spouse case,
``(3) involves a taxpayer identified by the Secretary as
being--
``(A) deceased,
``(B) under the age of 18,
``(C) in a designated combat zone, or
``(D) a victim of identity theft,
``(4) is currently under examination, litigation, criminal
investigation, or levy, or
``(5) is currently subject to a proper exercise of a right
of appeal under this title.''.
(c) Contracting Priority.--Section 6306, as amended by the
preceding provisions of this section, is amended by redesignating
subsection (h) as subsection (i) and by inserting after subsection (g)
the following new subsection:
``(h) Contracting Priority.--In contracting for the services of any
person under this section, the Secretary shall give priority to private
collection contractors and debt collection centers on the schedule
required under section 3711(g) of title 31, United States Code, to the
extent such private collection contractors and debt collection centers
are appropriate to carry out the purposes of this section.''.
(d) Disclosure of Return Information.--Section 6103(k) is amended
by adding at the end the following new paragraph:
``(11) Qualified tax collection contractors.--Persons
providing services pursuant to a qualified tax collection
contract under section 6306 may, if speaking to a person who
has identified himself or herself as having the name of the
taxpayer to which a tax receivable (within the meaning of such
section) relates, identify themselves as contractors of the
Internal Revenue Service and disclose the business name of the
contractor, and the nature, subject, and reason for the
contact. Disclosures under this paragraph shall be made only in
such situations and under such conditions as have been approved
by the Secretary.''.
(e) Taxpayers Affected by Federally Declared Disasters.--Section
6306, as amended by the preceding provisions of this section, is
amended by redesignating subsection (i) as subsection (j) and by
inserting after subsection (h) the following new subsection:
``(i) Taxpayers in Presidentially Declared Disaster Areas.--The
Secretary may prescribe procedures under which a taxpayer determined to
be affected by a federally declared disaster (as defined by section
165(i)(5)) may request--
``(1) relief from immediate collection measures by
contractors under this section, and
``(2) a return of the inactive tax receivable to the
Internal Revenue Service for collection.''.
(f) Report to Congress.--
(1) In general.--Section 6306, as amended by the preceding
provisions of this section, is amended by redesignating
subsection (j) as subsection (k) and by inserting after
subsection (i) the following new subsection:
``(j) Report to Congress.--Not later than 90 days after each fiscal
year ending on September 30, the Secretary shall submit to the
Committee on Ways and Means of the House of Representatives and the
Committee on Finance of the Senate a report with respect to qualified
tax collection contracts under this section which shall include--
``(1) annually (with respect to each such fiscal year
beginning with the first such fiscal year ending after the date
of the enactment of this subsection)--
``(A) the total number and amount of tax
receivables provided to each contractor for collection
under this section,
``(B) the total amounts collected (and amounts of
installment agreements entered into under subsection
(b)(1)(B)) with respect to each contractor and the
collection costs incurred (directly and indirectly) by
the Internal Revenue Service with respect to such
amounts,
``(C) the impact of such contracts on the total
number and amount of unpaid assessments, and on the
number and amount of assessments collected by Internal
Revenue Service personnel after initial contact by a
contractor,
``(D) the amount of fees retained by the Secretary
under subsection (e) and a description of the use of
such funds, and
``(E) a disclosure safeguard report in a form
similar to that required under section 6103(p)(5), and
``(2) biannually (beginning with the second report
submitted under this subsection)--
``(A) an independent evaluation of contractor
performance; and
``(B) a measurement plan that includes a comparison
of the best practices used by the private collectors to
the collection techniques used by the Internal Revenue
Service and mechanisms to identify and capture
information on successful collection techniques used by
the contractors that could be adopted by the Internal
Revenue Service.''.
(2) Repeal of existing reporting requirements with respect
to qualified tax collection contracts.--Section 881 of the
American Jobs Creation Act of 2004 is amended by striking
subsection (e).
(g) Effective Dates.--
(1) In general.--The amendments made by subsections (a) and
(b) shall apply to tax receivables identified by the Secretary
after the date of the enactment of this Act.
(2) Contracting priority.--The amendments made by
subsection (c) shall apply to contracts and agreements entered
into after the date of the enactment of this Act.
(3) Disclosures.--The amendments made by subsection (d)
shall apply to disclosures made after the date of the enactment
of this Act.
(4) Procedures; report to congress.--The amendments made by
subsections (e) and (f) shall take effect on the date of the
enactment of this Act.
SEC. 6305. 100 PERCENT CONTINUOUS LEVY ON PAYMENTS TO MEDICARE
PROVIDERS AND SUPPLIERS.
(a) In General.--Paragraph (3) of section 6331(h) is amended by
striking the period at the end and inserting ``, or to a Medicare
provider or supplier under title XVIII of the Social Security Act.''.
(b) Effective Date.--The amendment made by this section shall apply
to levies issued after the date of the enactment of this Act.
SEC. 6306. TREATMENT OF REFUNDABLE CREDITS FOR PURPOSES OF CERTAIN
PENALTIES.
(a) Application of Underpayment Penalties.--Section 6664(a) is
amended by adding at the end the following: ``A rule similar to the
rule of section 6211(b)(4) shall apply for purposes of this
subsection.''.
(b) Penalty for Erroneous Claim of Credit Made Applicable to Earned
Income Credit.--Section 6676(a) is amended by striking ``(other than a
claim for a refund or credit relating to the earned income credit under
section 32)''.
(c) Effective Dates.--
(1) Underpayment penalties.--The amendment made by
subsection (a) shall apply to--
(A) returns filed after February 26, 2014, and
(B) returns filed on or before such date if the
period specified in section 6501 of the Internal
Revenue Code of 1986 for assessment of the taxes with
respect to which such return relates has not expired as
of such date.
(2) Penalty for erroneous claim of credit.--The amendment
made by subsection (b) shall apply to claims filed after
February 26, 2014.
TITLE VII--EXCISE TAXES
SEC. 7001. REPEAL OF MEDICAL DEVICE EXCISE TAX.
(a) In General.--Chapter 32 is amended by striking subchapter E.
(b) Conforming Amendments.--
(1) Subsection (a) of section 4221 is amended by striking
the last sentence.
(2) Paragraph (2) of section 6416(b) is amended by striking
the last sentence.
(c) Clerical Amendment.--The table of subchapters for chapter 32 is
amended by striking the item relating to subchapter E.
(d) Effective Date.--The amendments made by this section shall
apply to sales after the date of the enactment of this Act.
SEC. 7002. MODIFICATIONS RELATING TO OIL SPILL LIABILITY TRUST FUND.
(a) Extension of Oil Spill Liability Trust Fund Financing Rate.--
Paragraph (2) of section 4611(f) is amended by striking ``December 31,
2017'' and inserting ``December 31, 2023''.
(b) Application With Respect to Bitumen and Bituminous Mixtures and
Shale Oil.--Paragraph (1) of section 4612(a) is amended to read as
follows:
``(1) Crude oil.--The term `crude oil' includes crude oil
condensates, natural gasoline, any bitumen or bituminous
mixture, any oil derived from a bitumen or bituminous mixture,
shale oil, and any oil derived from kerogen-bearing sources.''.
(c) Conforming Amendment.--Paragraph (2) of section 4612(a) is
amended by striking ``from a well located''.
(d) Effective Date.--The amendments made by this section shall
apply to oil and petroleum products received or entered during calendar
quarters beginning more than 60 days after the date of the enactment of
this Act.
