H. Rept. 113-429 - 113th Congress (2013-2014)

Report text available as:

Formatting necessary for an accurate reading of this legislative text may be shown by tags (e.g., <DELETED> or <BOLD>) or may be missing from this TXT display. For complete and accurate display of this text, see the PDF.


House Report 113-429 - PERMANENT S CORPORATION BUILT-IN GAINS RECOGNITION PERIOD ACT OF 2014

[House Report 113-429]
[From the U.S. Government Publishing Office]


113th Congress  }                                           {    Report
                        HOUSE OF REPRESENTATIVES
 2d Session     }                                           {   113-429

======================================================================
 
 PERMANENT S CORPORATION BUILT-IN GAINS RECOGNITION PERIOD ACT OF 2014

                                _______
                                

  May 2, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Camp, from the Committee on Ways and Means, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 4453]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4453) to amend the Internal Revenue Code of 1986 to 
make permanent the reduced recognition period for built-in 
gains of S corporations, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
  I. SUMMARY AND BACKGROUND...........................................2
          A. Purpose and Summary.................................     2
          B. Background and Need for Legislation.................     2
          C. Legislative History.................................     3
 II. EXPLANATION OF THE BILL..........................................3
          A. Reduced Recognition Period for Built-In Gains of S 
              Corporations Made Permanent (sec. 1374 of the Code)     3
III. VOTES OF THE COMMITTEE...........................................6
 IV. BUDGET EFFECTS OF THE BILL.......................................7
          A. Committee Estimate of Budgetary Effects.............     7
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................     7
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     7
          D. Macroeconomic Impact Analysis.......................     8
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......8
          A. Committee Oversight Findings and Recommendations....     8
          B. Statement of General Performance Goals and 
              Objectives.........................................     8
          C. Information Relating to Unfunded Mandates...........     9
          D. Applicability of House Rule XXI 5(b)................     9
          E. Tax Complexity Analysis.............................     9
          F. Congressional Earmarks, Limited Tax Benefits, and 
              Limited Tariff Benefits............................     9
          G. Duplication of Federal Programs.....................     9
          H. Disclosure of Directed Rule Makings.................    10
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........10
VII. DISSENTING VIEWS................................................12

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Permanent S Corporation Built-in Gains 
Recognition Period Act of 2014''.

SEC. 2. REDUCED RECOGNITION PERIOD FOR BUILT-IN GAINS OF S CORPORATIONS 
                    MADE PERMANENT.

  (a) In General.--Paragraph (7) of section 1374(d) of the Internal 
Revenue Code of 1986 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.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    Identical to a provision contained in the discussion draft 
of the ``Tax Reform Act of 2014'' released on February 26, 
2014, the bill, H.R. 4453, reported by the Committee on Ways 
and Means, provides a permanent five-year recognition period 
for built-in gains of an S corporation. A temporary provision, 
which expired for taxable years beginning after December 31, 
2013, also provided a five-year recognition period for built-in 
gains of an S corporation. With the expiration of that 
temporary provision, however, the recognition period is 
currently ten years for taxable years beginning after December 
31, 2013.

                 B. Background and Need for Legislation

    While the Committee continues actively to pursue 
comprehensive tax reform as a critical means of promoting 
economic growth and job creation, the Committee also believes 
that it is important to provide small businesses permanent, 
immediate tax relief to help encourage economic growth and job 
creation. By providing small businesses organized as S 
corporations with a permanent five-year period for the 
recognition of certain built-in gains, H.R. 4453 will provide 
much needed certainty for S corporations that have contended 
with temporary changes to the recognition period for years. 
Additionally, H.R. 4453 will eliminate a significant deterrent 
that often discourages C corporations from electing to be S 
corporations, and will provide additional flexibility for S 
corporations to access capital by selling unproductive assets 
to finance expansion of their businesses and create jobs.

                         C. Legislative History


                               BACKGROUND

    H.R. 4453 was introduced on April 10, 2014, and was 
referred to the Committee on Ways and Means.

