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114th Congress}                                          { Rept. 114-861
                        HOUSE OF REPRESENTATIVES
 2d Session   }                                          { Part 1

======================================================================
 
                  STOP TAXING DEATH AND DISABILITY ACT

                                _______
                                

December 8, 2016.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Brady of Texas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 5204]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 5204) to amend the Internal Revenue Code of 1986 and 
the Higher Education Act of 1965 to provide an exclusion from 
income for student loan forgiveness for students who have died 
or become disabled, 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. Treatment of Student Loans Discharged on Account of 
              Death or Disability (sec. 2(a) of the bill and sec. 
              108(f) of the Code)................................     3
III. VOTES OF THE COMMITTEE...........................................5
 IV. BUDGET EFFECTS OF THE BILL.......................................5
          A. Committee Estimate of Budgetary Effects.............     5
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures.......................................     5
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................     6
  V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......9
          A. Committee Oversight Findings and Recommendations....     9
          B. Statement of General Performance Goals and 
              Objectives.........................................     9
          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............................    10
          G. Duplication of Federal Programs.....................    10
          H. Disclosure of Directed Rule Makings.................    10
 VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........10
          A. Text of Existing Law Amended or Repealed by the 
              Bill, as Reported..................................    10
          B. Changes in Existing Law Proposed by the Bill, as 
              Reported...........................................    25
VII. ADDITIONAL VIEWS................................................41

    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 ``Stop Taxing Death and Disability 
Act''.

SEC. 2. TREATMENT OF STUDENT LOANS DISCHARGED ON ACCOUNT OF DEATH OR 
                    DISABILITY.

  (a) Amendments to Internal Revenue Code of 1986.--
          (1) In general.--Section 108(f) of the Internal Revenue Code 
        of 1986 is amended by adding at the end the following new 
        paragraph:
          ``(5) Discharges on account of death or disability.--
                  ``(A) In general.--In the case of an individual, 
                gross income does not include any amount which (but for 
                this subsection) would be includible in gross income by 
                reasons of the discharge (in whole or in part) of any 
                loan described in subparagraph (B) if such discharge 
                was--
                          ``(i) pursuant to subsection (a) or (d) of 
                        section 437 of the Higher Education Act of 1965 
                        or the parallel benefit under part D of title 
                        IV of such Act (relating to the repayment of 
                        loan liability),
                          ``(ii) pursuant to section 464(c)(1)(F) of 
                        such Act, or
                          ``(iii) otherwise discharged on account of 
                        the death or total and permanent disability of 
                        the student.
                  ``(B) Loans described.--A loan is described in this 
                subparagraph if such loan is--
                          ``(i) a student loan (as defined in paragraph 
                        (2)), or
                          ``(ii) a private education loan (as defined 
                        in section 140(7) of the Consumer Credit 
                        Protection Act (15 U.S.C. 1650(7))).''.
          (2) Effective date.--The amendment made by this section shall 
        apply to discharges of indebtedness after December 31, 2016.
  (b) Amendment to the Higher Education Act of 1965.--Section 437(d) of 
the Higher Education Act of 1965 (20 U.S.C. 1087(d)) is amended by 
inserting ``or becomes permanently and totally disabled (as determined 
in accordance with regulations of the Secretary), or if the student is 
unable to engage in any substantial gainful activity by reason of any 
medically determinable physical or mental impairment that can be 
expected to result in death, has lasted for a continuous period of not 
less than 60 months, or can be expected to last for a continuous period 
of not less than 60 months'' after ``dies''.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    Section 2(a) of the bill, H.R. 5204, as reported by the 
Committee on Ways and Means, excludes from gross income the 
discharge of student loans on account of death or permanent and 
total disability of the student.

                 B. Background and Need for Legislation

    While the Committee continues to work on comprehensive tax 
reform as a critical means of promoting economic growth and job 
creation, the Committee believes it is important to provide 
immediate relief from unfair taxes. The Committee believes that 
this exclusion from gross income for student loans discharged 
on account of death or permanent and total disability will 
eliminate an unfair tax burden.

                         C. Legislative History


Background

    H.R. 5204 was introduced on May 12, 2016, and was referred 
to the Committee on Ways and Means and to the Committee on 
Education and the Workforce.

Committee action

    The Committee on Ways and Means marked up the tax provision 
of H.R. 5204, the ``Stop Taxing Death and Disability Act,'' on 
September 21, 2016, and ordered the bill, as amended, favorably 
reported (with a quorum being present).

Committee hearings

    Reforms to the tax treatment of student debt were discussed 
at a Subcommittee on Tax Policy Member Day Hearing on Tax 
Legislation on May 12, 2016.

                      II. EXPLANATION OF THE BILL


    A. Treatment of Student Loans Discharged on Account of Death or 
     Disability (Sec. 2(a) of the Bill and Sec. 108(f) of the Code)


                              PRESENT LAW

    Gross income generally includes the discharge of 
indebtedness of the taxpayer. Under an exception to this 
general rule, gross income does not include any amount from the 
forgiveness (in whole or in part) of certain student loans, 
provided that the forgiveness is contingent on the student's 
working for a certain period of time in certain professions for 
any of a broad class of employers.\1\
---------------------------------------------------------------------------
    \1\Sec. 108(f).
---------------------------------------------------------------------------
    Student loans eligible for this special rule must be made 
to an individual to assist the individual in attending an 
educational institution that normally maintains a regular 
faculty and curriculum and normally has a regularly enrolled 
body of students in attendance at the place where its education 
activities are regularly carried on. Loan proceeds may be used 
not only for tuition and required fees, but also to cover room 
and board expenses. The loan must be made by (1) the United 
States (or an instrumentality or agency thereof), (2) a State 
(or any political subdivision thereof), (3) certain tax-exempt 
public benefit corporations that control a State, county, or 
municipal hospital and whose employees have been deemed to be 
public employees under State law, or (4) an educational 
organization that originally received the funds from which the 
loan was made from the United States, a State, or a tax-exempt 
public benefit corporation.
    An individual's gross income does not include amounts from 
the forgiveness of loans made by educational organizations (and 
certain tax-exempt organizations in the case of refinancing 
loans) out of private, nongovernmental funds if the proceeds of 
such loans are used to pay costs of attendance at an 
educational institution or to refinance any outstanding student 
loans (not just loans made by educational organizations) and 
the student is not employed by the lender organization. In the 
case of such loans made or refinanced by educational 
organizations (or refinancing loans made by certain tax-exempt 
organizations), cancellation of the student loan must be 
contingent on the student working in an occupation or area with 
unmet needs and such work must be performed for, or under the 
direction of, a tax-exempt charitable organization or a 
governmental entity.
    In addition, an individual's gross income does not include 
any loan repayment amount received under the National Health 
Service Corps loan repayment program, certain State loan 
repayment programs, or any amount received by an individual 
under any State loan repayment or loan forgiveness program that 
is intended to provide for the increased availability of health 
care services in underserved or health professional shortage 
areas (as determined by the State).

                           REASONS FOR CHANGE

    The Committee believes that a student loan that has been 
discharged upon the death or permanent disability of the 
borrower should not result in an income tax liability to the 
decedent or disabled individual, the deceased borrower's 
parents, or any other individual who may be subject to tax 
liability as a result of the discharge. The Committee further 
believes that this exclusion from income is appropriate 
regardless of whether the loan was a Federal loan or a loan 
originated by a private lender.

                        EXPLANATION OF PROVISION

    The provision modifies the exclusion of student loan 
discharges from gross income by incorporating within the 
exclusion certain discharges on account of death or 
disability.\2\ Loans eligible for the exclusion under the 
provision are loans made by (1) the United States (or an 
instrumentality or agency thereof), (2) a State (or any 
political subdivision thereof), (3) certain tax-exempt public 
benefit corporations that control a State, county, or municipal 
hospital and whose employees have been deemed to be public 
employees under State law, (4) an educational organization that 
originally received the funds from which the loan was made from 
the United States, a State, or a tax-exempt public benefit 
corporation, or (5) issuers of private education loans (for 
this purpose, private education loan is defined in section 
140(7) of the Consumer Protection Act).\3\
---------------------------------------------------------------------------
    \2\Individuals other than students, such as the student's parents, 
may be subject to liability upon the discharge of a loan that was 
discharged due to the death of the student if the individual served as 
a guarantor for the loan, or if the individual borrowed on behalf of 
the student (such as in the case of a Federal Parent PLUS loan).
    \3\15 U.S.C. 1650(7).
---------------------------------------------------------------------------
    Under the provision, the discharge of a loan as described 
above is excluded from gross income if the discharge was 
pursuant to the death or total and permanent disability of the 
student.\4\
---------------------------------------------------------------------------
    \4\Although the provision makes specific reference to those 
provisions of the Higher Education Act of 1965 that discharge William 
D. Ford Federal Direct Loan Program loans, Federal Family Education 
Loan Program loans, and Federal Perkins Loan Program loans in the case 
of death and total and permanent disability, the provision also 
provides generally for an exclusion in the case of a student loan 
discharged on account of the death or total and permanent disability of 
the student, in addition to those specific statutory references.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision applies to discharges of loans after December 
31, 2016.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statement is made 
concerning the vote of the Committee on Ways and Means in its 
consideration of the tax provisions of H.R. 5204, the ``Stop 
Taxing Death and Disability Act,'' on September 21, 2016.
    The bill, H.R. 5204, as amended, was ordered favorably 
reported to the House of Representatives by a voice vote (with 
a quorum being present).

                     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. 5204, as 
reported.
    The bill, as reported, is estimated to have the following 
effect on Federal fiscal year budget receipts for the period 
2017-2026:

                                                  FISCAL YEARS
                                          [Millions of dollars] [1] [2]
----------------------------------------------------------------------------------------------------------------
  2017      2018      2019      2020      2021      2022      2023     2024     2025     2026   2017-21  2017-26
----------------------------------------------------------------------------------------------------------------
    -27        -8        -8        -8        -8        -8       -8       -8       -9       -8      -58     -99
----------------------------------------------------------------------------------------------------------------
NOTE: Details do not add to totals due to rounding.
[1] Estimate provided by the Joint Committee on Taxation and the Congressional Budget Office.
[2] Estimate includes the following outlay effects:


----------------------------------------------------------------------------------------------------------------
  2017      2018      2019      2020      2021      2022      2023     2024     2025     2026   2017-21  2017-26
----------------------------------------------------------------------------------------------------------------
     10         1         1         1         1         1        1        1        1        1       14       19
----------------------------------------------------------------------------------------------------------------

    Pursuant to clause 8 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 gross 
budgetary effect (before incorporating macroeconomic effects) 
in any fiscal year is less than 0.25 percent of the current 
projected gross domestic product of the United States for that 
fiscal year; therefore, the bill is not ``major legislation'' 
for purposes of requiring that the estimate include the 
budgetary effects of changes in economic output, employment, 
capital stock and other macroeconomic variables.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
tax provisions of the bill involves no new or increased budget 
authority. The Committee further states that the revenue-
reducing provisions of the tax provisions of the bill involve 
increased tax expenditures. See amounts shown in the table in 
Part IV.A above.

      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, September 27, 2016.
Hon. Kevin Brady.
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The staff of the Joint Committee on 
Taxation and the Congressional Budget Office have prepared the 
enclosed cost estimate for H.R. 5204, the Stop Taxing Death and 
Disability Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Justin 
Humphrey.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

H.R. 5204--Stop Taxing Death and Disability Act

    Summary: H.R. 5204 would amend the Internal Revenue Code to 
exclude from gross income any amount discharged from a federal 
student or private education loan because of the death or 
disability of the borrower. In addition, the bill would amend 
the Higher Education Act (HEA) to allow for the discharge of 
any remaining balance that parents owe on an outstanding 
federal loan borrowed on behalf of certain students who become 
disabled.
    The staff of the Joint Committee on Taxation (JCT) and CBO 
estimate that enacting H.R. 5204 would increase federal 
deficits by $88 million over the 2017-2026 period. JCT 
estimates that revenues would decrease by $69 million and CBO 
estimates direct spending would increase by $19 million.
    Pay-as-you-go procedures apply because enacting the 
legislation would affect direct spending and revenues.
    CBO and JCT estimate that enacting the legislation would 
not increase net direct spending or on-budget deficits by more 
than $5 billion in any of the four consecutive 10-year periods 
beginning in 2027.
    CBO and JCT have determined that H.R. 5204 contains no 
intergovernmental or private-sector mandates as defmed in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary effect of H.R. 5204 is shown in the following table. 
The costs of this legislation fall within budget function 500 
(education, training, employment, and social services).