SEC. 7003. MODIFICATION RELATING TO INLAND WATERWAYS TRUST FUND
FINANCING RATE.
(a) In General.--Section 4042(b)(2)(A) is amended to read as
follows:
``(A) The Inland Waterways Trust Fund financing
rate is 26 cents per gallon.''.
(b) Effective Date.--The amendment made by this section shall apply
to fuel used after December 31, 2014.
SEC. 7004. EXCISE TAX ON SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONS.
(a) In General.--Chapter 36 is amended by adding at the end the
following new subchapter:
``Subchapter E--Tax on Systemically Important Financial Institutions
``Sec. 4491. Tax on systemically important financial institutions.
``SEC. 4491. TAX ON SYSTEMICALLY IMPORTANT FINANCIAL INSTITUTIONS.
``(a) In General.--There is hereby imposed a tax on the excess
total consolidated assets of any systemically important financial
institution on the close of each calendar quarter.
``(b) Amount of Tax.--The rate of tax imposed by subsection (a) is
0.035 percent of such excess total consolidated assets.
``(c) By Whom Paid.--The tax imposed by subsection (a) shall be
paid by the systemically important financial institution.
``(d) Due Date.--The tax imposed by subsection (a) for a calendar
quarter shall be due on the first day of the third month beginning
after the close of such quarter.
``(e) Systemically Important Financial Institution.--For purposes
of this section, the term `systemically important financial
institution' means any person subject to section 165 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act.
``(f) Excess Total Consolidated Assets.--For purposes of this
section, the term `excess total consolidated assets' means the excess
of--
``(1) total consolidated assets (within the meaning of
section 165 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act), over
``(2) $500,000,000,000.
``(g) Adjustment of Dollar Amount.--
``(1) In general.--In the case of any calendar year
beginning after 2015, there shall be substituted for the dollar
amount in subsection (f)(2) a dollar amount which bears the
same ratio to such amount (determined without regard to this
subsection) as--
``(A) the GDP for the preceding calendar year,
bears to
``(B) the GDP for 2014.
Any dollar amount determined under this paragraph for
substitution in subsection (f)(2) which is not a multiple of
$1,000,000,000 shall be rounded to the nearest multiple of
$1,000,000,000.
``(2) GDP.--For purposes of this subsection, the GDP for
any calendar year means the latest estimate of the gross
domestic product published by the Department of Commerce for
the preceding calendar year.
``(h) Treatment of Certain References.--Any reference in this
section to any provision of the Dodd-Frank Wall Street Reform and
Consumer Protection Act shall be treated as a reference to such
provision as in effect on the date of the enactment of this section.''.
(b) Clerical Amendment.--The table of subchapters for chapter 36 is
amended by adding at the end the following new item:
``subchapter e. tax on systemically important financial
institutions.''.
(c) Effective Date.--The amendments made by this section shall
apply to calendar quarters beginning after December 31, 2014.
SEC. 7005. CLARIFICATION OF ORPHAN DRUG EXCEPTION TO ANNUAL FEE ON
BRANDED PRESCRIPTION PHARMACEUTICAL MANUFACTURERS AND
IMPORTERS.
(a) In General.--Paragraph (3) of section 9008(e) of the Patient
Protection and Affordable Care Act (Public Law 111-148) is amended to
read as follows:
``(3) Exclusion of orphan drug sales.--
``(A) In general.--The term `branded prescription
drug sales' shall not include sales of any drug or
biological product--
``(i) with respect to which a credit was
allowed for any taxable year under section 45C
of the Internal Revenue Code of 1986 (as in
effect before its repeal by the Tax Reform Act
of 2014); or
``(ii) which is approved or licensed by the
Food and Drug Administration for marketing
solely for one or more rare diseases or
conditions.
``(B) Limitation.--Subparagraph (A) shall not apply
with respect to any drug or biological product after
the date on which the drug or biological product is
approved or licensed by the Food and Drug
Administration for marketing for any indication other
than the treatment of a rare disease or condition.
``(C) Rare disease or condition.--
``(i) In general.--For purposes of this
paragraph, the term `rare disease or condition'
means any disease or condition which--
``(I) affects less than 200,000
persons in the United States, or
``(II) affects more than 200,000
persons in the United States but for
which there is no reasonable
expectation that the cost of developing
and making available in the United
States a drug or biological product for
such disease or condition will be
recovered from sales in the United
States of such drug or biological
product.
``(ii) Time of determination.--
Determinations under the preceding sentence
with respect to any drug or biological product
shall be made on the basis of the facts and
circumstances as of--
``(I) in the case a drug or
biological product that has been
designated under section 526 of the
Federal Food, Drug, and Cosmetic Act
for a particular indication, the date
of such designation, and
``(II) in any other case, the date
such drug or biological product is
approved or licensed by the Food and
Drug Administration for marketing for
the treatment of the disease or
condition referred to in clause (i).''.
(b) Effective Date.--The amendment made by this section shall apply
to fees imposed under section 9008(a)(1) of the Patient Protection and
Affordable Care Act with annual payment dates after 2013.
TITLE VIII--DEADWOOD AND TECHNICAL PROVISIONS
Subtitle A--Repeal of Deadwood
SEC. 8001. REPEAL OF PUERTO RICO ECONOMIC ACTIVITY CREDIT.
Subpart B of part IV of subchapter A of chapter 1 is amended by
striking section 30A (and by striking the item relating to such section
in the table of sections of such subpart).
SEC. 8002. REPEAL OF MAKING WORK PAY CREDIT.
(a) In General.--Subpart C of part IV of subchapter A of chapter 1
is amended by striking section 36A (and by striking the item relating
to such section in the table of sections of such subpart).
(b) Conforming Amendments.--
(1) Section 6211(b)(4)(A) is amended by striking ``36A,''.
(2) Section 6213(g)(2) is amended by striking subparagraph
(N).
SEC. 8003. GENERAL BUSINESS CREDIT.
Subsection (d) of section 38 is amended by striking paragraph (3).
SEC. 8004. ENVIRONMENTAL TAX.
(a) In General.--Subchapter A of chapter 1 is amended by striking
part VII (and the table of parts for such chapter is amended by
striking the item relating to part VII).
(b) Conforming Amendments.--
(1) Section 26(b)(2) is amended by striking subparagraph
(B).
(2) Section 164(a) is amended by striking paragraph (5).
(3) Section 275(a) is amended by striking the last
sentence.
(4) Section 882(a)(1) is amended by striking ``59A,''.
(5) Section 6425(c)(1)(A), as amended by the preceding
provisions of this Act, 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''.
(6) Section 6655(g)(1)(A), as amended by the preceding
provisions of this Act, is amended by adding ``plus'' at the
end of clause (i) and by striking clause (ii).
SEC. 8005. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
CONTRACTS.
Section 72 is amended--
(1) in subsection (c)(4) by striking ``; except that if
such date was before January 1, 1954, then the annuity starting
date is January 1, 1954'', and
(2) in subsection (g)(3) by striking ``January 1, 1954,
or'' and ``, whichever is later''.
SEC. 8006. UNEMPLOYMENT COMPENSATION.
Section 85 is amended by striking subsection (c).
SEC. 8007. FLEXIBLE SPENDING ARRANGEMENTS.
Section 106(c)(1) is amended by striking ``Effective on and after
January 1, 1997, gross'' and inserting ``Gross''.
SEC. 8008. CERTAIN COMBAT ZONE COMPENSATION OF MEMBERS OF THE ARMED
FORCES.