                            COMMITTEE ACTION

    The Committee on Ways and Means marked up H.R. 4453, the 
Permanent S Corporation Built-in Gains Recognition Period Act 
of 2014, on April 29, 2014, and ordered the bill, as amended, 
favorably reported (with a quorum being present).

                           COMMITTEE HEARINGS

    The need for a permanent five-year recognition period for 
built-in gains of S corporations was discussed at no fewer than 
four hearings during the 112th and 113th Congresses:
        Full Committee hearing on Fundamental Tax 
Reform (January 20, 2011);
        Full Committee hearing on the Treatment of 
Closely-Held Businesses in the Context of Tax Reform (March 7, 
2012);
        Select Revenue Measures Subcommittee hearing on 
the Small Business and Pass-Through Entity Tax Reform 
Discussion Draft (May 15, 2013); and
        Full Committee hearing on the Benefits of 
Permanent Tax Policy for America's Job Creators (April 8, 
2014).

                      II. EXPLANATION OF THE BILL


A. Reduced Recognition Period for Built-In Gains of S Corporations Made 
                   Permanent (sec. 1374 of the Code)


                              PRESENT LAW

In general

            S corporations
    A small business corporation\1\ may elect to be treated as 
an S corporation. Unlike C corporations, S corporations 
generally pay no corporate-level tax. Instead, items of income 
and loss of an S corporation pass through to its shareholders. 
Each shareholder takes into account separately its share of 
these items on its own income tax return.\2\
---------------------------------------------------------------------------
    \1\This term is defined in section 1361(b).
    \2\Sec. 1366.
---------------------------------------------------------------------------
    A corporate level built-in gains tax, at the highest 
marginal rate applicable to corporations (currently 35 
percent), is imposed on an S corporation's net recognized 
built-in gain\3\ that arose prior to the conversion of the C 
corporation to an S corporation and is recognized by the S 
corporation during the recognition period, (i.e., the 10-year 
period beginning with the first day of the first taxable year 
for which the S election is in effect).\4\ If the taxable 
income of the S corporation is less than the amount of net 
recognized built-in gain in the year such built-in gain is 
recognized (for example, because of post-conversion losses), no 
built-in gain tax is imposed on the excess of such built-in 
gain over taxable income for that year. However, the untaxed 
excess of net recognized built-in gain over taxable income for 
that year is treated as recognized built-in gain in the 
succeeding taxable year.\5\ Treasury regulations provide that 
if a corporation sells an asset before or during the 
recognition period and reports the income from the sale using 
the installment method\6\ during or after the recognition 
period, that income is subject to the built-in gain tax.\7\
---------------------------------------------------------------------------
    \3\Certain built-in income items are treated as recognized built-in 
gain for this purpose. Sec. 1374(d)(5).
    \4\Sec. 1374(d)(7)(A). The 10-year period refers to ten calendar 
years from the first day of the first taxable year for which the 
corporation was an S corporation. Treas. Reg. sec. 1.1374-1(d).
    \5\Sec. 1374(d)(2).
    \6\Sec. 453.
    \7\Treas. Reg. sec. 1.1374-4(h).
---------------------------------------------------------------------------
    The built-in gain tax also applies to net recognized built-
in gain attributable to any asset received by an S corporation 
from a C corporation in a transaction in which the S 
corporation's basis in the asset is determined (in whole or in 
part) by reference to the basis of such asset (or other 
property) in the hands of the C corporation.\8\ In the case of 
such a transaction, the recognition period for any asset 
transferred by the C corporation starts on the date the asset 
was acquired by the S corporation in lieu of the beginning of 
the first taxable year for which the corporation was an S 
corporation.\9\
---------------------------------------------------------------------------
    \8\Sec. 1374(d)(8).
    \9\Sec. 1374(d)(8)(B).
---------------------------------------------------------------------------
    The amount of the built-in gains tax is treated as a loss 
by each of the S corporation shareholders in computing its own 
income tax.\10\
---------------------------------------------------------------------------
    \10\Sec. 1366(f)(2). Shareholders continue to take into account all 