 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in millions of dollars--
                                                   -----------------------------------------------------------------------------------------------------
                                                     2017    2018    2019    2020    2021    2022    2023    2024    2025    2026   2017-2021  2017-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              INCREASES IN DIRECT SPENDING
 
Estimated Budget Authority........................      10       1       1       1       1       1       1       1       1       1         14         19
Estimated Outlays.................................      10       1       1       1       1       1       1       1       1       1         14         19
 
                                                                DECREASES (-) IN REVENUES
 
Estimated Revenues................................      -6      -7      -7      -7      -7      -7      -7      -7      -8      -7        -33        -69
 
                                                            NET INCREASE IN THE DEFICIT FROM
                                                         CHANGES IN DIRECT SPENDING AND REVENUES
 
Impact on Deficit.................................      16       8       8       8       8       8       8       8       9       8         47        88
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Direct spending effects reflect estimated changes in costs to student loans using the Federal Credit Reform Act; estimates using fair-value
  procedures would result in the same estimate.
Numbers may not add up to totals because of rounding.

    Basis of estimate: For purposes of this estimate, CBO 
assumes that H.R. 5204 will be enacted before the end of 
calendar year 2016.

Direct spending

    PLUS loans are federal education loans for parents of 
dependent students that can be used to cover the cost of 
education expenses not covered by other financial aid. Under 
current law, a PLUS loan is discharged upon the student's death 
but is not discharged if the student becomes disabled. H.R. 
5204 would amend the HEA to allow for the discharge of any 
remaining balance on an outstanding PLUS loan if the student 
for whom the parent borrowed met the requirements for a 
discharge because of total and permanent disability as defined 
by the Department of Education.
    Federal Credit Reform Act Estimating Procedures. As 
required under the Federal Credit Reform Act of 1990 (FCRA), 
most of the costs of the federal student loan programs are 
estimated on a net-present-value basis. Under FCRA, the present 
value of all loan-related cash flows is calculated by 
discounting those expected cash flows to the year of 
disbursement, using the rates for comparable maturities on U.S. 
Treasury borrowing. (For example, the cash flow for a one-year 
loan is discounted using the Treasury rate for a one-year zero-
coupon note.) The estimated changes to the costs of loans 
originated prior to enactment of legislation are shown in the 
year the bill is enacted.
    CBO analyzed data from the Social Security Administration 
about recipients of Social Security Disability Insurance and 
data from the Department of Education on federal student and 
PLUS loans. Based on that analysis, CBO projects that fewer 
than 3,000 outstanding PLUS loans and fewer than 300 PLUS loans 
that we estimate will be originated in each of fiscal years 
2017 through 2026 would be discharged under this provision. 
Based on the estimated cash flows for those loans, CBO 
estimates that enacting the bill would increase direct spending 
by $10 million in 2017 and by $19 million over the 2017-2026 
period.
    Fair-Value Estimating Procedures. Section 3105 of the 
Conference Report of the Concurrent Resolution on the Budget 
for Fiscal Year 2016 (S. Con. Res. 11) requires that any CBO 
cost estimate of a student loan provision under FCRA procedures 
include an additional estimate of a bill's costs measured on a 
fair-value basis.
    Under the fair-value approach, estimates are based on 
market values--market prices when those prices are available or 
approximations of market prices when directly comparable 
figures are unavailable--which more fully account for the cost 
of the risk the government takes on. To account for this risk, 
CBO discounts the same projected cash flows as under FCRA but 
uses a market-based discount rate.\1\
---------------------------------------------------------------------------
    \1\1. For more details on fair-value accounting, see www.cbo.gov/
publication/45383 and www.cbo.gov/publication/43027.
---------------------------------------------------------------------------
    Using the fair-value approach, CBO estimates that the 
increase in direct spending would be slightly less than under 
FCRA procedures, but would still total $19 million over the 
2017-2026 period.

Revenues

    H.R. 5204 would amend the Internal Revenue Code to exclude 
from gross income the amount of a federal student or private 
education loan discharged because of the death or disability of 
the student. JCT estimates that this provision would decrease 
revenues by $6 million in 2017 and by $69 million over the 
2017-2026 period.
    Pay-As-You-Go considerations:
    The Statutory Pay-As-You-Go Act of 2010 establishes budget-
reporting and enforcement procedures for legislation affecting 
direct spending or revenues. The net changes in outlays and 
revenues that are subject to those pay-as-you-go procedures are 
shown in the following table.

         CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 5204 AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON WAYS AND MEANS ON SEPTEMBER 21, 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                             2016    2017    2018    2019    2020    2021    2022    2023    2024    2025    2026   2017-2021  2017-2026
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  NET INCREASE OR DECREASE (-) IN THE ON-BUDGET DEFICIT
 
Statutory Pay-As-You-Go Impact............       0      16       8       8       8       8       8       8       8       9       8        47         88
Memorandum:
    Changes in Outlays....................       0      10       1       1       1       1       1       1       1       1       1        14         19
    Changes in Revenues...................       0      -6      -7      -7      -7      -7      -7      -7      -7      -8      -7       -33       -69
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Note: Numbers may not add up to totals because of rounding.

    Increase in long-term direct spending and deficits: CBO and 
JCT estimate that enacting the legislation would not increase 
net direct spending or on-budget deficits by more than $5 
billion in any of the four consecutive 10-year periods 
beginning in 2027.
    Intergovernmental and private-sector impact: CBO and JCT 
have determined that H.R. 5204 contains no intergovernmental or 
private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal costs: Justin Humphrey; 
Federal revenues: The staff of the Joint Committee on Taxation; 
impact on state, local, and tribal governments: Zachary Byrum; 
impact on the private sector: Paige Piper/Bach.
    Estimate approved by: H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

     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 tax provisions of H.R. 5204 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 
tax provisions of the bill contain 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 tax provisions of the 
bill do not contain Federal mandates on the private sector. The 
Committee has determined that the tax provisions of the bill do 
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 tax provisions of the bill and states 
that those provisions do 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 (``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 of 1986 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 tax provisions of the bill contain no provisions that amend 
the Internal Revenue Code of 1986 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 tax provisions of the bill and states that those provisions 
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(g)(2) of H. Res. 5 (114th 
Congress), the Committee states that the tax provisions of the 
bill do not establish or reauthorize: (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(i) of H. Res. 5 (114th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the tax provisions of the 
bill require no directed rule makings within the meaning of 
such section.

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


  A. Text of Existing Law Amended or Repealed by the Bill, as Reported

    In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

   Text of Existing Law Amended or Repealed by the Bill, as Reported

  In compliance with clause 3(e)(1)(A) of rule XIII of the 
Rules of the House of Representatives, the text of each section 
proposed to be amended or repealed by the bill, as reported, is 
shown below:

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.