Subsection (c) of section 112 is amended--
(1) by striking ``(after June 24, 1950)'' in paragraph (2),
and
(2) striking ``such zone;'' and all that follows in
paragraph (3) and inserting ``such zone.''.
SEC. 8009. QUALIFIED GROUP LEGAL SERVICES PLANS.
(a) In General.--Part III of subchapter B of chapter 1 is amended
by striking section 120 (and by striking the item relating to such
section in the table of sections for such part).
(b) Tax-Exemption of Group Legal Services Plans.--Section 501(c) is
amended by striking paragraph (20).
(c) Conforming Amendments.--
(1) Section 414(n)(3)(C) is amended by striking ``120,''.
(2) Section 414(t)(2) is amended by striking ``120,''.
(3) Section 3121(a) is amended by striking paragraph (17).
(4) Section 3231(e) is amended by striking paragraph (7).
(5) Section 3306(b) is amended by striking paragraph (12).
(6) Section 6039D(d)(1) is amended by striking ``120,''.
(7) Section 209(a)(14) of the Social Security Act is
amended--
(A) by striking subparagraph (B), and
(B) by striking ``(14)(A)'' and inserting ``(14)''.
SEC. 8010. CERTAIN REDUCED UNIFORMED SERVICES RETIREMENT PAY.
Section 122(b)(1) is amended by striking ``after December 31,
1965,''.
SEC. 8011. GREAT PLAINS CONSERVATION PROGRAM.
Section 126(a) is amended by striking paragraph (6) and by
redesignating paragraphs (7),(8), (9), and (10) as paragraphs (6), (7),
(8), and (9), respectively.
SEC. 8012. STATE LEGISLATORS' TRAVEL EXPENSES AWAY FROM HOME.
Paragraph (4) of section 162(h) is amended by striking ``For
taxable years beginning after December 31, 1980, this'' and inserting
``This''.
SEC. 8013. TREBLE DAMAGE PAYMENTS UNDER THE ANTITRUST LAW.
Section 162(g) is amended by striking the last sentence.
SEC. 8014. PHASE-IN OF LIMITATION ON INVESTMENT INTEREST.
Section 163(d) is amended by striking paragraph (6).
SEC. 8015. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.
Section 170 is amended by striking subsection (k).
SEC. 8016. AMORTIZABLE BOND PREMIUM.
(a) In General.--Subparagraph (B) of section 171(b)(1) is amended
to read as follows:
``(B)(i) with reference to the amount payable on
maturity (or if it results in a smaller amortizable
bond premium attributable to the period before the call
date, with reference to the amount payable on the
earlier call date), in the case of a bond described in
subsection (a)(1), and
``(ii) with reference to the amount payable on
maturity or on an earlier call date, in the case of a
bond described in subsection (a)(2).''.
(b) Conforming Amendments.--Paragraphs (2)(B) and (3)(B) of section
171(b) are each amended by striking ``paragraph (1)(B)(ii)'' and
inserting ``paragraph (1)(B)(i)''.
SEC. 8017. REPEAL OF DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN
REFUELING PROPERTY.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 179A (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendment.--
(1) Section 62(a) is amended by striking paragraph (14).
(2) Section 280F(a)(1) is amended by striking subparagraph
(C).
(3) Section 312(k)(3), as amended by this Act, is amended
by striking ``, 179A'' each place it appears.
(4) Section 1016(a) is amended by striking paragraph (24).
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2005.
SEC. 8018. REPEAL OF DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING
WITH ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 179B (and by striking the item relating to such
section in the table of sections for such part).
(b) Conforming Amendments.--
(1) Section 312(k)(3), as amended by this Act, is amended
by striking ``, 179B'' each place it appears.
(2) Section 1016(a) is amended by striking paragraph (30).
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after December 31, 2009.
SEC. 8019. ACTIVITIES NOT ENGAGED IN FOR PROFIT.
Section 183(e)(1) is amended by striking the last sentence.
SEC. 8020. DIVIDENDS RECEIVED ON CERTAIN PREFERRED STOCK; AND DIVIDENDS
PAID ON CERTAIN PREFERRED STOCK OF PUBLIC UTILITIES.
(a) In General.--Sections 244 and 247 are hereby repealed, and the
table of sections for part VIII of subchapter B of chapter 1 is amended
by striking the items relating to sections 244 and 247.
(b) Conforming Amendments.--
(1) Paragraph (5) of section 172(d) is amended to read as
follows:
``(5) Computation of deduction for dividends received.--The
deductions allowed by section 243 (relating to dividends
received by corporations) and 245 (relating to dividends
received from certain foreign corporations) shall be computed
without regard to section 246(b) (relating to limitation on
aggregate amount of deductions).''.
(2) Paragraph (1) of section 243(c) is amended to read as
follows:
``(1) In general.--In the case of any dividend received
from a 20-percent owned corporation, subsection (a)(1) shall be
applied by substituting `80 percent' for `70 percent'''.''.
(3) Section 243(d) is amended by striking paragraph (4).
(4) Section 246 is amended--
(A) by striking ``, 244,'' in subsection (a)(1),
(B) in subsection (b)(1)--
(i) by striking ``sections 243(a)(1),
244(a),'' the first place it appears and
inserting ``section 243(a)(1)'',
(ii) by striking ``244(a),'' the second
place it appears, and
(iii) by striking ``subsection (a) or (b)
of section 245, and 247,'' and inserting ``and
subsection (a) or (b) of section 245,'', and
(C) by striking ``, 244,'' in subsection (c)(1).
(5) Section 246A is amended by striking ``, 244,'' both
places it appears in subsections (a) and (e).
(6) Sections 263(g)(2)(B)(iii), 277(a), 301(e)(2),
469(e)(4), 512(a)(3)(A), 805(a)(4)(A), (C), and (D), 805(b)(4)
(as redesignated by this Act), 832(b)(5)(B)(ii), (D)(i), and
(D)(ii)(I), 833(b)(3)(E), and 1059(b)(2)(B) are each amended by
striking ``, 244,'' each place it appears.
(7) Section 805(a)(4)(B) is amended by striking ``,
244(a),'' each place it appears.
(8) Section 810(c)(2)(B) is amended by striking ``244
(relating to dividends on certain preferred stock of public
utilities),''.
(9) Section 1244(c)(2)(C) is amended by striking ``244,''.
SEC. 8021. ACQUISITIONS MADE TO EVADE OR AVOID INCOME TAX.
Paragraphs (1) and (2) of section 269(a) are each amended by
striking ``or acquired on or after October 8, 1940,''.
SEC. 8022. DISTRIBUTIONS OF PROPERTY.
Paragraph (3) of section 301(c) is amended to read as follows:
``(3) Amounts in excess of basis.--That portion of the
distribution which is not a dividend, to the extent that it
exceeds the adjusted basis of the stock, shall be treated as
gain from the sale or exchange of property.''.
SEC. 8023. EFFECT ON EARNINGS AND PROFITS.
Subsection (d) of section 312 is amended by striking paragraph (2)
and redesignating paragraph (3) as paragraph (2).
SEC. 8024. BASIS TO CORPORATIONS.
Section 362(a) is amended by striking ``on or after June 22,
1954,''.
SEC. 8025. TAX CREDIT EMPLOYEE STOCK OWNERSHIP PLANS.
Section 409 is amended by striking subsection (q).
SEC. 8026. EMPLOYEE STOCK PURCHASE PLANS.