items of gain and loss under section 1366.
---------------------------------------------------------------------------
    For any taxable year beginning in 2009 and 2010, no tax was 
imposed on the net recognized built-in gain of an S corporation 
under section 1374 if the seventh taxable year in the 
corporation's recognition period preceded such taxable 
year.\11\ Thus, with respect to gain that arose prior to the 
conversion of a C corporation to an S corporation, no tax was 
imposed under section 1374 if the seventh taxable year that the 
S corporation election was in effect preceded the taxable year 
beginning in 2009 or 2010.
---------------------------------------------------------------------------
    \11\Sec. 1374(d)(7)(B).
---------------------------------------------------------------------------
    For any taxable year beginning in 2011, no tax was imposed 
on the net recognized built-in gain of an S corporation under 
section 1374 if the fifth year in the corporation's recognition 
period preceded such taxable year.\12\ Thus, with respect to 
gain that arose prior to the conversion of a C corporation to 
an S corporation, no tax was imposed under section 1374 if the 
S corporation election was in effect for five years preceding 
the taxable year beginning in 2011.
---------------------------------------------------------------------------
    \12\Sec. 1374(d)(7)(C).
---------------------------------------------------------------------------
    For taxable years beginning in 2012 and 2013, the term 
``recognition period'' in section 1374, for purposes of 
determining the net recognized built-in gain, is applied by 
substituting a five-year period\13\ for the otherwise 
applicable 10-year period. Thus, for such taxable years, the 
recognition period is the five-year period beginning with the 
first day of the first taxable year for which the corporation 
was an S corporation (or beginning with the date of acquisition 
of assets if the rules applicable to assets acquired from a C 
corporation apply). If an S corporation with assets subject to 
section 1374 disposes of such assets in a taxable year 
beginning in 2012 or 2013 and the disposition occurs more than 
five years after the first day of the relevant recognition 
period, gain or loss on the disposition will not be taken into 
account in determining the net recognized built-in gain.
---------------------------------------------------------------------------
    \13\The five-year period refers to five calendar years from the 
first day of the first taxable year for which the corporation was an S 
corporation.
---------------------------------------------------------------------------
    If an S corporation subject to section 1374 sells a built-
in gain asset and reports the income from the sale using the 
installment method under section 453, the treatment of all 
payments received will be governed by the provisions of section 
1374(d)(7) applicable to the taxable year in which the sale was 
made.
            Application to real estate investment trusts and regulated 
                    investment corporations
    Under Treasury regulations, a regulated investment company 
(``RIC'') or a real estate investment trust (``REIT'') that was 
formerly a C corporation not taxed as a REIT or RIC (or that 
acquired assets from such a C corporation) generally is subject 
to the built-in gain tax rules as if the RIC or REIT were an S 
corporation, unless the relevant C corporation elects ``deemed 
sale'' treatment, requiring recognition of all C corporation 
built-in gain and loss at the time of the conversion or asset 
acquisition.\14\ Deemed sale treatment is not permitted if its 
application would result in the recognition of a net loss.\15\ 
For this purpose, net loss is the excess of aggregate losses 
over aggregate gains (including items of income), without 
regard to character.\16\
---------------------------------------------------------------------------
    \14\Treas. Reg. secs. 1.337(d)-7(a) and 1.337(d)-7(b).
    \15\Treas. Reg. sec. 1.337(d)-7(c)(1).
    \16\Treas. Reg. sec. 1.337(d)-7(c)(1).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that a five-year recognition period 
for built-in gains adequately protects the corporate tax base 
while allowing greater flexibility for S corporations to 
replace and reposition assets, allowing S corporations to 
access capital to expand business operations and create jobs. 
The Committee also believes that making the five-year 
recognition period permanent will provide needed certainty and 
remove a significant deterrent that often discourages C 
corporations from electing to be S corporations.