  (a) Exclusion from Gross Income.--
          (1) In general.--Gross income does not include any 
        amount which (but for this subsection) would be 
        includible in gross income by reason of the discharge 
        (in whole or in part) of indebtedness of the taxpayer 
        if--
                  (A) the discharge occurs in a title 11 case,
                  (B) the discharge occurs when the taxpayer is 
                insolvent,
                  (C) the indebtedness discharged is qualified 
                farm indebtedness,
                  (D) in the case of a taxpayer other than a C 
                corporation, the indebtedness discharged is 
                qualified real property business indebtedness, 
                or
                  (E) the indebtedness discharged is qualified 
                principal residence indebtedness which is 
                discharged--
                          (i) before January 1, 2017, or ii) 
                        subject to an arrangement that is 
                        entered into and evidenced in writing 
                        before January 1, 2017.
          (2) Coordination of exclusions.--
                  (A) Title 11 exclusion takes precedence.--
                Subparagraphs (B), (C), (D), and (E) of 
                paragraph (1) shall not apply to a discharge 
                which occurs in a title 11 case.
                  (B) Insolvency exclusion takes precedence 
                over qualified farm exclusion and qualified 
                real property business exclusion.--
                Subparagraphs (C) and (D) of paragraph (1) 
                shall not apply to a discharge to the extent 
                the taxpayer is insolvent.
                  (C) Principal residence exclusion takes 
                precedence over insolvency exclusion unless 
                elected otherwise.--Paragraph (1)(B) shall not 
                apply to a discharge to which paragraph (1)(E) 
                applies unless the taxpayer elects to apply 
                paragraph (1)(B) in lieu of paragraph (1)(E).
          (3) Insolvency exclusion limited to amount of 
        insolvency.--In the case of a discharge to which 
        paragraph (1)(B) applies, the amount excluded under 
        paragraph (1)(B) shall not exceed the amount by which 
        the taxpayer is insolvent.
  (b) Reduction of Tax Attributes.--
          (1) In general.--The amount excluded from gross 
        income under subparagraph (A), (B), or (C) of 
        subsection (a)(1) shall be applied to reduce the tax 
        attributes of the taxpayer as provided in paragraph 
        (2).
          (2) Tax attributes affected; order of reduction.--
        Except as provided in paragraph (5), the reduction 
        referred to in paragraph (1) shall be made in the 
        following tax attributes in the following order:
                  (A) NOL.--Any net operating loss for the 
                taxable year of the discharge, and any net 
                operating loss carryover to such taxable year.
                  (B) General business credit.--Any carryover 
                to or from the taxable year of a discharge of 
                an amount for purposes for determining the 
                amount allowable as a credit under section 38 
                (relating to general business credit).
                  (C) Minimum tax credit.--The amount of the 
                minimum tax credit available under section 
                53(b) as of the beginning of the taxable year 
                immediately following the taxable year of the 
                discharge.
                  (D) Capital loss carryovers.--Any net capital 
                loss for the taxable year of the discharge, and 
                any capital loss carryover to such taxable year 
                under section 1212.
                  (E) Basis reduction.--
                          (i) In general.--The basis of the 
                        property of the taxpayer.
                          (ii) Cross reference.--For provisions 
                        for making the reduction described in 
                        clause (i), see section 1017.
                  (F) Passive activity loss and credit 
                carryovers.--Any passive activity loss or 
                credit carryover of the taxpayer under section 
                469(b) from the taxable year of the discharge.
                  (G) Foreign tax credit carryovers.--Any 
                carryover to or from the taxable year of the 
                discharge for purposes of determining the 
                amount of the credit allowable under section 
                27.
          (3) Amount of reduction.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the reductions described in 
                paragraph (2) shall be one dollar for each 
                dollar excluded by subsection (a).
                  (B) Credit carryover reduction.--The 
                reductions described in subparagraphs (B), (C), 
                and (G) shall be 33 1/3 cents for each dollar 
                excluded by subsection (a). The reduction 
                described in subparagraph (F) in any passive 
                activity credit carryover shall be 33 1/3 cents 
                for each dollar excluded by subsection (a).
          (4) Ordering rules.--
                  (A) Reductions made after determination of 
                tax for year.--The reductions described in 
                paragraph (2) shall be made after the 
                determination of the tax imposed by this 
                chapter for the taxable year of the discharge.
                  (B) Reductions under subparagraph (A) or (D) 
                of paragraph (2).--The reductions described in 
                subparagraph (A) or (D) of paragraph (2) (as 
                the case may be) shall be made first in the 
                loss for the taxable year of the discharge and 
                then in the carryovers to such taxable year in 
                the order of the taxable years from which each 
                such carryover arose.
                  (C) Reductions under subparagraphs (B) and 
                (G) of paragraph (2).--The reductions described 
                in subparagraphs (B) and (G) of paragraph (2) 
                shall be made in the order in which carryovers 
                are taken into account under this chapter for 
                the taxable year of the discharge.
          (5) Election to apply reduction first against 
        depreciable property.--
                  (A) In general.--The taxpayer may elect to 
                apply any portion of the reduction referred to 
                in paragraph (1) to the reduction under section 
                1017 of the basis of the depreciable property 
                of the taxpayer.
                  (B) Limitation.--The amount to which an 
                election under subparagraph (A) applies shall 
                not exceed the aggregate adjusted bases of the 
                depreciable property held by the taxpayer as of 
                the beginning of the taxable year following the 
                taxable year in which the discharge occurs.
                  (C) Other tax attributes not reduced.--
                Paragraph (2) shall not apply to any amount to 
                which an election under this paragraph applies.
  (c) Treatment of Discharge of Qualified Real Property 
Business Indebtedness.--
          (1) Basis reduction.--
                  (A) In general.--The amount excluded from 
                gross income under subparagraph (D) of 
                subsection (a)(1) shall be applied to reduce 
                the basis of the depreciable real property of 
                the taxpayer.
                  (B) Cross reference.--For provisions making 
                the reduction described in subparagraph (A), 
                see section 1017.
          (2) Limitations.--
                  (A) Indebtedness in excess of value.--The 
                amount excluded under subparagraph (D) of 
                subsection (a)(1) with respect to any qualified 
                real property business indebtedness shall not 
                exceed the excess (if any) of--
                          (i) the outstanding principal amount 
                        of such indebtedness (immediately 
                        before the discharge), over
                          (ii) the fair market value of the 
                        real property described in paragraph 
                        (3)(A) (as of such time), reduced by 
                        the outstanding principal amount of any 
                        other qualified real property business 
                        indebtedness secured by such property 
                        (as of such time).
                  (B) Overall limitation.--The amount excluded 
                under subparagraph (D) of subsection (a)(1) 
                shall not exceed the aggregate adjusted bases 
                of depreciable real property (determined after 
                any reductions under subsections (b) and (g)) 
                held by the taxpayer immediately before the 
                discharge (other than depreciable real property 
                acquired in contemplation of such discharge).
          (3) Qualified real property business indebtedness.--
        The term ``qualified real property business 
        indebtedness'' means indebtedness which--
                  (A) was incurred or assumed by the taxpayer 
                in connection with real property used in a 
                trade or business and is secured by such real 
                property,
                  (B) was incurred or assumed before January 1, 
                1993, or if incurred or assumed on or after 
                such date, is qualified acquisition 
                indebtedness, and
                  (C) with respect to which such taxpayer makes 
                an election to have this paragraph apply.
        Such term shall not include qualified farm 
        indebtedness. Indebtedness under subparagraph (B) shall 
        include indebtedness resulting from the refinancing of 
        indebtedness under subparagraph (B) (or this sentence), 
        but only to the extent it does not exceed the amount of 
        the indebtedness being refinanced.
          (4) Qualified acquisition indebtedness.--For purposes 
        of paragraph (3)(B), the term ``qualified acquisition 
        indebtedness'' means, with respect to any real property 
        described in paragraph (3)(A), indebtedness incurred or 
        assumed to acquire, construct, reconstruct, or 
        substantially improve such property.
          (5) Regulations.--The Secretary shall issue such 
        regulations as are necessary to carry out this 
        subsection, including regulations preventing the abuse 
        of this subsection through cross-collateralization or 
        other means.
  (d) Meaning of Terms; Special Rules Relating to Certain 
Provisions.--
          (1) Indebtedness of taxpayer.--For purposes of this 
        section, the term ``indebtedness of the taxpayer'' 
        means any indebtedness--
                  (A) for which the taxpayer is liable, or
                  (B) subject to which the taxpayer holds 
                property.
          (2) Title 11 case.--For purposes of this section, the 
        term ``title 11 case'' means a case under title 11 of 
        the United States Code (relating to bankruptcy), but 
        only if the taxpayer is under the jurisdiction of the 
        court in such case and the discharge of indebtedness is 
        granted by the court or is pursuant to a plan approved 
        by the court.
          (3) Insolvent.--For purposes of this section, the 
        term ``insolvent'' means the excess of liabilities over 
        the fair market value of assets. With respect to any 
        discharge, whether or not the taxpayer is insolvent, 
        and the amount by which the taxpayer is insolvent, 
        shall be determined on the basis of the taxpayer's 
        assets and liabilities immediately before the 
        discharge.
          (5) Depreciable property.--The term ``depreciable 
        property'' has the same meaning as when used in section 
        1017.
          (6) Certain provisions to be applied at partner 
        level.--In the case of a partnership, subsections (a), 
        (b), (c), and (g) shall be applied at the partner 
        level.
          (7) Special rules for S corporation.--
                  (A) Certain provisions to be applied at 
                corporate level.--In the case of an S 
                corporation, subsections (a), (b), (c), and (g) 
                shall be applied at the corporate level, 
                including by not taking into account under 
                section 1366(a) any amount excluded under 
                subsection (a) of this section.
                  (B) Reduction in carryover of disallowed 
                losses and deductions.--In the case of an S 
                corporation, for purposes of subparagraph (A) 
                of subsection (b)(2), any loss or deduction 
                which is disallowed for the taxable year of the 
                discharge under section 1366(d)(1) shall be 
                treated as a net operating loss for such 
                taxable year. The preceding sentence shall not 
                apply to any discharge to the extent that 
                subsection (a)(1)(D) applies to such discharge.
                  (C) Coordination with basis adjustments under 
                section 1367(b)(2).--For purposes of subsection 
                (e)(6), a shareholder's adjusted basis in 
                indebtedness of an S corporation shall be 
                determined without regard to any adjustments 
                made under section 1367(b)(2).
          (8) Reductions of tax attributes in title 11 cases of 
        individuals to be made by estate.--In any case under 
        chapter 7 or 11 of title 11 of the United States Code 
        to which section 1398 applies, for purposes of 
        paragraphs (1) and (5) of subsection (b) the estate 
        (and not the individual) shall be treated as the 
        taxpayer. The preceding sentence shall not apply for 
        purposes of applying section 1017 to property 
        transferred by the estate to the individual.
          (9) Time for making election, etc.--
                  (A) Time.--An election under paragraph (5) of 
                subsection (b) or under paragraph (3)(C) of 
                subsection (c) shall be made on the taxpayer's 
                return for the taxable year in which the 
                discharge occurs or at such other time as may 
                be permitted in regulations prescribed by the 
                Secretary.
                  (B) Revocation only with consent.--An 
                election referred to in subparagraph (A), once 
                made, may be revoked only with the consent of 
                the Secretary.
                  (C) Manner.--An election referred to in 
                subparagraph (A) shall be made in such manner 
                as the Secretary may by regulations prescribe.
          (10) Cross reference.--For provision that no 
        reduction is to be made in the basis of exempt property 
        of an individual debtor, see section 1017(c)(1).
  (e) General Rules for Discharge of Indebtedness (Including 
Discharges Not in Title 11 Cases or Insolvency).--For purposes 
of this title--
          (1) No other insolvency exception.--Except as 
        otherwise provided in this section, there shall be no 
        insolvency exception from the general rule that gross 
        income includes income from the discharge of 
        indebtedness.
          (2) Income not realized to extent of lost 
        deductions.--No income shall be realized from the 
        discharge of indebtedness to the extent that payment of 
        the liability would have given rise to a deduction.
          (3) Adjustments for unamortized premium and 
        discount.--The amount taken into account with respect 
        to any discharge shall be properly adjusted for 
        unamortized premium and unamortized discount with 
        respect to the indebtedness discharged.
          (4) Acquisition of indebtedness by person related to 
        debtor.--
                  (A) Treated as acquisition by debtor.--For 
                purposes of determining income of the debtor 
                from discharge of indebtedness, to the extent 
                provided in regulations prescribed by the 
                Secretary, the acquisition of outstanding 
                indebtedness by a person bearing a relationship 
                to the debtor specified in section 267(b) or 
                707(b)(1) from a person who does not bear such 
                a relationship to the debtor shall be treated 
                as the acquisition of such indebtedness by the 
                debtor. Such regulations shall provide for such 
                adjustments in the treatment of any subsequent 
                transactions involving the indebtedness as may 
                be appropriate by reason of the application of 
                the preceding sentence.
                  (B) Members of family.--For purposes of this 
                paragraph, sections 267(b) and 707(b)(1) shall 
                be applied as if section 267(c)(4) provided 
                that the family of an individual consists of 
                the individual's spouse, the individual's 
                children, grandchildren, and parents, and any 
                spouse of the individual's children or 
                grandchildren.
                  (C) Entities under common control treated as 
                related.--For purposes of this paragraph, two 
                entities which are treated as a single employer 
                under subsection (b) or (c) of section 414 
                shall be treated as bearing a relationship to 
                each other which is described in section 
                267(b).
          (5) Purchase-money debt reduction for solvent debtor 
        treated as price reduction.--If--
                  (A) the debt of a purchaser of property to 
                the seller of such property which arose out of 
                the purchase of such property is reduced,
                  (B) such reduction does not occur--
                          (i) in a title 11 case, or
                          (ii) when the purchaser is insolvent, 
                        and
                  (C) but for this paragraph, such reduction 
                would be treated as income to the purchaser 
                from the discharge of indebtedness,
        then such reduction shall be treated as a purchase 
        price adjustment.
          (6) Indebtedness contributed to capital.--Except as 
        provided in regulations, for purposes of determining 
        income of the debtor from discharge of indebtedness, if 
        a debtor corporation acquires its indebtedness from a 
        shareholder as a contribution to capital--
                  (A) section 118 shall not apply, but
                  (B) such corporation shall be treated as 
                having satisfied the indebtedness with an 
                amount of money equal to the shareholder's 
                adjusted basis in the indebtedness.
          (7) Recapture of gain on subsequent sale of stock.--
                  (A) In general.--If a creditor acquires stock 
                of a debtor corporation in satisfaction of such 
                corporation's indebtedness, for purposes of 
                section 1245--
                          (i) such stock (and any other 
                        property the basis of which is 
                        determined in whole or in part by 
                        reference to the adjusted basis of such 
                        stock) shall be treated as section 1245 
                        property,
                          (ii) the aggregate amount allowed to 
                        the creditor--
                                  (I) as deductions under 
                                subsection (a) or (b) of 
                                section 166 (by reason of the 
                                worthlessness or partial 
                                worthlessness of the 
                                indebtedness), or
                                  (II) as an ordinary loss on 
                                the exchange, shall be treated 
                                as an amount allowed as a 
                                deduction for depreciation, and
                          (iii) an exchange of such stock 
                        qualifying under section 354(a), 
                        355(a), or 356(a) shall be treated as 
                        an exchange to which section 1245(b)(3) 
                        applies.
                The amount determined under clause (ii) shall 
                be reduced by the amount (if any) included in 
                the creditor's gross income on the exchange.
                  (B) Special rule for cash basis taxpayers.--
                In the case of any creditor who computes his 
                taxable income under the cash receipts and 
                disbursements method, proper adjustment shall 
                be made in the amount taken into account under 
                clause (ii) of subparagraph (A) for any amount 
                which was not included in the creditor's gross 
                income but which would have been included in 
                such gross income if such indebtedness had been 
                satisfied in full.
                  (C) Stock of parent corporation.--For 
                purposes of this paragraph, stock of a 
                corporation in control (within the meaning of 
                section 368(c)) of the debtor corporation shall 
                be treated as stock of the debtor corporation.
                  (D) Treatment of successor corporation.--For 
                purposes of this paragraph, the term ``debtor 
                corporation'' includes a successor corporation.
                  (E) Partnership rule.--Under regulations 
                prescribed by the Secretary, rules similar to 
                the rules of the foregoing subparagraphs of 
                this paragraph shall apply with respect to the 
                indebtedness of a partnership.
          (8) Indebtedness satisfied by corporate stock or 
        partnership interest.--For purposes of determining 
        income of a debtor from discharge of indebtedness, if--
                  (A) a debtor corporation transfers stock, or
                  (B) a debtor partnership transfers a capital 