Section 423(a) is amended by striking ``after December 31, 1963''.
SEC. 8027. TRANSITION RULES.
(a) Paragraph (5) of section 430(c) is amended by striking
subparagraph (B) and by striking ``(A) in general.--''.
(b) Paragraph (2) of section 430(h) is amended by striking
subparagraph (G).
(c) Paragraph (3) of section 436(j) is amended by striking
subparagraphs (B) and (C) and by striking ``(A) in general.--''
(d) Section 436 is amended by striking subsection (m).
SEC. 8028. LIMITATION ON DEDUCTIONS FOR CERTAIN FARMING.
(a) In General.--Section 464 is amended by striking ``any farming
syndicate (as defined in subsection (c))'' both places it appears in
subsections (a) and (b) and inserting ``any taxpayer to whom subsection
(d) applies''.
(b) Farming Syndicate.--
(1) Subsection (c) of section 464 is hereby moved to the
end of section 461 and redesignated as subsection (j).
(2) Such subsection (j) is amended--
(A) by striking ``For purposes of this section'' in
paragraph (1) and inserting ``For purposes of
subsection (i)(4)'', and
(B) by adding at the end the following new
paragraphs:
``(3) Farming.--For purposes of this subsection, the term
`farming' has the meaning given to such term by section 464(e).
``(4) Limited entrepreneur.--For purposes of this
subsection, the term `limited entrepreneur' means a person
who--
``(A) has an interest in an enterprise other than
as a limited partner, and
``(B) does not actively participate in the
management of such enterprise.''.
(C) Paragraph (4) of section 461(i) is amended by
striking ``section 464(c)'' and inserting ``subsection
(j)''.
(c) Section 464 is amended--
(1) by striking subsections (e) and (g) and redesignating
subsections (d) and (f) as subsections (c) and (d),
respectively, and
(2) by inserting after subsection (d) the following new
subsection:
``(e) Farming.--For purposes of this section, the term `farming'
means the cultivation of land or the raising or harvesting of any
agricultural or horticultural commodity including the raising,
shearing, feeding, caring for, training, and management of animals. For
purposes of the preceding sentence, trees (other than trees bearing
fruit or nuts) shall not be treated as an agricultural or horticultural
commodity.''.
(d) Subsection (d) of section 464 of such Code, as redesignated by
subsection (c), is amended--
(1) by striking paragraph (1) and redesignating paragraphs
(2), (3), and (4) as paragraphs (1), (2), and (3),
respectively, and
(2) by striking ``SUBSECTIONS (a) AND (b) TO APPLY TO'' in
the subsection heading.
(e) Subparagraph (A) of section 58(a)(2) is amended by striking
``section 464(c)'' and inserting ``section 461(j)''.
SEC. 8029. DEDUCTIONS LIMITED TO AMOUNT AT RISK.
Paragraph (3) of section 465(c) is amended by striking ``In the
case of taxable years beginning after December 31, 1978, this'' and
inserting ``This''.
SEC. 8030. PASSIVE ACTIVITY LOSSES AND CREDITS LIMITED.
Section 469 is amended by striking subsection (m).
SEC. 8031. ADJUSTMENTS REQUIRED BY CHANGES IN METHOD OF ACCOUNTING.
Section 481(b)(3) is amended by striking subparagraph (C).
SEC. 8032. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.
Section 501 is amended by striking subsection (s).
SEC. 8033. REQUIREMENTS FOR EXEMPTION.
(a) Section 503(a)(1) is amended to read as follows:
``(1) General rule.--An organization described in paragraph
(17) or (18) of section 501(c) or described in section 401(a)
and referred to in section 4975(g)(2) or (3) shall not be
exempt from taxation under section 501(a) if it has engaged in
a prohibited transaction.''.
(b) Paragraph (2) of section 503(a) is amended by striking
``described in section 501(c)(17) or (18) or paragraph (a)(1)(B)'' and
inserting ``described in paragraph (1)''.
(c) Subsection (c) of section 503 is amended by striking
``described in section 501(c)(17) or (18) or subsection (a)(1)(B)'' and
inserting ``described in subsection (a)(1)''.
SEC. 8034. REPEAL OF SPECIAL TREATMENT FOR RELIGIOUS BROADCASTING
COMPANY.
(a) In General.--Subsection (b) of section 512 is amended by
striking paragraph (15).
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 8035. REPEAL OF EXCLUSION OF GAIN OR LOSS FROM DISPOSITION OF
BROWNFIELD PROPERTY.
(a) In General.--Subsection (b) of section 512 is amended by
striking paragraph (19).
(b) Effective Date.--The amendment made by this section shall apply
to property acquired after December 31, 2009.
SEC. 8036. ACCUMULATED TAXABLE INCOME.
Paragraph (1) of section 535(b) and paragraph (1) of section 545(b)
are each amended by striking ``section 531'' and all that follows and
inserting ``section 531 or the personal holding company tax imposed by
section 541.''.
SEC. 8037. CERTAIN PROVISIONS RELATED TO DEPLETION.
(a) Section 614(b)(3) (before being redesignated by title III) is
amended by striking subparagraph (C).
(b) Section 614(b)(4) (before being redesignated by title III) is
amended by striking ``whichever of the following taxable years is the
later: The first taxable year beginning after December 31, 1963, or''.
(c) Section 614(b) (before being redesignated by title III) is
amended by striking paragraph (5).
SEC. 8038. AMOUNTS RECEIVED BY SURVIVING ANNUITANT UNDER JOINT AND
SURVIVOR ANNUITY CONTRACT.
Subparagraph (A) of section 691(d)(1) is amended by striking
``after December 31, 1953, and''.
SEC. 8039. INCOME TAXES OF MEMBERS OF ARMED FORCES ON DEATH.
Section 692(a)(1) is amended by striking ``after June 24, 1950''.
SEC. 8040. SPECIAL RULES FOR COMPUTING RESERVES.
Paragraph (7) of section 807(e) is amended by striking subparagraph
(B) and redesignating subparagraph (C) as subparagraph (B).
SEC. 8041. INSURANCE COMPANY TAXABLE INCOME.
(a) Section 832(e) is amended by striking ``of taxable years
beginning after December 31, 1966,''.
(b) Section 832(e)(6) is amended by striking ``In the case of any
taxable year beginning after December 31, 1970, the'' and inserting
``The''.
SEC. 8042. CAPITALIZATION OF CERTAIN POLICY ACQUISITION EXPENSES.
Section 848 (as amended by title II) is amended by striking
subsection (i).
SEC. 8043. REPEAL OF PROVISION ON EXPATRIATION TO AVOID TAX.
(a) In General.--Subpart A of part II of subchapter N of chapter 1
is amended by striking section 877 (and by striking the item relating
to such section in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Section 2(d) is amended by striking ``or 877''.
(2) Section 121 is amended by striking subsection (e).
(3) Section 865(j)(3) is amended by inserting ``as in
effect before its repeal'' after ``section 877''.
(4) Paragraph (2) of section 871(o) (as amended by this
Act) is amended to read as follows:
``(2) For taxation of covered expatriates, see section
877A.''.
(5)(A) Section 877A(g)(1)(A) is amended to read as follows:
``(A) In general.--The term `covered expatriate'
means any expatriate if--
``(i) the average annual net income tax of
such individual for the period of 5 taxable
years ending before the date of the loss of
United States citizenship is greater than
$124,000,
``(ii) the net worth of the individual as
of such date is $2,000,000 or more, or
``(iii) such individual fails to certify
under penalty of perjury that he has met the
requirements of this title for the 5 preceding
taxable years or fails to submit such evidence
of such compliance as the Secretary may
require.''.
