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                                                      Calendar No. 198
114th Congress      }                                    {      Report
                                 SENATE
 1st Session        }                                    {     114-118
_______________________________________________________________________





                    TAX RELIEF EXTENSION ACT OF 2015

                               __________

                              R E P O R T

                         [to accompany s. 1946]

 TO AMEND THE INTERNAL REVENUE CODE OF 1986 TO EXTEND CERTAIN EXPIRING 
                   PROVISIONS, AND FOR OTHER PURPOSES

                               __________

                          COMMITTEE ON FINANCE

                          UNITED STATES SENATE

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                 August 5, 2015.--Ordered to be printed
                 
                 
                                   ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

49-010                         WASHINGTON : 2015                  
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                            C O N T E N T S

                              ----------                              
                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................1
II. EXPLANATION OF THE BILL...........................................1
        A. Sense of the Senate (sec. 2 of the bill)..............     1
TITLE I--PROVISIONS THAT EXPIRED IN 2014.........................     2
        A. Individual Tax Extenders..............................     2
            1. Extension and modification of deduction for 
                certain expenses of elementary and secondary 
                school teachers (sec. 101 of the bill and sec. 
                62(a)(2)(D) of the Code).........................     2
            2. Extension and modification of exclusion from gross 
                income of discharges of acquisition indebtedness 
                on principal residences (sec. 102 of the bill and 
                sec. 108 of the Code)............................     3
            3. Extension of parity for employer-provided mass 
                transit and parking benefits and modification of 
                exclusion for bicycle commuting reimbursements 
                (sec. 103 of the bill and 132(f) of the Code)....     5
            4. Extension of mortgage insurance premiums treated 
                as qualified residence interest (sec. 104 of the 
                bill and sec. 163 of the Code)...................     7
            5. Extension of deduction for State and local general 
                sales taxes (sec. 105 of the bill and sec. 164 of 
                the Code)........................................     9
            6. Extension of special rule for contributions of 
                capital gain real property made for conservation 
                purposes (sec. 106 of the bill and sec. 170(b) of 
                the Code)........................................    10
            7. Extension of deduction for qualified tuition and 
                related expenses (sec. 107 of the bill and sec. 
                222 of the Code).................................    13
            8. Extension of tax-free distributions from 
                individual retirement plans for charitable 
                purposes (sec. 108 of the bill and sec. 408(d)(8) 
                of the Code).....................................    15
        B. Business Tax Extenders................................    19
            1. Extension and modification of research credit 
                (sec. 111 of the bill and secs. 38 and 41 and new 
                sec. 3111(f) of the Code)........................    19
            2. Extension and modification of temporary minimum 
                low-income housing tax credit rate for non-
                Federally subsidized buildings (sec. 112 of the 
                bill and sec. 42 of the Code)....................    25
            3. Extension of military housing allowance exclusion 
                for determining area median gross income (sec. 
                113 of the bill and secs. 42 and 142 of the Code)    27
            4. Extension of Indian employment tax credit (sec. 
                114 of the bill and sec. 45A of the Code)........    28
            5. Extension and modification of new markets tax 
                credit (sec. 115 of the bill and sec. 45D of the 
                Code)............................................    29
            6. Extension and modification of railroad track 
                maintenance credit (sec. 116 of the bill and sec. 
                45G of the Code).................................    32
            7. Extension of mine rescue team training credit 
                (sec. 117 of the bill and sec. 45N of the Code)..    33
            8. Extension and modification of employer wage credit 
                for employees who are active duty members of the 
                uniformed services (sec. 118 of the bill and sec. 
                45P of the Code).................................    34
            9. Extension and modification of work opportunity tax 
                credit (sec. 119 of the bill and secs. 51 and 52 
                of the Code).....................................    35
            10. Extension and modification of qualified zone 
                academy bonds (sec. 120 of the bill and secs. 54E 
                and 6431 of the Code)............................    42
            11. Extension of classification of certain race 
                horses as three-year property (sec. 121 of the 
                bill and sec. 168 of the Code)...................    44
            12. Extension of 15-year straight-line cost recovery 
                for qualified leasehold improvements, qualified 
                restaurant buildings and improvements, and 
                qualified retail improvements (sec. 122 of the 
                bill and sec. 168 of the Code)...................    45
            13. Extension of seven-year recovery period for 
                motorsports entertainment complexes (sec. 123 of 
                the bill and sec. 168 of the Code)...............    48
            14. Extension and modification of accelerated 
                depreciation for business property on an Indian 
                reservation (sec. 124 of the bill and sec. 168(j) 
                of the Code).....................................    49
            15. Extension of bonus depreciation (sec. 125 of the 
                bill and sec. 168(k) of the Code)................    51
            16. Extension of enhanced charitable deduction for 
                contributions of food inventory (sec. 126 of the 
                bill and sec. 170 of the Code)...................    55
            17. Extension and modification of increased expensing 