                or profits interest in such partnership,
        to a creditor in satisfaction of its recourse or 
        nonrecourse indebtedness, such corporation or 
        partnership shall be treated as having satisfied the 
        indebtedness with an amount of money equal to the fair 
        market value of the stock or interest. In the case of 
        any partnership, any discharge of indebtedness income 
        recognized under this paragraph shall be included in 
        the distributive shares of taxpayers which were the 
        partners in the partnership immediately before such 
        discharge.
          (9) Discharge of indebtedness income not taken into 
        account in determining whether entity meets REIT 
        qualifications.--Any amount included in gross income by 
        reason of the discharge of indebtedness shall not be 
        taken into account for purposes of paragraphs (2) and 
        (3) of section 856(c).
          (10) Indebtedness satisfied by issuance of debt 
        instrument.--
                  (A) In general.--For purposes of determining 
                income of a debtor from discharge of 
                indebtedness, if a debtor issues a debt 
                instrument in satisfaction of indebtedness, 
                such debtor shall be treated as having 
                satisfied the indebtedness with an amount of 
                money equal to the issue price of such debt 
                instrument.
                  (B) Issue price.--For purposes of 
                subparagraph (A), the issue price of any debt 
                instrument shall be determined under sections 
                1273 and 1274. For purposes of the preceding 
                sentence, section 1273(b)(4) shall be applied 
                by reducing the stated redemption price of any 
                instrument by the portion of such stated 
                redemption price which is treated as interest 
                for purposes of this chapter.
  (f) Student Loans.--
          (1) In general.--In the case of an individual, gross 
        income does not include any amount which (but for this 
        subsection) would be includible in gross income by 
        reason of the discharge (in whole or in part) of any 
        student loan if such discharge was pursuant to a 
        provision of such loan under which all or part of the 
        indebtedness of the individual would be discharged if 
        the individual worked for a certain period of time in 
        certain professions for any of a broad class of 
        employers.
          (2) Student loan.--For purposes of this subsection, 
        the term ``student loan'' means any loan to an 
        individual to assist the individual in attending an 
        educational organization described in section 
        170(b)(1)(A)(ii) made by--
                  (A) the United States, or an instrumentality 
                or agency thereof,
                  (B) a State, territory, or possession of the 
                United States, or the District of Columbia, or 
                any political subdivision thereof,
                  (C) a public benefit corporation--
                          (i) which is exempt from taxation 
                        under section 501(c)(3),
                          (ii) which has assumed control over a 
                        State, county, or municipal hospital, 
                        and
                          (iii) whose employees have been 
                        deemed to be public employees under 
                        State law, or
                  (D) any educational organization described in 
                section 170(b)(1)(A)(ii) if such loan is made--
                          (i) pursuant to an agreement with any 
                        entity described in subparagraph (A), 
                        (B), or (C) under which the funds from 
                        which the loan was made were provided 
                        to such educational organization, or
                          (ii) pursuant to a program of such 
                        educational organization which is 
                        designed to encourage its students to 
                        serve in occupations with unmet needs 
                        or in areas with unmet needs and under 
                        which the services provided by the 
                        students (or former students) are for 
                        or under the direction of a 
                        governmental unit or an organization 
                        described in section 501(c)(3) and 
                        exempt from tax under section 501(a).
        The term ``student loan'' includes any loan made by an 
        educational organization described in section 
        170(b)(1)(A)(ii) or by an organization exempt from tax 
        under section 501(a) to refinance a loan to an 
        individual to assist the individual in attending any 
        such educational organization but only if the 
        refinancing loan is pursuant to a program of the 
        refinancing organization which is designed as described 
        in subparagraph (D)(ii).
          (3) Exception for discharges on account of services 
        performed for certain lenders.--Paragraph (1) shall not 
        apply to the discharge of a loan made by an 
        organization described in paragraph (2)(D) if the 
        discharge is on account of services performed for 
        either such organization.
          (4) Payments under National Health Service Corps loan 
        repayment program and certain state loan repayment 
        programs.--In the case of an individual, gross income 
        shall not include any amount received under section 
        338B(g) of the Public Health Service Act, under a State 
        program described in section 338I of such Act, or under 
        any other State loan repayment or loan forgiveness 
        program that is intended to provide for the increased 
        availability of health care services in underserved or 
        health professional shortage areas (as determined by 
        such State).
  (g) Special Rules for Discharge of Qualified Farm 
Indebtedness.--
          (1) Discharge must be by qualified person.--
                  (A) In general.--Subparagraph (C) of 
                subsection (a)(1) shall apply only if the 
                discharge is by a qualified person.
                  (B) Qualified person.--For purposes of 
                subparagraph (A), the term ``qualified person'' 
                has the meaning given to such term by section 
                49(a)(1)(D)(iv); except that such term shall 
                include any Federal, State, or local government 
                or agency or instrumentality thereof.
          (2) Qualified farm indebtedness.--For purposes of 
        this section, indebtedness of a taxpayer shall be 
        treated as qualified farm indebtedness if--
                  (A) such indebtedness was incurred directly 
                in connection with the operation by the 
                taxpayer of the trade or business of farming, 
                and
                  (B) 50 percent or more of the aggregate gross 
                receipts of the taxpayer for the 3 taxable 
                years preceding the taxable year in which the 
                discharge of such indebtedness occurs is 
                attributable to the trade or business of 
                farming.
          (3) Amount excluded cannot exceed sum of tax 
        attributes and business and investment assets.--
                  (A) In general.--The amount excluded under 
                subparagraph (C) of subsection (a)(1) shall not 
                exceed the sum of--
                          (i) the adjusted tax attributes of 
                        the taxpayer, and
                          (ii) the aggregate adjusted bases of 
                        qualified property held by the taxpayer 
                        as of the beginning of the taxable year 
                        following the taxable year in which the 
                        discharge occurs.
                  (B) Adjusted tax attributes.--For purposes of 
                subparagraph (A), the term ``adjusted tax 
                attributes'' means the sum of the tax 
                attributes described in subparagraphs (A), (B), 
                (C), (D), (F), and (G) of subsection (b)(2) 
                determined by taking into account $3 for each 
                $1 of the attributes described in subparagraphs 
                (B), (C), and (G) of subsection (b)(2) and the 
                attribute described in subparagraph (F) of 
                subsection (b)(2) to the extent attributable to 
                any passive activity credit carryover.
                  (C) Qualified property.--For purposes of this 
                paragraph, the term ``qualified property'' 
                means any property which is used or is held for 
                use in a trade or business or for the 
                production of income.
                  (D) Coordination with insolvency exclusion.--
                For purposes of this paragraph, the adjusted 
                basis of any qualified property and the amount 
                of the adjusted tax attributes shall be 
                determined after any reduction under subsection 
                (b) by reason of amounts excluded from gross 
                income under subsection (a)(1)(B).
  (h) Special Rules Relating to Qualified Principal Residence 
Indebtedness.--
          (1) Basis reduction.--The amount excluded from gross 
        income by reason of subsection (a)(1)(E) shall be 
        applied to reduce (but not below zero) the basis of the 
        principal residence of the taxpayer.
          (2) Qualified principal residence indebtedness.--For 
        purposes of this section, the term ``qualified 
        principal residence indebtedness'' means acquisition 
        indebtedness (within the meaning of section 
        163(h)(3)(B), applied by substituting ``$2,000,000 
        ($1,000,000'' for ``$1,000,000 ($500,000'' in clause 
        (ii) thereof) with respect to the principal residence 
        of the taxpayer.
          (3) Exception for certain discharges not related to 
        taxpayer's financial condition.--Subsection (a)(1)(E) 
        shall not apply to the discharge of a loan if the 
        discharge is on account of services performed for the 
        lender or any other factor not directly related to a 
        decline in the value of the residence or to the 
        financial condition of the taxpayer.
          (4) Ordering rule.--If any loan is discharged, in 
        whole or in part, and only a portion of such loan is 
        qualified principal residence indebtedness, subsection 
        (a)(1)(E) shall apply only to so much of the amount 
        discharged as exceeds the amount of the loan (as 
        determined immediately before such discharge) which is 
        not qualified principal residence indebtedness.
          (5) Principal residence.--For purposes of this 
        subsection, the term ``principal residence'' has the 
        same meaning as when used in section 121.
  (i) Deferral and Ratable Inclusion of Income Arising from 
Business Indebtedness Discharged by the Reacquisition of a Debt 
Instrument.--
          (1) In general.--At the election of the taxpayer, 
        income from the discharge of indebtedness in connection 
        with the reacquisition after December 31, 2008, and 
        before January 1, 2011, of an applicable debt 
        instrument shall be includible in gross income ratably 
        over the 5-taxable-year period beginning with--
                  (A) in the case of a reacquisition occurring 
                in 2009, the fifth taxable year following the 
                taxable year in which the reacquisition occurs, 
                and
                  (B) in the case of a reacquisition occurring 
                in 2010, the fourth taxable year following the 
                taxable year in which the reacquisition occurs.
          (2) Deferral of deduction for original issue discount 
        in debt for debt exchanges.--
                  (A) In general.--If, as part of a 
                reacquisition to which paragraph (1) applies, 
                any debt instrument is issued for the 
                applicable debt instrument being reacquired (or 
                is treated as so issued under subsection (e)(4) 
                and the regulations thereunder) and there is 
                any original issue discount determined under 
                subpart A of part V of subchapter P of this 
                chapter with respect to the debt instrument so 
                issued--
                          (i) except as provided in clause 
                        (ii), no deduction otherwise allowable 
                        under this chapter shall be allowed to 
                        the issuer of such debt instrument with 
                        respect to the portion of such original 
                        issue discount which--
                                  (I) accrues before the 1st 
                                taxable year in the 5-taxable-
                                year period in which income 
                                from the discharge of 
                                indebtedness attributable to 
                                the reacquisition of the debt 
                                instrument is includible under 
                                paragraph (1), and
                                  (II) does not exceed the 
                                income from the discharge of 
                                indebtedness with respect to 
                                the debt instrument being 
                                reacquired, and
                          (ii) the aggregate amount of 
                        deductions disallowed under clause (i) 
                        shall be allowed as a deduction ratably 
                        over the 5-taxable-year period 
                        described in clause (i)(I).
                If the amount of the original issue discount 
                accruing before such 1st taxable year exceeds 
                the income from the discharge of indebtedness 
                with respect to the applicable debt instrument 
                being reacquired, the deductions shall be 
                disallowed in the order in which the original 
                issue discount is accrued.
                  (B) Deemed debt for debt exchanges.--For 
                purposes of subparagraph (A), if any debt 
                instrument is issued by an issuer and the 
                proceeds of such debt instrument are used 
                directly or indirectly by the issuer to 
                reacquire an applicable debt instrument of the 
                issuer, the debt instrument so issued shall be 
                treated as issued for the debt instrument being 
                reacquired. If only a portion of the proceeds 
                from a debt instrument are so used, the rules 
                of subparagraph (A) shall apply to the portion 
                of any original issue discount on the newly 
                issued debt instrument which is equal to the 
                portion of the proceeds from such instrument 
                used to reacquire the outstanding instrument.
          (3) Applicable debt instrument.--For purposes of this 
        subsection--
                  (A) Applicable debt instrument.--The term 
                ``applicable debt instrument'' means any debt 
                instrument which was issued by--
                          (i) a C corporation, or
                          (ii) any other person in connection 
                        with the conduct of a trade or business 
                        by such person.
                  (B) Debt instrument.--The term ``debt 
                instrument'' means a bond, debenture, note, 
                certificate, or any other instrument or 
                contractual arrangement constituting 
                indebtedness (within the meaning of section 
                1275(a)(1)).
          (4) Reacquisition.--For purposes of this subsection--
                  (A) In general.--The term ``reacquisition'' 
                means, with respect to any applicable debt 
                instrument, any acquisition of the debt 
                instrument by--
                          (i) the debtor which issued (or is 
                        otherwise the obligor under) the debt 
                        instrument, or
                          (ii) a related person to such debtor.
                  (B) Acquisition.--The term ``acquisition'' 
                shall, with respect to any applicable debt 
                instrument, include an acquisition of the debt 
                instrument for cash, the exchange of the debt 
                instrument for another debt instrument 
                (including an exchange resulting from a 
                modification of the debt instrument), the 
                exchange of the debt instrument for corporate 
                stock or a partnership interest, and the 
                contribution of the debt instrument to capital. 
                Such term shall also include the complete 
                forgiveness of the indebtedness by the holder 
                of the debt instrument.
          (5) Other definitions and rules.--For purposes of 
        this subsection--
                  (A) Related person.--The determination of 
                whether a person is related to another person 
                shall be made in the same manner as under 
                subsection (e)(4).
                  (B) Election.--
                          (i) In general.--An election under 
                        this subsection with respect to any 
                        applicable debt instrument shall be 
                        made by including with the return of 
                        tax imposed by chapter 1 for the 
                        taxable year in which the reacquisition 
                        of the debt instrument occurs a 
                        statement which--
                                  (I) clearly identifies such 
                                instrument, and
                                  (II) includes the amount of 
                                income to which paragraph (1) 
                                applies and such other 
                                information as the Secretary 
                                may prescribe.
                          (ii) Election irrevocable.--Such 
                        election, once made, is irrevocable.
                          (iii) Pass-thru entities.--In the 
                        case of a partnership, S corporation, 
                        or other pass-thru entity, the election 
                        under this subsection shall be made by 
                        the partnership, the S corporation, or 
                        other entity involved.
                  (C) Coordination with other exclusions.--If a 
                taxpayer elects to have this subsection apply 
                to an applicable debt instrument, subparagraphs 
                (A), (B), (C), and (D) of subsection (a)(1) 
                shall not apply to the income from the 
                discharge of such indebtedness for the taxable 
                year of the election or any subsequent taxable 
                year.
                  (D) Acceleration of deferred items.--
                          (i) In general.--In the case of the 
                        death of the taxpayer, the liquidation 
                        or sale of substantially all the assets 
                        of the taxpayer (including in a title 
                        11 or similar case), the cessation of 
                        business by the taxpayer, or similar 
                        circumstances, any item of income or 
                        deduction which is deferred under this 
                        subsection (and has not previously been 
                        taken into account) shall be taken into 
                        account in the taxable year in which 
                        such event occurs (or in the case of a 
                        title 11 or similar case, the day 
                        before the petition is filed).
                          (ii) Special rule for pass-thru 
                        entities.--The rule of clause (i) shall 
                        also apply in the case of the sale or 
                        exchange or redemption of an interest 
                        in a partnership, S corporation, or 
                        other pass- thru entity by a partner, 
                        shareholder, or other person holding an 
                        ownership interest in such entity.
          (6) Special rule for partnerships.--In the case of a 
        partnership, any income deferred under this subsection 
        shall be allocated to the partners in the partnership 
        immediately before the discharge in the manner such 
        amounts would have been included in the distributive 
        shares of such partners under section 704 if such 
        income were recognized at such time. Any decrease in a 
        partner's share of partnership liabilities as a result 
        of such discharge shall not be taken into account for 
        purposes of section 752 at the time of the discharge to 
        the extent it would cause the partner to recognize gain 
        under section 731. Any decrease in partnership 
        liabilities deferred under the preceding sentence shall 
        be taken into account by such partner at the same time, 
        and to the extent remaining in the same amount, as 
        income deferred under this subsection is recognized.
          (7) Secretarial authority.--The Secretary may 
        prescribe such regulations, rules, or other guidance as 
        may be necessary or appropriate for purposes of 
        applying this subsection, including--
                  (A) extending the application of the rules of 
                paragraph (5)(D) to other circumstances where 
                appropriate,
                  (B) requiring reporting of the election (and 
                such other information as the Secretary may 
                require) on returns of tax for subsequent 
                taxable years, and
                  (C) rules for the application of this 
                subsection to partnerships, S corporations, and 
                other pass-thru entities, including for the 
                allocation of deferred deductions.