(B) Section 877A(g)(1)(B) is amended by striking ``shall
not be treated as meeting the requirements of subparagraph (A)
or (B) of section 877(a)(2)'' and inserting ``shall not be
treated as described in clause (i) or (ii) of subparagraph
(A)''.
(C) Section 877A(g)(1) is amended by redesignating
subparagraph (C) as subparagraph (D) and inserting after
subparagraph (B) the following new subparagraph:
``(C) Net income tax.--For purposes of subparagraph
(A), 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.''.
(D) Section 877A(g)(1), as amended by subparagraph (C), is
amended by adding at the end the following new subparagraph:
``(E) Inflation adjustment.--In the case of the
loss of United States citizenship in any calendar year
after 2007, the dollar amount in subparagraph (A)(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(c)(2)(A) for the
calendar year in which such loss of United
States citizenship occurs determined by
substituting `calendar year 2003' for `calendar
year 2012' in clause (ii) thereof.
Any increase determined under the preceding sentence
shall be rounded to the nearest multiple of $1,000.''.
(E) Section 877A(g)(5) is amended to read as follows:
``(5) Long-term resident.--The term `long-term resident'
means any individual (other than a citizen of the United
States) who is a lawful permanent resident of the United States
in at least 8 taxable years during the period of 15 taxable
years ending with the taxable year during which the event
described in subparagraph (A) or (B) of paragraph (2) occurs.
For purposes of the preceding sentence, an individual shall not
be treated as a lawful permanent resident for any taxable year
if such individual is treated as a resident of a foreign
country for the taxable year under the provisions of a tax
treaty between the United States and the foreign country and
does not waive the benefits of such treaty applicable to
residents of the foreign country.''.
(6) Section 894(b) is amended by striking the last
sentence.
(7) Section 2107 is amended by striking subsection (e).
(8) Section 2501(a) is amended by striking paragraphs (3)
and (5) and by redesignating paragraph (4) as paragraph (3).
(9) Section 3405(e)(13)(B) is amended by striking ``that
such person is not--'' and all that follows and inserting
``that such person is not a United States citizen or a resident
alien of the United States.''.
(10) Section 6039G(a) is amended by striking ``section
877(b) or 877A'' and inserting ``section 877A''.
(11) Section 6039G(d) is amended by striking ``section
877(a) or 877A'' and inserting ``section 877A''.
(12) Section 7701(b) is amended by striking paragraph (10)
and by redesignating paragraph (11) as paragraph (10).
(c) Effective Date.--The amendments made by this subsection shall
apply to individuals whose expatriation date (as defined in section
877A(g)(3) of the Internal Revenue Code of 1986) is on or after June
17, 2008.
SEC. 8044. REPEAL OF CERTAIN TRANSITION RULES ON INCOME FROM SOURCES
WITHOUT UNITED STATES.
(a) Limitation on Credit.--Paragraph (2) of section 904(d) is
amended by striking subparagraph (J).
(b) Foreign Earned Income.--Clause (i) of section 911(b)(2)(D) is
amended to read as follows:
``(i) In general.--The exclusion amount for
any calendar year is $80,000.''.
SEC. 8045. REPEAL OF PUERTO RICO AND POSSESSION TAX CREDIT.
(a) In General.--Subpart D of part III of subchapter N of chapter 1
is amended by striking section 936 (and by striking the item relating
to such section in the table of sections of such subpart).
(b) Conforming Amendments.--
(1)(A) Section 27 is amended to read as follows:
``SEC. 27. TAXES OF FOREIGN COUNTRIES AND POSSESSIONS OF THE UNITED
STATES.
``The amount of taxes imposed by foreign countries and possessions
of the United States shall be allowed as a credit against the tax
imposed by this chapter to the extent provided in section 901.''.
(B) The item relating to section 27 in the table of
sections for subpart B of part IV of subchapter A of chapter 1
is amended to read as follows:
``Sec. 27. Taxes of foreign countries and possessions of the United
States.''.
(2) Section 243(b)(1)(B) is amended to read as follows:
``(B) if such dividend is distributed out of the
earnings and profits of a taxable year of the
distributing corporation which ends after December 31,
1963, and on each day of which the distributing
corporation and the corporation receiving the dividend
were members of such affiliated group.''.
(3) Section 246 is amended by striking subsection (e).
(4) Section 338(h)(6)(B)(i) is amended by striking ``, a
DISC, or a corporation to which an election under section 936
applies'' and inserting ``or a DISC''.
(5) Section 861(a)(2) is amended--
(A) by striking subparagraph (A) and by
redesignating subparagraphs (B), (C), and (D) as
subparagraphs (A), (B), and (C), respectively, and
(B) by striking ``subparagraph (B)'' each place it
appears and inserting ``subparagraph (A)''.
(6) Section 864(d)(5) is amended to read as follows:
``(5) Certain provisions not to apply.--The following
provisions shall not apply to any amount treated as interest
under paragraph (1) or (6):
``(A) Section 904(d)(2)(B)(iii)(I) (relating to
exceptions for export financing interest).
``(B) Subparagraph (A) of section 954(b)(3)
(relating to exception where foreign base company
income is less than 5 percent or $1,000,000).
``(C) Subparagraph (B) of section 954(c)(2)
(relating to certain export financing).
``(D) Clause (i) of section 954(c)(3)(A) (relating
to certain income received from related persons).''.
(7) Section 865(j)(3) is amended by striking ``, 933, and
936'' and inserting ``and 933''.
(8) Section 901(g)(2) is amended by inserting ``(as in
effect before its repeal)'' after ``936''.
(9) Section 904(b) is amended by striking paragraph (4).
(10) Section 1202(e)(4) is amended by striking subparagraph
(B) and by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively.
(11) Section 1361(b)(2) is amended by adding ``or'' at the
end of subparagraph (B), by striking subparagraph (C), and by
redesignating subparagraph (D) as subparagraph (C).
(12) Section 1504(b) is amended by striking paragraph (4).
(13) Section 6091(b)(2)(B) is amended by striking clause
(ii) and by redesignating clauses (iii) and (iv) as clauses
(ii) and (iii), respectively.
(14) Section 6654(d)(2)(D) is amended--
(A) by striking ``936(h) or'' in clause (i), and
(B) by striking ``and section 936'' in the heading.
(15) Section 6655(e)(4) is amended--
(A) by striking ``936(h) or'' in subparagraph (A),
and
(B) by striking ``and section 936'' in the heading.
(16)(A) Section 367(d) is amended by adding at the end the
following new paragraph:
``(4) Intangible property.--For purposes of this
subsection, the term `intangible property' means any--
``(A) patent, invention, formula, process, design,
pattern, or know-how,
``(B) copyright, literary, musical, or artistic
composition,
``(C) trademark, trade name, or brand name,
``(D) franchise, license, or contract,
``(E) method, program, system, procedure, campaign,
survey, study, forecast, estimate, customer list, or
technical data, or
``(F) any similar item,
which has substantial value independent of the services of any
individual.''.
(B) Section 367(a)(3)(B)(iv) is amended by striking
``section 936(h)(3)(B)'' and inserting ``subsection (d)(4)''.