                        EXPLANATION OF PROVISION

    The provision makes permanent the five-year recognition 
period for built-in gains of S corporations. Under current 
Treasury regulations, this five-year recognition period also 
will apply to real estate investment trusts and regulated 
investment companies that do not elect ``deemed sale'' 
treatment.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2013.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the effects on the budget of the bill, H.R. 4453, as 
reported.
    The bill, as reported, is estimated to have the following 
effects on Federal budget receipts for fiscal years 2014-2024:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        By fiscal years in billions of dollars--
---------------------------------------------------------------------------------------------------------------------------------------------------------
    2014        2015        2016        2017        2018        2019        2020        2021        2022        2023        2024     2014-19    2014-24
--------------------------------------------------------------------------------------------------------------------------------------------------------
    - - -        -0.2        -0.2        -0.3        -0.2        -0.1        -0.1        -0.1        -0.1        -0.1       -0.1       -1.0      -1.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that whether or not the bill increases 
a tax expenditure is ambiguous because the existence of 
subchapter S does not create any tax expenditures, but 
distributions from a C corporation generally give rise to tax 
liability.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 2014.
Hon. Dave Camp,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4453, the 
Permanent S Corporation Built-in Gains Recognition Period Act 
of 2014.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Logan 
Timmerhoff.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4453--Permanent S Corporation Built-in Gains Recognition Period 
        Act of 2014

    H.R. 4453 would amend the Internal Revenue Code to make 
permanent a five-year recognition period for built-in gains of 
S corporations, retroactive to January 1, 2014. Under current 
law, a corporation that meets certain requirements may elect to 
be taxed as an S corporation, which generally pays no 
corporate-level tax, unlike a C corporation. For corporations 
that convert from C corporations to S corporations, or S 
corporations that receive assets under certain conditions from 
C corporations, there is a corporate-level tax on certain 
built-in gains of certain assets, with a 10-year recognition 
period under current law. This legislation makes permanent the 
five-year recognition period for S corporation built-in gains 
that was generally in effect for taxable years from 2011 
through 2013. The legislation also applies to regulated 
investment companies and real estate investment trusts.
    The staff of the Joint Committee on Taxation (JCT) 
estimates that enacting H.R. 4453 would reduce revenues, thus 
increasing federal deficits, by $1.5 billion over the 2014-2024 
period.
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending and revenues. Enacting H.R. 4453 would result 
in revenue losses in each year beginning in 2015. The estimated 
increases in the deficit are shown in the following table.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Logan 
Timmerhoff. The estimate was approved by David Weiner, 
Assistant Director for Tax Analysis.

           CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 4453, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON APRIL 29, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               By fiscal year, in millions of dollars--
                                            ------------------------------------------------------------------------------------------------------------
                                              2014   2015    2016    2017    2018    2019    2020    2021    2022    2023    2024   2014-2019  2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               NET INCREASE IN THE DEFICIT

Statutory Pay-As-You-Go Effects............      0     155     221     287     225     148     104      84      82      86      93     1,036     1,485
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Components may not sum to totals because of rounding.
Source: Staff of the Joint Committee on Taxation.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was as a result of the 
Committee's review of the provisions of H.R. 4453 that the 
Committee concluded that it is appropriate to report the bill, 
as amended, favorably to the House of Representatives with the 
recommendation that the bill do pass.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

              C. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                D. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the bill, and states that the bill does not 
involve any Federal income tax rate increases within the 
meaning of the rule.

                       E. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service and the Treasury 
Department) to provide a tax complexity analysis. The 
complexity analysis is required for all legislation reported by 
the Senate Committee on Finance, the House Committee on Ways 
and Means, or any committee of conference if the legislation 
includes a provision that directly or indirectly amends the 
Internal Revenue Code and has widespread applicability to 
individuals or small businesses.
    Pursuant to clause 3(h)(1) of rule XIII of the Rules of the 
House of Representatives, the staff of the Joint Committee on 
Taxation has determined that a complexity analysis is not 
required under section 4022(b) of the IRS Reform Act because 
the bill contains no provisions that amend the Code and that 
have ``widespread applicability'' to individuals or small 
businesses, within the meaning of the rule.