           *       *       *       *       *       *       *

                              ----------                              


HIGHER EDUCATION ACT OF 1965

           *       *       *       *       *       *       *


TITLE IV--STUDENT ASSISTANCE

           *       *       *       *       *       *       *


Part B--Federal Family Education Loan Program

           *       *       *       *       *       *       *


SEC. 437. REPAYMENT BY THE SECRETARY OF LOANS OF BANKRUPT, DECEASED, OR 
                    DISABLED BORROWERS; TREATMENT OF BORROWERS 
                    ATTENDING SCHOOLS THAT FAIL TO PROVIDE A REFUND, 
                    ATTENDING CLOSED SCHOOLS, OR FALSELY CERTIFIED AS 
                    ELIGIBLE TO BORROW.

  (a) Repayment in Full for Death and Disability.--
          (1) In general.--If a student borrower who has 
        received a loan described in subparagraph (A) or (B) of 
        section 428(a)(1) dies or becomes permanently and 
        totally disabled (as determined in accordance with 
        regulations of the Secretary), or if a student borrower 
        who has received such a loan is unable to engage in any 
        substantial gainful activity by reason of any medically 
        determinable physical or mental impairment that can be 
        expected to result in death, has lasted for a 
        continuous period of not less than 60 months, or can be 
        expected to last for a continuous period of not less 
        than 60 months then the Secretary shall discharge the 
        borrower's liability on the loan by repaying the amount 
        owed on the loan. The Secretary may develop such 
        safeguards as the Secretary determines necessary to 
        prevent fraud and abuse in the discharge of liability 
        under this subsection. Notwithstanding any other 
        provision of this subsection, the Secretary may 
        promulgate regulations to reinstate the obligation of, 
        and resume collection on, loans discharged under this 
        subsection in any case in which--
                  (A) a borrower received a discharge of 
                liability under this subsection and after the 
                discharge the borrower--
                          (i) receives a loan made, insured, or 
                        guaranteed under this title; or
                          (ii) has earned income in excess of 
                        the poverty line; or
                  (B) the Secretary determines the 
                reinstatement and resumption to be necessary.
          (2) Disability determinations.--A borrower who has 
        been determined by the Secretary of Veterans Affairs to 
        be unemployable due to a service-connected condition 
        and who provides documentation of such determination to 
        the Secretary of Education, shall be considered 
        permanently and totally disabled for the purpose of 
        discharging such borrower's loans under this 
        subsection, and such borrower shall not be required to 
        present additional documentation for purposes of this 
        subsection.
  (b) Payment of Claims on Loans in Bankruptcy.--The Secretary 
shall pay to the holder of a loan described in section 
428(a)(1) (A) or (B), 428A, 428B, 428C, or 428H, the amount of 
the unpaid balance of principal and interest owed on such 
loan--
          (1) when the borrower files for relief under chapter 
        12 or 13 of title 11, United States Code;
          (2) when the borrower who has filed for relief under 
        chapter 7 or 11 of such title commences an action for a 
        determination of dischargeability under section 
        523(a)(8)(B) of such title; or
          (3) for loans described in section 523(a)(8)(A) of 
        such title, when the borrower files for relief under 
        chapter 7 or 11 of such title.
  (c) Discharge.--
          (1) In general.--If a borrower who received, on or 
        after January 1, 1986, a loan made, insured, or 
        guaranteed under this part and the student borrower, or 
        the student on whose behalf a parent borrowed, is 
        unable to complete the program in which such student is 
        enrolled due to the closure of the institution or if 
        such student's eligibility to borrow under this part 
        was falsely certified by the eligible institution or 
        was falsely certified as a result of a crime of 
        identity theft, or if the institution failed to make a 
        refund of loan proceeds which the institution owed to 
        such student's lender, then the Secretary shall 
        discharge the borrower's liability on the loan 
        (including interest and collection fees) by repaying 
        the amount owed on the loan and shall subsequently 
        pursue any claim available to such borrower against the 
        institution and its affiliates and principals or settle 
        the loan obligation pursuant to the financial 
        responsibility authority under subpart 3 of part H. In 
        the case of a discharge based upon a failure to refund, 
        the amount of the discharge shall not exceed that 
        portion of the loan which should have been refunded. 
        The Secretary shall report to the authorizing 
        committees annually as to the dollar amount of loan 
        discharges attributable to failures to make refunds.
          (2) Assignment.--A borrower whose loan has been 
        discharged pursuant to this subsection shall be deemed 
        to have assigned to the United States the right to a 
        loan refund up to the amount discharged against the 
        institution and its affiliates and principals.
          (3) Eligibility for additional assistance.--The 
        period of a student's attendance at an institution at 
        which the student was unable to complete a course of 
        study due to the closing of the institution shall not 
        be considered for purposes of calculating the student's 
        period of eligibility for additional assistance under 
        this title.
          (4) Special rule.--A borrower whose loan has been 
        discharged pursuant to this subsection shall not be 
        precluded from receiving additional grants, loans, or 
        work assistance under this title for which the borrower 
        would be otherwise eligible (but for the default on 
        such discharged loan). The amount discharged under this 
        subsection shall be treated the same as loans under 
        section 465(a)(5) of this title.
          (5) Reporting.--The Secretary shall report to 
        consumer reporting agencies with respect to loans which 
        have been discharged pursuant to this subsection.
  (d) Repayment of Loans to Parents.--If a student on whose 
behalf a parent has received a loan described in section 428B 
dies, then the Secretary shall discharge the borrower's 
liability on the loan by repaying the amount owed on the loan.

           *       *       *       *       *       *       *


      B. Changes in Existing Law Proposed by the Bill, as Reported

    In compliance with clause 3(e)(1)(B) of rule XIII of the 
Rules of the House of Representatives, changes in existing law 
proposed 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 italics, existing law in 
which no change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e)(1)(B) 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 (new matter 
is printed in italics and existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 108. INCOME FROM DISCHARGE OF INDEBTEDNESS.