(C) Sections 482 and 1298(e)(2)(A) are each amended by
striking ``section 936(h)(4)(B)'' and inserting ``section
367(d)(4)''.
SEC. 8046. BASIS OF PROPERTY ACQUIRED FROM DECEDENT.
Section 1014 is amended--
(1) by striking ``either'' and by striking ``or section
811(j) of the Internal Revenue Code of 1939 where the decedent
died after October 21, 1942'' in subsection (a)(2), and
(2) by striking paragraphs (7) and (8) of subsection (b).
SEC. 8047. PROPERTY ON WHICH LESSEE HAS MADE IMPROVEMENTS.
Section 1019 is amended by striking the last sentence.
SEC. 8048. INVOLUNTARY CONVERSION.
Section 1033 is amended by striking subsection (j) and by
redesignating subsection (k) as subsection (j).
SEC. 8049. PROPERTY ACQUIRED DURING AFFILIATION.
Section 1051 is hereby repealed, and the table of sections for part
IV of subchapter O of chapter 1 is amended by striking the item
relating to section 1051.
SEC. 8050. REPEAL OF SPECIAL HOLDING PERIOD RULES FOR CERTAIN COMMODITY
FUTURES TRANSACTIONS.
Section 1222 is amended by striking the last sentence.
SEC. 8051. HOLDING PERIOD OF PROPERTY.
(a) Paragraph (1) of section 1223 is amended by striking ``, in the
case of such exchanges after March 1, 1954,''.
(b) Paragraph (4) of section 1223 is amended by striking ``(or
under so much of section 1052(c) as refers to section 113(a)(23) of the
Internal Revenue Code of 1939)''.
(c) Paragraph (6) of section 1223 is repealed.
(d) Paragraph (8) of section 1223 is repealed.
SEC. 8052. PROPERTY USED IN THE TRADE OR BUSINESS AND INVOLUNTARY
CONVERSIONS.
Subparagraph (A) of section 1231(c)(2) is amended by striking
``beginning after December 31, 1981''.
SEC. 8053. SALE OF PATENTS.
Subsection (a) of section 1249 is amended by striking ``after
December 31, 1962,''.
SEC. 8054. GAIN FROM DISPOSITION OF FARMLAND.
(a) Paragraph (1) of section 1252(a), as amended by the preceding
provisions of this Act, is amended--
(1) by striking ``beginning after December 31, 1969'' in
the matter preceding subparagraph (A), and
(2) by amending subparagraph (A) to read as follows:
``(A) the applicable percentage of the aggregate
deductions allowed under section 175 (as in effect
before its repeal by the Tax Reform Act of 2014) with
respect to the farmland, or''.
(b) Paragraph (2) of section 1252(a) is amended by striking
``sections 175'' and all that follows and inserting ``section 175 (as
in effect before its repeal by the Tax Reform Act of 2014).''.
SEC. 8055. TRANSITION RULES RELATED TO THE TREATMENT OF AMOUNTS
RECEIVED ON RETIREMENT OR SALE OR EXCHANGE OF DEBT
INSTRUMENTS.
(a) Section 1271 is amended by striking subsection (c).
(b) Section 1271(a)(2)(B) is amended by striking ``(and paragraph
(2) of subsection (c))''.
SEC. 8056. CERTAIN RULES WITH RESPECT TO DEBT INSTRUMENTS ISSUED BEFORE
JULY 2, 1982.
(a) Section 1272 is amended by striking subsection (b).
(b) Section 163(j)(2)(C)(ii) is amended by striking ``or (b)(4)''.
(c) Section 1271(a)(2)(A)(ii) is amended by striking ``subsection
(a)(7) or (b)(4) of section 1272'' and inserting ``section
1272(a)(7)''.
(d) Section 1271(b)(1) is amended to read as follows:
``(1) In general.--This section shall not apply to any
obligation issued by a natural person before June 9, 1997.''.
(e) Section 1279(a)(4)(A)(ii), as amended by the preceding
provisions of this Act, is amended by striking ``or (b)(4)''.
(f) The amendments made by this section shall apply to debt
instruments issued after July 1, 1982.
SEC. 8057. CERTAIN RULES WITH RESPECT TO STRIPPED BONDS PURCHASED
BEFORE JULY 2, 1982.
(a) Section 1286 is amended by striking subsection (c).
(b) Section 1286(e)(5) is amended by striking the last sentence.
(c) Subsections (a) and (b) of section 1286 are each amended by
striking ``after July 1, 1982,''.
(d) The amendments made by this section shall apply to bonds and
coupons purchased after July 1, 1982.
SEC. 8058. AMOUNT AND METHOD OF ADJUSTMENT.
Section 1314 is amended by striking subsection (d) and by
redesignating subsection (e) as subsection (d).
SEC. 8059. OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE.
Subsection (a) of section 1401 is amended by striking ``the
following percent'' and all that follows and inserting ``12.4 percent
of the amount of the self-employment income for such taxable year.''.
SEC. 8060. HOSPITAL INSURANCE.
Paragraph (1) of section 1401(b) is amended by striking ``the
following percent''and all that follows and inserting ``2.9 percent of
the amount of the self-employment income for such taxable year.''.
SEC. 8061. MINISTERS, MEMBERS OF RELIGIOUS ORDERS, AND CHRISTIAN
SCIENCE PRACTITIONERS.
Paragraph (3) of section 1402(e) is amended by striking ``whichever
of the following dates is later: (A)'' and by striking ``; or (B)'' and
all that follows and inserting a period.
SEC. 8062. AFFILIATED GROUP DEFINED.
Subparagraph (A) of section 1504(a)(3) is amended by striking ``for
a taxable year which includes any period after December 31, 1984'' in
clause (i) and by striking ``in a taxable year beginning after December
31, 1984'' in clause (ii).
SEC. 8063. CREDIT FOR STATE DEATH TAXES.
(a) Part II of subchapter A of chapter 11 is amended by striking
section 2011 (and by striking the item relating to such section in the
table of sections for such subpart).
(b) Subchapter A of chapter 13 is amended by striking section 2604
(and by striking the item relating to such section in the table of
sections for such subpart).
SEC. 8064. FAMILY-OWNED BUSINESS INTEREST.
Part IV of subchapter A of chapter 11 is amended by striking
section 2057 (and by striking the item relating to such section in the
table of sections for such part).
SEC. 8065. PROPERTY WITHIN THE UNITED STATES.
Subsection (c) of section 2104 is amended by striking ``With
respect to estates of decedents dying after December 31, 1969,
deposits'' and inserting ``Deposits''.
SEC. 8066. REPEAL OF DEADWOOD PROVISIONS RELATING TO EMPLOYMENT TAXES.
(a) Tax on Employees.--Subsection (a) of section 3101 is amended by
striking ``the following percentages'' and all that follows and
inserting ``6.2 percent of the wages (as defined in section 3121(a))
received by him with respect to employment (as defined in section
3121(b)).''.
(b) Tax on Employers.--
(1) Subsection (a) of section 3111 is amended by striking
``the following percentages'' and all that follows and
inserting ``6.2 percent of the wages (as defined in section
3121(a)) paid by him with respect to employment (as defined in
section 3121(b)).''
(2) Subsection (b) of section 3111 is amended by striking
``the following percentages'' and all that follows and
inserting ``1.45 percent of the wages (as defined in section
3121(a)) paid by him with respect to employment (as defined in
section 3121(b)).''
(3) Section 3111 is amended by striking subsection (d) and
redesignating subsection (e) as subsection (d).