                limitations and treatment of certain real 
                property as section 179 property (sec. 127 of the 
                bill and sec. 179 of the Code)...................    57
            18. Extension of election to expense mine safety 
                equipment (sec. 128 of the bill and sec. 179E of 
                the Code)........................................    59
            19. Extension of special expensing rules for certain 
                film and television productions; special 
                expensing for live theatrical productions (sec. 
                129 of the bill and sec. 181 of the Code)........    60
            20. Extension of deduction allowable with respect to 
                income attributable to domestic production 
                activities in Puerto Rico (sec. 130 of the bill 
                and sec. 199 of the Code)........................    62
            21. Extension of modification of tax treatment of 
                certain payments to controlling exempt 
                organizations (sec. 131 of the bill and sec. 512 
                of the Code).....................................    64
            22. Extension of treatment of certain dividends of 
                regulated investment companies (sec. 132 of the 
                bill and sec. 871(k) of the Code)................    65
            23. Extension of RIC qualified investment entity 
                treatment under FIRPTA (sec. 133 of the bill and 
                secs. 897 and 1445 of the Code)..................    66
            24. Extension of subpart F exception for active 
                financing income (sec. 134 of the bill and secs. 
                953 and 954 of the Code).........................    67
            25. Extension of look-thru treatment of payments 
                between related controlled foreign corporations 
                under foreign personal holding company rules 
                (sec. 135 of the bill and sec. 954(c)(6) of the 
                Code)............................................    70
            26. Extension of exclusion of 100 percent of gain on 
                certain small business stock (sec. 136 of the 
                bill and sec. 1202 of the Code)..................    71
            27. Extension of basis adjustment to stock of S 
                corporations making charitable contributions of 
                property (sec. 137 of the bill and sec. 1367 of 
                the Code)........................................    72
            28. Extension of reduction in S corporation 
                recognition period for built-in gains tax (sec. 
                138 of the bill and sec. 1374 of the Code).......    73
            29. Extension and modification of empowerment zone 
                tax incentives (sec. 139 of the bill and secs. 
                1391 and 1394 of the Code).......................    75
            30. Extension of temporary increase in limit on cover 
                over of rum excise taxes to Puerto Rico and the 
                Virgin Islands (sec. 140 of the bill and sec. 
                7652(f) of the Code).............................    81
            31. Extension of American Samoa Economic Development 
                Credit (sec. 141 of the bill and sec. 119 of Pub. 
                L. No. 109-432)..................................    82
        C. Energy Tax Extenders..................................    84
            1. Extension and modification of credit for 
                nonbusiness energy property (sec.151 of the bill 
                and sec. 25C of the Code)........................    84
            2. Extension of credit for fuel cell motor vehicles 
                (sec. 152 of the bill and sec. 30B of the Code)..    87
            3. Extension of credit for alternative fuel vehicle 
                refueling property (sec. 153 of the bill and 
                section 30C of the Code).........................    87
            4. Extension of second generation biofuel producer 
                credit (sec. 154 of the bill and sec. 40 of the 
                Code)............................................    88
            5. Extension and modification of incentives for 
                biodiesel and renewable diesel (sec. 155 of the 
                bill and sec. 40A, 6426 and 6427(e) of the Code).    89
            6. Extension of credit for the production of Indian 
                coal facilities placed in service before 2009 
                (sec. 156 of the bill and sec. 45 of the Code)...    94
            7. Extension of credits with respect to facilities 
                producing energy from certain renewable resources 
                (sec. 157 of the bill and sec. 45 of the Code)...    95
            8. Extension of credit for energy-efficient new homes 
                (sec. 158 of the bill and sec. 45L of the Code)..    96
            9. Extension of special allowance for second 
                generation biofuel plant property (sec. 159 of 
                the bill and sec. 168(l) of the Code)............    97
            10. Extension and modification of energy efficient 
                commercial buildings deduction (sec. 160 of the 
                bill and sec. 179D of the Code)..................    99
            11. Extension of special rule for sales or 
                dispositions to implement FERC or State electric 
                restructuring policy for qualified electric 
                utilities (sec. 161 of the bill and sec. 451(i) 
                of the Code).....................................   102
            12. Extension of excise tax credits and payment 
                provisions relating to alternative fuel (sec. 162 
                of the bill and secs. 6426 and 6427 of the Code).   103
TITLE II--PROVISION THAT EXPIRED IN 2013.........................   105
        A. Extension of Credit for Electric Motorcycles (sec. 201 
            of the bill and sec. 30D of the Code)................   105
TITLE III--REVENUE RAISING PROVISIONS............................   106
            1. Exclusion from gross income of certain clean coal 
                power grants to non-corporate taxpayers (sec. 301 
                of the bill).....................................   106
            2. Treatment of certain persons as employers with 
                respect to motion picture projects (sec. 302 of 
                the bill and new sec. 3512 of the Code)..........   107
            3. Equalization of Excise Tax and Credits for 
                Liquefied Natural Gas and Liquefied Petroleum Gas 
                (sec. 303 of the bill and sec. 4041 of the Code).   110
            4. Additional information on returns relating to 
                mortgage interest (sec. 304 of the bill and sec. 
                6050H of the Code)...............................   112
III.BUDGET EFFECTS OF THE BILL......................................113