  (a) Exclusion from Gross Income.--
          (1) In general.--Gross income does not include any 
        amount which (but for this subsection) would be 
        includible in gross income by reason of the discharge 
        (in whole or in part) of indebtedness of the taxpayer 
        if--
                  (A) the discharge occurs in a title 11 case,
                  (B) the discharge occurs when the taxpayer is 
                insolvent,
                  (C) the indebtedness discharged is qualified 
                farm indebtedness,
                  (D) in the case of a taxpayer other than a C 
                corporation, the indebtedness discharged is 
                qualified real property business indebtedness, 
                or
                  (E) the indebtedness discharged is qualified 
                principal residence indebtedness which is 
                discharged--
                          (i) before January 1, 2017, or ii) 
                        subject to an arrangement that is 
                        entered into and evidenced in writing 
                        before January 1, 2017.
          (2) Coordination of exclusions.--
                  (A) Title 11 exclusion takes precedence.--
                Subparagraphs (B), (C), (D), and (E) of 
                paragraph (1) shall not apply to a discharge 
                which occurs in a title 11 case.
                  (B) Insolvency exclusion takes precedence 
                over qualified farm exclusion and qualified 
                real property business exclusion.--
                Subparagraphs (C) and (D) of paragraph (1) 
                shall not apply to a discharge to the extent 
                the taxpayer is insolvent.
                  (C) Principal residence exclusion takes 
                precedence over insolvency exclusion unless 
                elected otherwise.--Paragraph (1)(B) shall not 
                apply to a discharge to which paragraph (1)(E) 
                applies unless the taxpayer elects to apply 
                paragraph (1)(B) in lieu of paragraph (1)(E).
          (3) Insolvency exclusion limited to amount of 
        insolvency.--In the case of a discharge to which 
        paragraph (1)(B) applies, the amount excluded under 
        paragraph (1)(B) shall not exceed the amount by which 
        the taxpayer is insolvent.
  (b) Reduction of Tax Attributes.--
          (1) In general.--The amount excluded from gross 
        income under subparagraph (A), (B), or (C) of 
        subsection (a)(1) shall be applied to reduce the tax 
        attributes of the taxpayer as provided in paragraph 
        (2).
          (2) Tax attributes affected; order of reduction.--
        Except as provided in paragraph (5), the reduction 
        referred to in paragraph (1) shall be made in the 
        following tax attributes in the following order:
                  (A) NOL.--Any net operating loss for the 
                taxable year of the discharge, and any net 
                operating loss carryover to such taxable year.
                  (B) General business credit.--Any carryover 
                to or from the taxable year of a discharge of 
                an amount for purposes for determining the 
                amount allowable as a credit under section 38 
                (relating to general business credit).
                  (C) Minimum tax credit.--The amount of the 
                minimum tax credit available under section 
                53(b) as of the beginning of the taxable year 
                immediately following the taxable year of the 
                discharge.
                  (D) Capital loss carryovers.--Any net capital 
                loss for the taxable year of the discharge, and 
                any capital loss carryover to such taxable year 
                under section 1212.
                  (E) Basis reduction.--
                          (i) In general.--The basis of the 
                        property of the taxpayer.
                          (ii) Cross reference.--For provisions 
                        for making the reduction described in 
                        clause (i), see section 1017.
                  (F) Passive activity loss and credit 
                carryovers.--Any passive activity loss or 
                credit carryover of the taxpayer under section 
                469(b) from the taxable year of the discharge.
                  (G) Foreign tax credit carryovers.--Any 
                carryover to or from the taxable year of the 
                discharge for purposes of determining the 
                amount of the credit allowable under section 
                27.
          (3) Amount of reduction.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the reductions described in 
                paragraph (2) shall be one dollar for each 
                dollar excluded by subsection (a).
                  (B) Credit carryover reduction.--The 
                reductions described in subparagraphs (B), (C), 
                and (G) shall be 33 1/3 cents for each dollar 
                excluded by subsection (a). The reduction 
                described in subparagraph (F) in any passive 
                activity credit carryover shall be 33 1/3 cents 
                for each dollar excluded by subsection (a).
          (4) Ordering rules.--
                  (A) Reductions made after determination of 
                tax for year.--The reductions described in 
                paragraph (2) shall be made after the 
                determination of the tax imposed by this 
                chapter for the taxable year of the discharge.
                  (B) Reductions under subparagraph (A) or (D) 
                of paragraph (2).--The reductions described in 
                subparagraph (A) or (D) of paragraph (2) (as 
                the case may be) shall be made first in the 
                loss for the taxable year of the discharge and 
                then in the carryovers to such taxable year in 
                the order of the taxable years from which each 
                such carryover arose.
                  (C) Reductions under subparagraphs (B) and 
                (G) of paragraph (2).--The reductions described 
                in subparagraphs (B) and (G) of paragraph (2) 
                shall be made in the order in which carryovers 
                are taken into account under this chapter for 
                the taxable year of the discharge.
          (5) Election to apply reduction first against 
        depreciable property.--
                  (A) In general.--The taxpayer may elect to 
                apply any portion of the reduction referred to 
                in paragraph (1) to the reduction under section 
                1017 of the basis of the depreciable property 
                of the taxpayer.
                  (B) Limitation.--The amount to which an 
                election under subparagraph (A) applies shall 
                not exceed the aggregate adjusted bases of the 
                depreciable property held by the taxpayer as of 
                the beginning of the taxable year following the 
                taxable year in which the discharge occurs.
                  (C) Other tax attributes not reduced.--
                Paragraph (2) shall not apply to any amount to 
                which an election under this paragraph applies.
  (c) Treatment of Discharge of Qualified Real Property 
Business Indebtedness.--
          (1) Basis reduction.--
                  (A) In general.--The amount excluded from 
                gross income under subparagraph (D) of 
                subsection (a)(1) shall be applied to reduce 
                the basis of the depreciable real property of 
                the taxpayer.
                  (B) Cross reference.--For provisions making 
                the reduction described in subparagraph (A), 
                see section 1017.
          (2) Limitations.--
                  (A) Indebtedness in excess of value.--The 
                amount excluded under subparagraph (D) of 
                subsection (a)(1) with respect to any qualified 
                real property business indebtedness shall not 
                exceed the excess (if any) of--
                          (i) the outstanding principal amount 
                        of such indebtedness (immediately 
                        before the discharge), over
                          (ii) the fair market value of the 
                        real property described in paragraph 
                        (3)(A) (as of such time), reduced by 
                        the outstanding principal amount of any 
                        other qualified real property business 
                        indebtedness secured by such property 
                        (as of such time).
                  (B) Overall limitation.--The amount excluded 
                under subparagraph (D) of subsection (a)(1) 
                shall not exceed the aggregate adjusted bases 
                of depreciable real property (determined after 
                any reductions under subsections (b) and (g)) 
                held by the taxpayer immediately before the 
                discharge (other than depreciable real property 
                acquired in contemplation of such discharge).
          (3) Qualified real property business indebtedness.--
        The term ``qualified real property business 
        indebtedness'' means indebtedness which--
                  (A) was incurred or assumed by the taxpayer 
                in connection with real property used in a 
                trade or business and is secured by such real 
                property,
                  (B) was incurred or assumed before January 1, 
                1993, or if incurred or assumed on or after 
                such date, is qualified acquisition 
                indebtedness, and
                  (C) with respect to which such taxpayer makes 
                an election to have this paragraph apply.
        Such term shall not include qualified farm 
        indebtedness. Indebtedness under subparagraph (B) shall 
        include indebtedness resulting from the refinancing of 
        indebtedness under subparagraph (B) (or this sentence), 
        but only to the extent it does not exceed the amount of 
        the indebtedness being refinanced.
          (4) Qualified acquisition indebtedness.--For purposes 
        of paragraph (3)(B), the term ``qualified acquisition 
        indebtedness'' means, with respect to any real property 
        described in paragraph (3)(A), indebtedness incurred or 
        assumed to acquire, construct, reconstruct, or 
        substantially improve such property.
          (5) Regulations.--The Secretary shall issue such 
        regulations as are necessary to carry out this 
        subsection, including regulations preventing the abuse 
        of this subsection through cross-collateralization or 
        other means.
  (d) Meaning of Terms; Special Rules Relating to Certain 
Provisions.--
          (1) Indebtedness of taxpayer.--For purposes of this 
        section, the term ``indebtedness of the taxpayer'' 
        means any indebtedness--
                  (A) for which the taxpayer is liable, or
                  (B) subject to which the taxpayer holds 
                property.
          (2) Title 11 case.--For purposes of this section, the 
        term ``title 11 case'' means a case under title 11 of 
        the United States Code (relating to bankruptcy), but 
        only if the taxpayer is under the jurisdiction of the 
        court in such case and the discharge of indebtedness is 
        granted by the court or is pursuant to a plan approved 
        by the court.
          (3) Insolvent.--For purposes of this section, the 
        term ``insolvent'' means the excess of liabilities over 
        the fair market value of assets. With respect to any 
        discharge, whether or not the taxpayer is insolvent, 
        and the amount by which the taxpayer is insolvent, 
        shall be determined on the basis of the taxpayer's 
        assets and liabilities immediately before the 
        discharge.
          (5) Depreciable property.--The term ``depreciable 
        property'' has the same meaning as when used in section 
        1017.
          (6) Certain provisions to be applied at partner 
        level.--In the case of a partnership, subsections (a), 
        (b), (c), and (g) shall be applied at the partner 
        level.
          (7) Special rules for S corporation.--
                  (A) Certain provisions to be applied at 
                corporate level.--In the case of an S 
                corporation, subsections (a), (b), (c), and (g) 
                shall be applied at the corporate level, 
                including by not taking into account under 
                section 1366(a) any amount excluded under 
                subsection (a) of this section.
                  (B) Reduction in carryover of disallowed 
                losses and deductions.--In the case of an S 
                corporation, for purposes of subparagraph (A) 
                of subsection (b)(2), any loss or deduction 
                which is disallowed for the taxable year of the 
                discharge under section 1366(d)(1) shall be 
                treated as a net operating loss for such 
                taxable year. The preceding sentence shall not 
                apply to any discharge to the extent that 
                subsection (a)(1)(D) applies to such discharge.
                  (C) Coordination with basis adjustments under 
                section 1367(b)(2).--For purposes of subsection 
                (e)(6), a shareholder's adjusted basis in 
                indebtedness of an S corporation shall be 
                determined without regard to any adjustments 
                made under section 1367(b)(2).
          (8) Reductions of tax attributes in title 11 cases of 
        individuals to be made by estate.--In any case under 
        chapter 7 or 11 of title 11 of the United States Code 
        to which section 1398 applies, for purposes of 
        paragraphs (1) and (5) of subsection (b) the estate 
        (and not the individual) shall be treated as the 
        taxpayer. The preceding sentence shall not apply for 
        purposes of applying section 1017 to property 
        transferred by the estate to the individual.
          (9) Time for making election, etc.--
                  (A) Time.--An election under paragraph (5) of 
                subsection (b) or under paragraph (3)(C) of 
                subsection (c) shall be made on the taxpayer's 
                return for the taxable year in which the 
                discharge occurs or at such other time as may 
                be permitted in regulations prescribed by the 
                Secretary.
                  (B) Revocation only with consent.--An 
                election referred to in subparagraph (A), once 
                made, may be revoked only with the consent of 
                the Secretary.
                  (C) Manner.--An election referred to in 
                subparagraph (A) shall be made in such manner 
                as the Secretary may by regulations prescribe.
          (10) Cross reference.--For provision that no 
        reduction is to be made in the basis of exempt property 
        of an individual debtor, see section 1017(c)(1).
  (e) General Rules for Discharge of Indebtedness (Including 
Discharges Not in Title 11 Cases or Insolvency).--For purposes 
of this title--
          (1) No other insolvency exception.--Except as 
        otherwise provided in this section, there shall be no 
        insolvency exception from the general rule that gross 
        income includes income from the discharge of 
        indebtedness.
          (2) Income not realized to extent of lost 
        deductions.--No income shall be realized from the 
        discharge of indebtedness to the extent that payment of 
        the liability would have given rise to a deduction.
          (3) Adjustments for unamortized premium and 
        discount.--The amount taken into account with respect 
        to any discharge shall be properly adjusted for 
        unamortized premium and unamortized discount with 
        respect to the indebtedness discharged.
          (4) Acquisition of indebtedness by person related to 
        debtor.--
                  (A) Treated as acquisition by debtor.--For 
                purposes of determining income of the debtor 
                from discharge of indebtedness, to the extent 
                provided in regulations prescribed by the 
                Secretary, the acquisition of outstanding 
                indebtedness by a person bearing a relationship 
                to the debtor specified in section 267(b) or 
                707(b)(1) from a person who does not bear such 
                a relationship to the debtor shall be treated 
                as the acquisition of such indebtedness by the 
                debtor. Such regulations shall provide for such 
                adjustments in the treatment of any subsequent 
                transactions involving the indebtedness as may 
                be appropriate by reason of the application of 
                the preceding sentence.
                  (B) Members of family.--For purposes of this 
                paragraph, sections 267(b) and 707(b)(1) shall 
                be applied as if section 267(c)(4) provided 
                that the family of an individual consists of 
                the individual's spouse, the individual's 
                children, grandchildren, and parents, and any 
                spouse of the individual's children or 
                grandchildren.
                  (C) Entities under common control treated as 
                related.--For purposes of this paragraph, two 
                entities which are treated as a single employer 
                under subsection (b) or (c) of section 414 
                shall be treated as bearing a relationship to 
                each other which is described in section 
                267(b).
          (5) Purchase-money debt reduction for solvent debtor 
        treated as price reduction.--If--
                  (A) the debt of a purchaser of property to 
                the seller of such property which arose out of 
                the purchase of such property is reduced,
                  (B) such reduction does not occur--
                          (i) in a title 11 case, or
                          (ii) when the purchaser is insolvent, 
                        and
                  (C) but for this paragraph, such reduction 
                would be treated as income to the purchaser 
                from the discharge of indebtedness,
        then such reduction shall be treated as a purchase 
        price adjustment.
          (6) Indebtedness contributed to capital.--Except as 
        provided in regulations, for purposes of determining 
        income of the debtor from discharge of indebtedness, if 
        a debtor corporation acquires its indebtedness from a 
        shareholder as a contribution to capital--
                  (A) section 118 shall not apply, but
                  (B) such corporation shall be treated as 
                having satisfied the indebtedness with an 
                amount of money equal to the shareholder's 
                adjusted basis in the indebtedness.
          (7) Recapture of gain on subsequent sale of stock.--
                  (A) In general.--If a creditor acquires stock 
                of a debtor corporation in satisfaction of such 
                corporation's indebtedness, for purposes of 
                section 1245--
                          (i) such stock (and any other 
                        property the basis of which is 
                        determined in whole or in part by 
                        reference to the adjusted basis of such 
                        stock) shall be treated as section 1245 
                        property,
                          (ii) the aggregate amount allowed to 
                        the creditor--
                                  (I) as deductions under 
                                subsection (a) or (b) of 
                                section 166 (by reason of the 
                                worthlessness or partial 
                                worthlessness of the 
                                indebtedness), or
                                  (II) as an ordinary loss on 
                                the exchange, shall be treated 
                                as an amount allowed as a 
                                deduction for depreciation, and
                          (iii) an exchange of such stock 
                        qualifying under section 354(a), 
                        355(a), or 356(a) shall be treated as 
                        an exchange to which section 1245(b)(3) 
                        applies.
                The amount determined under clause (ii) shall 
                be reduced by the amount (if any) included in 
                the creditor's gross income on the exchange.
                  (B) Special rule for cash basis taxpayers.--
                In the case of any creditor who computes his 
                taxable income under the cash receipts and 
                disbursements method, proper adjustment shall 
                be made in the amount taken into account under 
                clause (ii) of subparagraph (A) for any amount 
                which was not included in the creditor's gross 
                income but which would have been included in 
                such gross income if such indebtedness had been 
                satisfied in full.
                  (C) Stock of parent corporation.--For 
                purposes of this paragraph, stock of a 
                corporation in control (within the meaning of 
                section 368(c)) of the debtor corporation shall 
                be treated as stock of the debtor corporation.
                  (D) Treatment of successor corporation.--For 
                purposes of this paragraph, the term ``debtor 
                corporation'' includes a successor corporation.
                  (E) Partnership rule.--Under regulations 
                prescribed by the Secretary, rules similar to 
                the rules of the foregoing subparagraphs of 
                this paragraph shall apply with respect to the 
                indebtedness of a partnership.
          (8) Indebtedness satisfied by corporate stock or 
        partnership interest.--For purposes of determining 
        income of a debtor from discharge of indebtedness, if--
                  (A) a debtor corporation transfers stock, or
                  (B) a debtor partnership transfers a capital 
                or profits interest in such partnership,
        to a creditor in satisfaction of its recourse or 
        nonrecourse indebtedness, such corporation or 
        partnership shall be treated as having satisfied the 
        indebtedness with an amount of money equal to the fair 
        market value of the stock or interest. In the case of 
        any partnership, any discharge of indebtedness income 
        recognized under this paragraph shall be included in 
        the distributive shares of taxpayers which were the 
        partners in the partnership immediately before such 
        discharge.
          (9) Discharge of indebtedness income not taken into 
        account in determining whether entity meets REIT 