(c) Tier 2 Tax on Employees.--Subsection (b) of section 3201 is
amended to read as follows:
``(b) Tier 2 Tax.--In addition to other taxes, there is hereby
imposed on the income of each employee a tax equal to the percentage
determined under section 3241 for any calendar year of the compensation
received during such calendar year by such employee for services
rendered by such employee.''.
(d) Rate of Tier 2 Tax on Employee Representatives.--Subsection (b)
of section 3211 is amended to read as follows:
``(b) Tier 2 Tax.--In addition to other taxes, there is hereby
imposed on the income of each employee representative a tax equal to
the percentage determined under section 3241 for any calendar year of
the compensation received during such calendar year by such employee
representative for services rendered by such employee
representative.''.
(e) Tier 2 Tax on Employers.--
(1) Subsection (b) of section 3221 is amended to read as
follows:
``(b) Tier 2 Tax.--In addition to other taxes, there is hereby
imposed on the income of each employer a tax equal to the percentage
determined under section 3241 for any calendar year of the compensation
paid during such calendar year by such employer for services rendered
for such employer.''.
(2) Section 3221 is amended by striking subsection (d) and
redesignating subsection (e) as subsection (d).
(f) Employee Under Railroad Retirement System.--Subsection (b) of
section 3231 is amended by is amended by striking ``; except'' and all
that follows and inserting a period.
(g) Definition of Wages.--
(1) Section 3121(b) is amended by striking paragraph (17).
(2) Section 210(a) of the Social Security Act is amended by
striking paragraph (17).
(h) Credits Against Unemployment Tax.--
(1) Paragraph (4) of section 3302(f) is amended--
(A) by striking ``subsection--'' and all that
follows through `` (A) in general--The'' and inserting
``subsection, the'',
(B) by striking subparagraph (B),
(C) by redesignating clauses (i) and(ii) as
subparagraphs (A) and (B), respectively, and
(D) by moving the text of such subparagraphs (as so
redesignated) 2 ems to the left.
(2) Paragraph (5) of section 3302(f) is amended by striking
subparagraph (D) and by redesignating subparagraph (E) as
subparagraph (D).
(i) Domestic Service Employment Taxes.--Section 3510(b) is amended
by striking paragraph (4).
SEC. 8067. LUXURY PASSENGER AUTOMOBILES.
(a) In General.--Chapter 31 is amended by striking subchapter A
(and by striking the item relating to such subchapter in the table of
sections for such chapter).
(b) Conforming Amendments.--
(1) Section 4293 is amended by striking ``subchapter A of
chapter 31,''.
(2) Section 4221 is amended--
(A) in subsections (a) and (d)(1), by striking
``subchapter A or'' and inserting ``subchapter'',
(B) in subsection (a), by striking ``In the case of
taxes imposed by subchapter A of chapter 31, paragraphs
(1), (3), (4), and (5) shall not apply.'', and
(C) in subsection (c), by striking ``4001(c),
4001(d)''.
(3) Section 4222 is amended by striking ``4001(c),
4001(d),''.
SEC. 8068. TRANSPORTATION BY AIR.
Section 4261(e) is amended--
(1) in paragraph (1) by striking subparagraph (C), and
(2) by striking paragraph (5).
SEC. 8069. TAXES ON FAILURE TO DISTRIBUTE INCOME.
(a) Paragraph (2) of section 4942(f) is amended by striking the
semicolon at the end of subparagraph (B) and inserting ``, and'', by
striking ``; and'' at the end of subparagraph (C) and inserting a
period, and by striking subparagraph (D).
(b) Subsection (g) of section 4942 (as amended by this Act) is
amended--
(1) by striking ``For all taxable years beginning on or
after January 1, 1975, subject'' in paragraph (2)(A) and
inserting ``Subject'', and
(2) by striking paragraph (4).
(c) Section 4942(i)(2) is amended by striking ``beginning after
December 31, 1969, and''.
SEC. 8070. TAXES ON TAXABLE EXPENDITURES.
Section 4945(f) is amended by striking ``(excluding therefrom any
preceding taxable year which begins before January 1, 1970)''.
SEC. 8071. DEFINITIONS AND SPECIAL RULES.
Section 4682 is amended by striking subsection (h).
SEC. 8072. RETURNS.
Subsection (a) of section 6039D is amended by striking ``beginning
after December 31, 1984,''.
SEC. 8073. INFORMATION RETURNS.
Subsection (c) of section 6060 is amended by striking ``year'' and
all that follows and inserting ``year.''.
SEC. 8074. ABATEMENTS.
Section 6404(f) is amended by striking paragraph (3).
SEC. 8075. FAILURE BY CORPORATION TO PAY ESTIMATED INCOME TAX.
Clause (i) of section 6655(g)(4)(A) is amended by striking ``(or
the corresponding provisions of prior law)''.
SEC. 8076. REPEAL OF 2008 RECOVERY REBATES.
(a) In General.--Subchapter B of chapter 65 is amended by striking
section 6428 (and by striking the item relating to such section in the
table of sections for such subchapter).
(b) Conforming Amendments.--
(1) Section 6211(b)(4)(A) is amended by striking ``6428,''.
(2) Section 6213(g)(2)(L) is amended by striking ``32, or
6428'' and inserting ``or 32''.
(3) Paragraph (2) of section 1324(b) of title 31, United
States Code, is amended by striking ``or 6428''.
SEC. 8077. REPEAL OF ADVANCE PAYMENT OF PORTION OF INCREASED CHILD
CREDIT FOR 2003.
Subchapter B of chapter 65 is amended by striking section 6429 (and
by striking the item relating to such section in the table of sections
for such subchapter).
SEC. 8078. REPEAL OF PROVISIONS RELATED TO COBRA PREMIUM ASSISTANCE.
(a) In General.--Subchapter B of chapter 65 is amended by striking
section 6432 (and by striking the item relating to such section in the
table of sections for such subchapter).
(b) Notification Requirement.--Part I of subchapter B of chapter 68
is amended by striking section 6720C (and by striking the item relating
to such section in the table of sections for such part).
(c) Exclusion From Gross Income.--Part III of subchapter B of
chapter 1 is amended by striking section 139C (and by striking the item
relating to such section in the table of sections for such part).
SEC. 8079. RETIREMENT.
Section 7447(i)(3)(B)(ii) is amended by striking ``at 4 percent per
annum to December 31, 1947, and at 3 percent per annum thereafter'',
and inserting ``at 3 percent per annum''.
SEC. 8080. ANNUITIES TO SURVIVING SPOUSES AND DEPENDENT CHILDREN OF
JUDGES.
(a) Paragraph (2) of section 7448(a) is amended by striking ``or
under section 1106 of the Internal Revenue Code of 1939'' and by
striking ``or pursuant to section 1106(d) of the Internal Revenue Code
of 1939''.
(b) Subsection (g) of section 7448 is amended by striking ``or
other than pursuant to section 1106 of the Internal Revenue Code of
1939''.
(c) Subsections (g), (j)(1), and (j)(2) of section 7448 are each
amended by striking ``at 4 percent per annum to December 31, 1947, and
at 3 percent per annum thereafter'' and inserting ``at 3 percent per
annum''.
SEC. 8081. MERCHANT MARINE CAPITAL CONSTRUCTION FUNDS.
Paragraph (4) of section 7518(g) is amended by striking ``any
nonqualified withdrawal'' and all that follows through ``shall be
determined'' and inserting ``any nonqualified withdrawal shall be
determined''.