        A. Committee Estimates...................................   113
        B. Budget Authority and Tax Expenditures.................   121
        C. Consultation with Congressional Budget Office.........   121
IV. VOTES OF THE COMMITTEE..........................................128
 V. REGULATORY IMPACT AND OTHER MATTERS.............................128
        A. Regulatory Impact.....................................   128
        B. Unfunded Mandates Statement...........................   128
        C. Tax Complexity Analysis...............................   129
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........136










                                                      Calendar No. 198
114th Congress      }                                    {      Report
                                 SENATE
 1st Session        }                                    {     114-118

======================================================================



 
                    TAX RELIEF EXTENSION ACT OF 2015

                                _______
                                

                 August 5, 2015.--Ordered to be printed

                                _______
                                

               Mr. Hatch, from the Committee on Finance, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1946]

    The Committee on Finance, having considered an original 
bill, S. 1946, to amend the Internal Revenue Code of 1986 to 
extend certain expiring provisions, and for other purposes, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                       I. LEGISLATIVE BACKGROUND

    On July 21, 2015, the Senate Committee on Finance marked up 
original legislation to amend the Internal Revenue Code of 1986 
to extend certain expired tax provisions. With a majority and 
quorum present, the Committee ordered the bill favorably 
reported, with two amendments. This report describes the 
provisions of the bill.