        qualifications.--Any amount included in gross income by 
        reason of the discharge of indebtedness shall not be 
        taken into account for purposes of paragraphs (2) and 
        (3) of section 856(c).
          (10) Indebtedness satisfied by issuance of debt 
        instrument.--
                  (A) In general.--For purposes of determining 
                income of a debtor from discharge of 
                indebtedness, if a debtor issues a debt 
                instrument in satisfaction of indebtedness, 
                such debtor shall be treated as having 
                satisfied the indebtedness with an amount of 
                money equal to the issue price of such debt 
                instrument.
                  (B) Issue price.--For purposes of 
                subparagraph (A), the issue price of any debt 
                instrument shall be determined under sections 
                1273 and 1274. For purposes of the preceding 
                sentence, section 1273(b)(4) shall be applied 
                by reducing the stated redemption price of any 
                instrument by the portion of such stated 
                redemption price which is treated as interest 
                for purposes of this chapter.
  (f) Student Loans.--
          (1) In general.--In the case of an individual, gross 
        income does not include any amount which (but for this 
        subsection) would be includible in gross income by 
        reason of the discharge (in whole or in part) of any 
        student loan if such discharge was pursuant to a 
        provision of such loan under which all or part of the 
        indebtedness of the individual would be discharged if 
        the individual worked for a certain period of time in 
        certain professions for any of a broad class of 
        employers.
          (2) Student loan.--For purposes of this subsection, 
        the term ``student loan'' means any loan to an 
        individual to assist the individual in attending an 
        educational organization described in section 
        170(b)(1)(A)(ii) made by--
                  (A) the United States, or an instrumentality 
                or agency thereof,
                  (B) a State, territory, or possession of the 
                United States, or the District of Columbia, or 
                any political subdivision thereof,
                  (C) a public benefit corporation--
                          (i) which is exempt from taxation 
                        under section 501(c)(3),
                          (ii) which has assumed control over a 
                        State, county, or municipal hospital, 
                        and
                          (iii) whose employees have been 
                        deemed to be public employees under 
                        State law, or
                  (D) any educational organization described in 
                section 170(b)(1)(A)(ii) if such loan is made--
                          (i) pursuant to an agreement with any 
                        entity described in subparagraph (A), 
                        (B), or (C) under which the funds from 
                        which the loan was made were provided 
                        to such educational organization, or
                          (ii) pursuant to a program of such 
                        educational organization which is 
                        designed to encourage its students to 
                        serve in occupations with unmet needs 
                        or in areas with unmet needs and under 
                        which the services provided by the 
                        students (or former students) are for 
                        or under the direction of a 
                        governmental unit or an organization 
                        described in section 501(c)(3) and 
                        exempt from tax under section 501(a).
        The term ``student loan'' includes any loan made by an 
        educational organization described in section 
        170(b)(1)(A)(ii) or by an organization exempt from tax 
        under section 501(a) to refinance a loan to an 
        individual to assist the individual in attending any 
        such educational organization but only if the 
        refinancing loan is pursuant to a program of the 
        refinancing organization which is designed as described 
        in subparagraph (D)(ii).
          (3) Exception for discharges on account of services 
        performed for certain lenders.--Paragraph (1) shall not 
        apply to the discharge of a loan made by an 
        organization described in paragraph (2)(D) if the 
        discharge is on account of services performed for 
        either such organization.
          (4) Payments under National Health Service Corps loan 
        repayment program and certain state loan repayment 
        programs.--In the case of an individual, gross income 
        shall not include any amount received under section 
        338B(g) of the Public Health Service Act, under a State 
        program described in section 338I of such Act, or under 
        any other State loan repayment or loan forgiveness 
        program that is intended to provide for the increased 
        availability of health care services in underserved or 
        health professional shortage areas (as determined by 
        such State).
          (5) Discharges on account of death or disability.--
                  (A) In general.--In the case of an 
                individual, gross income does not include any 
                amount which (but for this subsection) would be 
                includible in gross income by reasons of the 
                discharge (in whole or in part) of any loan 
                described in subparagraph (B) if such discharge 
                was--
                          (i) pursuant to subsection (a) or (d) 
                        of section 437 of the Higher Education 
                        Act of 1965 or the parallel benefit 
                        under part D of title IV of such Act 
                        (relating to the repayment of loan 
                        liability),
                          (ii) pursuant to section 464(c)(1)(F) 
                        of such Act, or
                          (iii) otherwise discharged on account 
                        of the death or total and permanent 
                        disability of the student.
                  (B) Loans described.--A loan is described in 
                this subparagraph if such loan is--
                          (i) a student loan (as defined in 
                        paragraph (2)), or
                          (ii) a private education loan (as 
                        defined in section 140(7) of the 
                        Consumer Credit Protection Act (15 
                        U.S.C. 1650(7))).
  (g) Special Rules for Discharge of Qualified Farm 
Indebtedness.--
          (1) Discharge must be by qualified person.--
                  (A) In general.--Subparagraph (C) of 
                subsection (a)(1) shall apply only if the 
                discharge is by a qualified person.
                  (B) Qualified person.--For purposes of 
                subparagraph (A), the term ``qualified person'' 
                has the meaning given to such term by section 
                49(a)(1)(D)(iv); except that such term shall 
                include any Federal, State, or local government 
                or agency or instrumentality thereof.
          (2) Qualified farm indebtedness.--For purposes of 
        this section, indebtedness of a taxpayer shall be 
        treated as qualified farm indebtedness if--
                  (A) such indebtedness was incurred directly 
                in connection with the operation by the 
                taxpayer of the trade or business of farming, 
                and
                  (B) 50 percent or more of the aggregate gross 
                receipts of the taxpayer for the 3 taxable 
                years preceding the taxable year in which the 
                discharge of such indebtedness occurs is 
                attributable to the trade or business of 
                farming.
          (3) Amount excluded cannot exceed sum of tax 
        attributes and business and investment assets.--
                  (A) In general.--The amount excluded under 
                subparagraph (C) of subsection (a)(1) shall not 
                exceed the sum of--
                          (i) the adjusted tax attributes of 
                        the taxpayer, and
                          (ii) the aggregate adjusted bases of 
                        qualified property held by the taxpayer 
                        as of the beginning of the taxable year 
                        following the taxable year in which the 
                        discharge occurs.
                  (B) Adjusted tax attributes.--For purposes of 
                subparagraph (A), the term ``adjusted tax 
                attributes'' means the sum of the tax 
                attributes described in subparagraphs (A), (B), 
                (C), (D), (F), and (G) of subsection (b)(2) 
                determined by taking into account $3 for each 
                $1 of the attributes described in subparagraphs 
                (B), (C), and (G) of subsection (b)(2) and the 
                attribute described in subparagraph (F) of 
                subsection (b)(2) to the extent attributable to 
                any passive activity credit carryover.
                  (C) Qualified property.--For purposes of this 
                paragraph, the term ``qualified property'' 
                means any property which is used or is held for 
                use in a trade or business or for the 
                production of income.
                  (D) Coordination with insolvency exclusion.--
                For purposes of this paragraph, the adjusted 
                basis of any qualified property and the amount 
                of the adjusted tax attributes shall be 
                determined after any reduction under subsection 
                (b) by reason of amounts excluded from gross 
                income under subsection (a)(1)(B).
  (h) Special Rules Relating to Qualified Principal Residence 
Indebtedness.--
          (1) Basis reduction.--The amount excluded from gross 
        income by reason of subsection (a)(1)(E) shall be 
        applied to reduce (but not below zero) the basis of the 
        principal residence of the taxpayer.
          (2) Qualified principal residence indebtedness.--For 
        purposes of this section, the term ``qualified 
        principal residence indebtedness'' means acquisition 
        indebtedness (within the meaning of section 
        163(h)(3)(B), applied by substituting ``$2,000,000 
        ($1,000,000'' for ``$1,000,000 ($500,000'' in clause 
        (ii) thereof) with respect to the principal residence 
        of the taxpayer.
          (3) Exception for certain discharges not related to 
        taxpayer's financial condition.--Subsection (a)(1)(E) 
        shall not apply to the discharge of a loan if the 
        discharge is on account of services performed for the 
        lender or any other factor not directly related to a 
        decline in the value of the residence or to the 
        financial condition of the taxpayer.
          (4) Ordering rule.--If any loan is discharged, in 
        whole or in part, and only a portion of such loan is 
        qualified principal residence indebtedness, subsection 
        (a)(1)(E) shall apply only to so much of the amount 
        discharged as exceeds the amount of the loan (as 
        determined immediately before such discharge) which is 
        not qualified principal residence indebtedness.
          (5) Principal residence.--For purposes of this 
        subsection, the term ``principal residence'' has the 
        same meaning as when used in section 121.
  (i) Deferral and Ratable Inclusion of Income Arising from 
Business Indebtedness Discharged by the Reacquisition of a Debt 
Instrument.--
          (1) In general.--At the election of the taxpayer, 
        income from the discharge of indebtedness in connection 
        with the reacquisition after December 31, 2008, and 
        before January 1, 2011, of an applicable debt 
        instrument shall be includible in gross income ratably 
        over the 5-taxable-year period beginning with--
                  (A) in the case of a reacquisition occurring 
                in 2009, the fifth taxable year following the 
                taxable year in which the reacquisition occurs, 
                and
                  (B) in the case of a reacquisition occurring 
                in 2010, the fourth taxable year following the 
                taxable year in which the reacquisition occurs.
          (2) Deferral of deduction for original issue discount 
        in debt for debt exchanges.--
                  (A) In general.--If, as part of a 
                reacquisition to which paragraph (1) applies, 
                any debt instrument is issued for the 
                applicable debt instrument being reacquired (or 
                is treated as so issued under subsection (e)(4) 
                and the regulations thereunder) and there is 
                any original issue discount determined under 
                subpart A of part V of subchapter P of this 
                chapter with respect to the debt instrument so 
                issued--
                          (i) except as provided in clause 
                        (ii), no deduction otherwise allowable 
                        under this chapter shall be allowed to 
                        the issuer of such debt instrument with 
                        respect to the portion of such original 
                        issue discount which--
                                  (I) accrues before the 1st 
                                taxable year in the 5-taxable-
                                year period in which income 
                                from the discharge of 
                                indebtedness attributable to 
                                the reacquisition of the debt 
                                instrument is includible under 
                                paragraph (1), and
                                  (II) does not exceed the 
                                income from the discharge of 
                                indebtedness with respect to 
                                the debt instrument being 
                                reacquired, and
                          (ii) the aggregate amount of 
                        deductions disallowed under clause (i) 
                        shall be allowed as a deduction ratably 
                        over the 5-taxable-year period 
                        described in clause (i)(I).
                If the amount of the original issue discount 
                accruing before such 1st taxable year exceeds 
                the income from the discharge of indebtedness 
                with respect to the applicable debt instrument 
                being reacquired, the deductions shall be 
                disallowed in the order in which the original 
                issue discount is accrued.
                  (B) Deemed debt for debt exchanges.--For 
                purposes of subparagraph (A), if any debt 
                instrument is issued by an issuer and the 
                proceeds of such debt instrument are used 
                directly or indirectly by the issuer to 
                reacquire an applicable debt instrument of the 
                issuer, the debt instrument so issued shall be 
                treated as issued for the debt instrument being 
                reacquired. If only a portion of the proceeds 
                from a debt instrument are so used, the rules 
                of subparagraph (A) shall apply to the portion 
                of any original issue discount on the newly 
                issued debt instrument which is equal to the 
                portion of the proceeds from such instrument 
                used to reacquire the outstanding instrument.
          (3) Applicable debt instrument.--For purposes of this 
        subsection--
                  (A) Applicable debt instrument.--The term 
                ``applicable debt instrument'' means any debt 
                instrument which was issued by--
                          (i) a C corporation, or
                          (ii) any other person in connection 
                        with the conduct of a trade or business 
                        by such person.
                  (B) Debt instrument.--The term ``debt 
                instrument'' means a bond, debenture, note, 
                certificate, or any other instrument or 
                contractual arrangement constituting 
                indebtedness (within the meaning of section 
                1275(a)(1)).
          (4) Reacquisition.--For purposes of this subsection--
                  (A) In general.--The term ``reacquisition'' 
                means, with respect to any applicable debt 
                instrument, any acquisition of the debt 
                instrument by--
                          (i) the debtor which issued (or is 
                        otherwise the obligor under) the debt 
                        instrument, or
                          (ii) a related person to such debtor.
                  (B) Acquisition.--The term ``acquisition'' 
                shall, with respect to any applicable debt 
                instrument, include an acquisition of the debt 
                instrument for cash, the exchange of the debt 
                instrument for another debt instrument 
                (including an exchange resulting from a 
                modification of the debt instrument), the 
                exchange of the debt instrument for corporate 
                stock or a partnership interest, and the 
                contribution of the debt instrument to capital. 
                Such term shall also include the complete 
                forgiveness of the indebtedness by the holder 
                of the debt instrument.
          (5) Other definitions and rules.--For purposes of 
        this subsection--
                  (A) Related person.--The determination of 
                whether a person is related to another person 
                shall be made in the same manner as under 
                subsection (e)(4).
                  (B) Election.--
                          (i) In general.--An election under 
                        this subsection with respect to any 
                        applicable debt instrument shall be 
                        made by including with the return of 
                        tax imposed by chapter 1 for the 
                        taxable year in which the reacquisition 
                        of the debt instrument occurs a 
                        statement which--
                                  (I) clearly identifies such 
                                instrument, and
                                  (II) includes the amount of 
                                income to which paragraph (1) 
                                applies and such other 
                                information as the Secretary 
                                may prescribe.
                          (ii) Election irrevocable.--Such 
                        election, once made, is irrevocable.
                          (iii) Pass-thru entities.--In the 
                        case of a partnership, S corporation, 
                        or other pass-thru entity, the election 
                        under this subsection shall be made by 
                        the partnership, the S corporation, or 
                        other entity involved.
                  (C) Coordination with other exclusions.--If a 
                taxpayer elects to have this subsection apply 
                to an applicable debt instrument, subparagraphs 
                (A), (B), (C), and (D) of subsection (a)(1) 
                shall not apply to the income from the 
                discharge of such indebtedness for the taxable 
                year of the election or any subsequent taxable 
                year.
                  (D) Acceleration of deferred items.--
                          (i) In general.--In the case of the 
                        death of the taxpayer, the liquidation 
                        or sale of substantially all the assets 
                        of the taxpayer (including in a title 
                        11 or similar case), the cessation of 
                        business by the taxpayer, or similar 
                        circumstances, any item of income or 
                        deduction which is deferred under this 
                        subsection (and has not previously been 
                        taken into account) shall be taken into 
                        account in the taxable year in which 
                        such event occurs (or in the case of a 
                        title 11 or similar case, the day 
                        before the petition is filed).
                          (ii) Special rule for pass-thru 
                        entities.--The rule of clause (i) shall 
                        also apply in the case of the sale or 
                        exchange or redemption of an interest 
                        in a partnership, S corporation, or 
                        other pass- thru entity by a partner, 
                        shareholder, or other person holding an 
                        ownership interest in such entity.
          (6) Special rule for partnerships.--In the case of a 
        partnership, any income deferred under this subsection 
        shall be allocated to the partners in the partnership 
        immediately before the discharge in the manner such 
        amounts would have been included in the distributive 
        shares of such partners under section 704 if such 
        income were recognized at such time. Any decrease in a 
        partner's share of partnership liabilities as a result 
        of such discharge shall not be taken into account for 
        purposes of section 752 at the time of the discharge to 
        the extent it would cause the partner to recognize gain 
        under section 731. Any decrease in partnership 
        liabilities deferred under the preceding sentence shall 
        be taken into account by such partner at the same time, 
        and to the extent remaining in the same amount, as 
        income deferred under this subsection is recognized.
          (7) Secretarial authority.--The Secretary may 
        prescribe such regulations, rules, or other guidance as 
        may be necessary or appropriate for purposes of 
        applying this subsection, including--
                  (A) extending the application of the rules of 
                paragraph (5)(D) to other circumstances where 
                appropriate,
                  (B) requiring reporting of the election (and 
                such other information as the Secretary may 
                require) on returns of tax for subsequent 
                taxable years, and
                  (C) rules for the application of this 
                subsection to partnerships, S corporations, and 
                other pass-thru entities, including for the 
                allocation of deferred deductions.