SEC. 8082. VALUATION TABLES.
(a) Subsection (c) of section 7520 is amended by striking paragraph
(2) and by redesignating paragraph (3) as paragraph (2).
(b) Paragraph (2) of section 7520(c) of such Code, as so
redesignated, is amended--
(1) by striking ``Not later than December 31, 1989, the''
and inserting ``The'', and
(2) by striking ``thereafter'' in the last sentence
thereof.
SEC. 8083. DEFINITION OF EMPLOYEE.
Section 7701(a)(20) is amended by striking ``chapter 21'' and all
that follows and inserting ``chapter 21.''.
SEC. 8084. EFFECTIVE DATE.
(a) General Rule.--Except as otherwise provided in subsection (b)
of this section and the preceding sections of this subtitle, the
amendments made by this subtitle shall take effect on the date of
enactment of this Act.
(b) Savings Provision.--If--
(1) any provision amended or repealed by the amendments
made by this subtitle applied to--
(A) any transaction occurring before the date of
the enactment of this Act,
(B) any property acquired before such date of
enactment, or
(C) any item of income, loss, deduction, or credit
taken into account before such date of enactment, and
(2) the treatment of such transaction, property, or item
under such provision would (without regard to the amendments or
repeals made by this subtitle) affect the liability for tax for
periods ending after such date of enactment,
nothing in the amendments or repeals made by this subtitle shall be
construed to affect the treatment of such transaction, property, or
item for purposes of determining liability for tax for periods ending
after such date of enactment.
Subtitle B--Conforming Amendments Related to Multiple Sections
SEC. 8101. CONFORMING AMENDMENTS RELATED TO MULTIPLE SECTIONS.
(a) General Business Credit.--Section 38(b), as amended by the
preceding provisions of this Act, is amended--
(1) by redesignating paragraphs (4), (5), (7), (8), (13),
(20), and (33) as paragraphs (3), (4), (5), (6), (7), (8), and
(9), respectively,
(2) by adding ``plus'' at the end of paragraph (8) (as so
redesignated), and
(3) by striking the comma at the end of paragraph (9) (as
so redesignated) and inserting a period.
(b) Adjustments to Basis.--Section 1016(a), as amended by the
preceding provisions of this Act, is amended--
(1) by striking the last two sentences of paragraph (2),
(2) in paragraph (4) by striking ``(not including'' and all
that follows through ``1921)'',
(3) by striking paragraph (12),
(4) by redesignating paragraphs (11), (14), (16), (17),
(18), (21), (23), (26), (38), and (39) as paragraphs (9), (10),
(11), (12), (13), (14), (15), (16), (17), and (18),
respectively, and
(5) by adding ``and'' at the end of paragraph (17) (as so
redesignated).
(c) Holding Period of Property.--Section 1223, as amended by the
preceding provisions of this Act, is amended by redesignating
paragraphs (9), (10), (11), (12), and (15) as paragraphs (6), (7), (8),
(9) and (10), respectively.
(d) Corporate Preference Items.--
(1) In general.--Subchapter B of chapter 1, as amended by
this Act, is amended by striking part XI (and by striking the
item relating to such part from the table of parts for such
subchapter).
(2) Preservation of special rule for treatment of
intangible drilling costs.--Section 263(c) is amended--
(A) by striking all that precedes ``and except as
provided in subsection (i)'' and inserting the
following:
``(c) Intangible Drilling and Development Costs in the Case of Oil
and Gas Wells and Geothermal Wells.--
``(1) In general.--Notwithstanding subsection (a),'', and
(B) by adding at the end the following new
paragraph:
``(2) Reduction for integrated oil companies.--
``(A) In general.--In the case of a corporation
which is an integrated oil company, the amount
allowable as a deduction for any taxable year
(determined without regard to this paragraph) under
paragraph (1) shall be reduced by 30 percent.
``(B) Amortization of disallowed amounts.--The
amount not allowable as a deduction under paragraph (1)
for any taxable year by reason of subparagraph (A)
shall be allowable as a deduction ratably over the 60-
month period beginning with the month in which the
costs are paid or incurred.
``(C) Dispositions.--For purposes of section 1254,
any deduction under subparagraph (B) shall be treated
as a deduction allowable under paragraph (1).
``(D) Integrated oil company.--For purposes of this
paragraph, the term `integrated oil company' means,
with respect to any taxable year, any producer of crude
oil to whom subsection (c) of section 613A does not
apply by reason of paragraph (2) or (4) of section
613A(d) (as such provisions were in effect before their
repeal by the Tax Reform Act of 2014).
``(E) Coordination with cost depletion.--The
portion of the adjusted basis of any property which is
attributable to amounts to which subparagraph (A)
applied shall not be taken into account for purposes of
determining depletion under section 611.''.
(3) Preservation of limitation on certain interest on
indebtedness of financial institutions.--
(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) Limitation on Certain Interest on Indebtedness of Financial
Institutions.--
``(1) In general.--For purposes of this subtitle, in the
case of a corporation, the amount allowable as a deduction
under this chapter (determined without regard to this
subsection) with respect to the amount described in paragraph
(2) shall be reduced by 20 percent.
``(2) Interest on debt to carry tax-exempt obligations
acquired after december 31, 1982, and before august 8, 1986.--
``(A) In general.--In the case of a financial
institution which is a bank (as defined in section
585(a)(2)), the amount described in this paragraph is
the amount of interest on indebtedness incurred or
continued to purchase or carry obligations acquired
after December 31, 1982, and before August 8, 1986, the
interest on which is exempt from taxes for the taxable
year, to the extent that a deduction would (but for
this paragraph or section 265(b)) be allowable with
respect to such interest for such taxable year.
``(B) Determination of interest allocable to
indebtedness on tax-exempt obligations.--Unless the
taxpayer (under regulations prescribed by the
Secretary) establishes otherwise, the amount determined
under subparagraph (A) shall be an amount which bears
the same ratio to the aggregate amount allowable
(determined without regard to this section and section
265(b)) to the taxpayer as a deduction for interest for
the taxable year as--
``(i) the taxpayer's average adjusted basis
(within the meaning of section 1016) of
obligations described in subparagraph (A),
bears to
``(ii) such average adjusted basis for all
assets of the taxpayer.
``(C) Interest.--For purposes of this paragraph,
the term `interest' includes amounts (whether or not
designated as interest) paid in respect of deposits,
investment certificates, or withdrawable or
repurchasable shares.
``(D) Application of subparagraph to certain
obligations issued after august 7, 1986.--For
application of this subparagraph to certain obligations
issued after August 7, 1986, see section 265(b)(3) (as
in effect before the enactment of the Tax Reform Act of
2014). That portion of any obligation not taken into
account under paragraph (2)(A) of section 265(b) (as so
in effect) by reason of paragraph (7) of such section
shall be treated for purposes of this section as having
been acquired on August 7, 1986.''.
(B) Conforming amendments.--
(i) Section 1277(c) is amended by striking
``section 291(e)(1)(B)(ii)'' and inserting
``section 163(n)(2)(B)''.
(ii) Section 1363(b)(3), as amended by the
preceding provisions of this Act, is amended by
striking ``section 291'' and inserting
``section 163(n)''.
(4) Effective date.--Except as otherwise provided in this
Act with respect to amendments made to section 291 of the
Internal Revenue Code of 1986, the amendments made this
subsection shall apply to taxable years beginning after
December 31, 2014.
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