  F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff 
                                Benefits

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill, and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                   G. Duplication of Federal Programs

    In compliance with Sec. 3(j)(2) of H. Res. 5 (113th 
Congress), the Committee states that no provision of the bill 
establishes or reauthorizes: (1) a program of the Federal 
Government known to be duplicative of another Federal program, 
(2) a program included in any report from the Government 
Accountability Office to Congress pursuant to section 21 of 
Public Law 111-139, or (3) a program related to a program 
identified in the most recent Catalog of Federal Domestic 
Assistance, published pursuant to the Federal Program 
Information Act (Public Law 95-220, as amended by Public Law 
98-169).

                 H. Disclosure of Directed Rule Makings

    In compliance with Sec. 3(k) of H. Res. 5 (113th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

           SECTION 1374 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 1374. TAX IMPOSED ON CERTAIN BUILT-IN GAINS.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          [(7) Recognition period.--
                  [(A) In general.--The term ``recognition 
                period'' means the 10-year period beginning 
                with the 1st day of the 1st taxable year for 
                which the corporation was an S corporation.
                  [(B) Special rules for 2009, 2010, and 
                2011.--No tax shall be imposed on the net 
                recognized built-in gain of an S corporation--
                          [(i) in the case of any taxable year 
                        beginning in 2009 or 2010, if the 7th 
                        taxable year in the recognition period 
                        preceded such taxable year, or
                          [(ii) in the case of any taxable year 
                        beginning in 2011, if the 5th year in 
                        the recognition period preceded such 
                        taxable year.
                The preceding sentence shall be applied 
                separately with respect to any asset to which 
                paragraph (8) applies.
                  [(C) Special rule for 2012 and 2013.--For 
                purposes of determining the net recognized 
                built-in gain for taxable years beginning in 
                2012 or 2013, subparagraphs (A) and (D) shall 
                be applied by substituting ``5-year'' for ``10-
                year''.
                  [(D) Special rule for distributions to 
                shareholders.--For purposes of applying this 
                section to any amount includible in income by 
                reason of distributions to shareholders 
                pursuant to section 593(e)--
                          [(i) subparagraph (A) shall be 
                        applied without regard to the phrase 
                        ``10-year'', and
                          [(ii) subparagraph (B) shall not 
                        apply.
                  [(E) 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.]
          (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.

           *       *       *       *       *       *       *


                         VII. DISSENTING VIEWS

    These bills would add a combined $310 billion to the 
deficit. Even though these bills were introduced individually 
with some bipartisan support, the opposition to these bills was 
based on the position that these tax provisions should not be 
made permanent by adding to the deficit without any revenue 
offset.
    To put the combined cost ($310 billion) into context, this 
total represents more than one-half of the entire federal 
deficit this year--the lowest it has been since President Obama 
took office. It represents nearly two-thirds of all non-defense 
domestic discretionary spending in 2014. It is more than three 
times what we spend annually on education, job training, and 
social services. It is five times more than we spend on 
veterans. And, it is five times more than we spend on medical 
research and public health.
    We also opposed the manner in which Republicans were 
proceeding--selecting six to make permanent without any offset 
from the approximately 60 tax provisions that expired last 
year. This approach was both fiscally irresponsible and 
fundamentally hypocritical.
    We found it hypocritical that, four months ago, Republicans 
let emergency unemployment insurance expire for more than 1.3 
million Americans by arguing that an adequate offset had yet to 
be proposed. In early April, the Senate came to a bipartisan 
agreement on an offset after months of painstaking 
negotiations. Yet House Republicans still refuse to act.
    Further, we found it also hypocritical that the Republicans 
were in favor of passing these six tax bills at a cost of $310 
billion without an offset at the same time that they were 
requiring an offset for a provision stripped from another bill 
under consideration at the markup that helped foster children 
at a cost of $12 million.
    The consideration of these six tax bills should have been 
part of the consideration of all the expired tax provisions 
commonly referred to as ``tax extenders.'' The Republicans did 
not take up other tax extenders that also are important to 
Democratic Committee Members. Left to an uncertain fate are 
provisions like the Work Opportunity Tax Credit, the New 
Markets Tax Credit, and the renewable energy tax credits, as 
well as the long-term status of the Earned Income Tax Credit, 
the Child Tax Credit, and the American Opportunity Tax Credit.
            Sincerely,

                                            Sander M. Levin
                                                    Ranking Member.