           *       *       *       *       *       *       *

                              ----------                              


HIGHER EDUCATION ACT OF 1965

           *       *       *       *       *       *       *


TITLE IV--STUDENT ASSISTANCE

           *       *       *       *       *       *       *


Part B--Federal Family Education Loan Program

           *       *       *       *       *       *       *


SEC. 437. REPAYMENT BY THE SECRETARY OF LOANS OF BANKRUPT, DECEASED, OR 
                    DISABLED BORROWERS; TREATMENT OF BORROWERS 
                    ATTENDING SCHOOLS THAT FAIL TO PROVIDE A REFUND, 
                    ATTENDING CLOSED SCHOOLS, OR FALSELY CERTIFIED AS 
                    ELIGIBLE TO BORROW.

  (a) Repayment in Full for Death and Disability.--
          (1) In general.--If a student borrower who has 
        received a loan described in subparagraph (A) or (B) of 
        section 428(a)(1) dies or becomes permanently and 
        totally disabled (as determined in accordance with 
        regulations of the Secretary), or if a student borrower 
        who has received such a loan is unable to engage in any 
        substantial gainful activity by reason of any medically 
        determinable physical or mental impairment that can be 
        expected to result in death, has lasted for a 
        continuous period of not less than 60 months, or can be 
        expected to last for a continuous period of not less 
        than 60 months then the Secretary shall discharge the 
        borrower's liability on the loan by repaying the amount 
        owed on the loan. The Secretary may develop such 
        safeguards as the Secretary determines necessary to 
        prevent fraud and abuse in the discharge of liability 
        under this subsection. Notwithstanding any other 
        provision of this subsection, the Secretary may 
        promulgate regulations to reinstate the obligation of, 
        and resume collection on, loans discharged under this 
        subsection in any case in which--
                  (A) a borrower received a discharge of 
                liability under this subsection and after the 
                discharge the borrower--
                          (i) receives a loan made, insured, or 
                        guaranteed under this title; or
                          (ii) has earned income in excess of 
                        the poverty line; or
                  (B) the Secretary determines the 
                reinstatement and resumption to be necessary.
          (2) Disability determinations.--A borrower who has 
        been determined by the Secretary of Veterans Affairs to 
        be unemployable due to a service-connected condition 
        and who provides documentation of such determination to 
        the Secretary of Education, shall be considered 
        permanently and totally disabled for the purpose of 
        discharging such borrower's loans under this 
        subsection, and such borrower shall not be required to 
        present additional documentation for purposes of this 
        subsection.
  (b) Payment of Claims on Loans in Bankruptcy.--The Secretary 
shall pay to the holder of a loan described in section 
428(a)(1) (A) or (B), 428A, 428B, 428C, or 428H, the amount of 
the unpaid balance of principal and interest owed on such 
loan--
          (1) when the borrower files for relief under chapter 
        12 or 13 of title 11, United States Code;
          (2) when the borrower who has filed for relief under 
        chapter 7 or 11 of such title commences an action for a 
        determination of dischargeability under section 
        523(a)(8)(B) of such title; or
          (3) for loans described in section 523(a)(8)(A) of 
        such title, when the borrower files for relief under 
        chapter 7 or 11 of such title.
  (c) Discharge.--
          (1) In general.--If a borrower who received, on or 
        after January 1, 1986, a loan made, insured, or 
        guaranteed under this part and the student borrower, or 
        the student on whose behalf a parent borrowed, is 
        unable to complete the program in which such student is 
        enrolled due to the closure of the institution or if 
        such student's eligibility to borrow under this part 
        was falsely certified by the eligible institution or 
        was falsely certified as a result of a crime of 
        identity theft, or if the institution failed to make a 
        refund of loan proceeds which the institution owed to 
        such student's lender, then the Secretary shall 
        discharge the borrower's liability on the loan 
        (including interest and collection fees) by repaying 
        the amount owed on the loan and shall subsequently 
        pursue any claim available to such borrower against the 
        institution and its affiliates and principals or settle 
        the loan obligation pursuant to the financial 
        responsibility authority under subpart 3 of part H. In 
        the case of a discharge based upon a failure to refund, 
        the amount of the discharge shall not exceed that 
        portion of the loan which should have been refunded. 
        The Secretary shall report to the authorizing 
        committees annually as to the dollar amount of loan 
        discharges attributable to failures to make refunds.
          (2) Assignment.--A borrower whose loan has been 
        discharged pursuant to this subsection shall be deemed 
        to have assigned to the United States the right to a 
        loan refund up to the amount discharged against the 
        institution and its affiliates and principals.
          (3) Eligibility for additional assistance.--The 
        period of a student's attendance at an institution at 
        which the student was unable to complete a course of 
        study due to the closing of the institution shall not 
        be considered for purposes of calculating the student's 
        period of eligibility for additional assistance under 
        this title.
          (4) Special rule.--A borrower whose loan has been 
        discharged pursuant to this subsection shall not be 
        precluded from receiving additional grants, loans, or 
        work assistance under this title for which the borrower 
        would be otherwise eligible (but for the default on 
        such discharged loan). The amount discharged under this 
        subsection shall be treated the same as loans under 
        section 465(a)(5) of this title.
          (5) Reporting.--The Secretary shall report to 
        consumer reporting agencies with respect to loans which 
        have been discharged pursuant to this subsection.
  (d) Repayment of Loans to Parents.--If a student on whose 
behalf a parent has received a loan described in section 428B 
dies or becomes permanently and totally disabled (as determined 
in accordance with regulations of the Secretary), or if the 
student is unable to engage in any substantial gainful activity 
by reason of any medically determinable physical or mental 
impairment that can be expected to result in death, has lasted 
for a continuous period of not less than 60 months, or can be 
expected to last for a continuous period of not less than 60 
months, then the Secretary shall discharge the borrower's 
liability on the loan by repaying the amount owed on the loan.

           *       *       *       *       *       *       *


                         VII. ADDITIONAL VIEWS

    Setting aside the merits of the legislation that the 
Committee has recently considered, there remains good reason to 
object to the path that Republicans have charted with respect 
to consideration of these tax bills. Over the last two weeks, 
the Committee has marked up seven Republican revenue bills. 
While it is true that some of these bills have bipartisan 
support, it is inexcusable that none of the bills recommended 
for consideration by the Democrats on the Committee were 
brought up at either of the Committee's most recent markups.
    Republicans on the Committee squandered the opportunity to 
take up legislation that would provide incentives for other 
low-carbon energy alternatives, including efforts to correct an 
unintentional omission from the tax legislation that the 
Congress considered in December of last year. While the 
Congress provided a long-term extension of the section 48 
investment tax credit for solar facilities, the legislation 
that was signed into law inadvertently excluded the other 
technologies included in the section 48 investment tax credit. 
The omitted extension applies to investments in fuel cell 
property, microturbine property, geothermal property, small 
wind property, combined heat and power property, and fiber 
optic solar property. Committee Members on both sides of the 
aisle expressed impassioned support for these provisions, yet 
the Republicans continue to reject legislation to right this 
wrong. Although the Chairman committed to continuing to listen 
to supporters of the bill, I would argue that given that it has 
such broad support, the time to listen has passed, and it is 
now time to act.
    It is my hope that the Republicans on this Committee will 
abandon their extraordinary partisanship, and move away from 
this piecemeal consideration of legislation. The need for 
comprehensive tax reform has never been more pressing, and the 
Committee should turn its focus from these miscellaneous 
provisions and towards a reform that makes our nation's tax 
code fair, addresses the problems of income and wealth 
inequality, and provides opportunities for all Americans to 
succeed.
                                   Sander M. Levin,
                                           Ranking Member.

                                  [all]