                      II. EXPLANATION OF THE BILL


                         A. Sense of the Senate


                          (Sec. 2 of the bill)

    The bill expresses the sense of the Senate that Congress 
should pursue comprehensive tax reform that eliminates 
temporary provisions from the tax code, thus making permanent 
those provisions that merit such treatment and allowing others 
to expire, and that a major focus of tax reform should be 
fostering economic growth and lowering tax rates by broadening 
the tax base.

                TITLE I--PROVISIONS THAT EXPIRED IN 2014


                      A. Individual Tax Extenders


  1. Extension and modification of deduction for certain expenses of 
elementary and secondary school teachers (sec. 101 of the bill and sec. 
                        62(a)(2)(D) of the Code)


                              PRESENT LAW

    In general, ordinary and necessary business expenses are 
deductible. However, unreimbursed employee business expenses 
generally are deductible only as an itemized deduction and only 
to the extent that the individual's total miscellaneous 
deductions (including employee business expenses) exceed two 
percent of adjusted gross income. An individual's otherwise 
allowable itemized deductions may be further limited by the 
overall limitation on itemized deductions, which reduces 
itemized deductions for taxpayers with adjusted gross income in 
excess of a threshold amount. In addition, miscellaneous 
itemized deductions are not allowable under the alternative 
minimum tax.
    Certain expenses of eligible educators are allowed as an 
above-the-line deduction. Specifically, for taxable years 
beginning prior to January 1, 2015, an above-the-line deduction 
is allowed for up to $250 annually of expenses paid or incurred 
by an eligible educator for books, supplies (other than 
nonathletic supplies for courses of instruction in health or 
physical education), computer equipment (including related 
software and services) and other equipment, and supplementary 
materials used by the eligible educator in the classroom.\1\ To 
be eligible for this deduction, the expenses must be otherwise 
deductible under section 162 as a trade or business expense. A 
deduction is allowed only to the extent the amount of expenses 
exceeds the amount excludable from income under section 135 
(relating to education savings bonds), section 529(c)(1) 
(relating to qualified tuition programs), and section 530(d)(2) 
(relating to Coverdell education savings accounts).
---------------------------------------------------------------------------
    \1\Sec. 62(a)(2)(D). Except where otherwise provided, all section 
references are to the Internal Revenue Code of 1986, as amended (the 
``Code'').
---------------------------------------------------------------------------
    An eligible educator is a kindergarten through grade twelve 
teacher, instructor, counselor, principal, or aide in a school 
for at least 900 hours during a school year. A school means any 
school that provides elementary education or secondary 
education (kindergarten through grade 12), as determined under 
State law.
    The above-the-line deduction for eligible educators is not 
allowed for taxable years beginning after December 31, 2014.

                           REASONS FOR CHANGE

    The Committee recognizes that many elementary and secondary 
school teachers provide substantial classroom resources at 
their own expense and believes that it is appropriate to extend 
the present law deduction for such expenses in order to 
continue to partially offset the substantial costs such 
educators incur for the benefit of their students. 
Additionally, the Committee recognizes that teachers must often 
incur out-of-pocket expenses for professional development, and 
believes that it is appropriate to include these amounts as 
expenses eligible for the deduction. Finally, the Committee 
believes that it is appropriate to index the $250 maximum 
deduction amount for inflation, so as to prevent the value of 
the deduction from eroding over time.

                        EXPLANATION OF PROVISION

    The provision extends the deduction for eligible educator 
expenses for two years, through December 31, 2016. The 
provision indexes the $250 maximum deduction amount for 
inflation, and provides that expenses for professional 
development shall also be considered eligible expenses for 
purposes of the deduction.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2014.

    2. Extension and modification of exclusion from gross income of 
 discharges of acquisition indebtedness on principal residences (sec. 
               102 of the bill and sec. 108 of the Code)


                              PRESENT LAW

In general

    Gross income includes income that is realized by a debtor 
from the discharge of indebtedness, subject to certain 
exceptions for debtors in Title 11 bankruptcy cases, insolvent 
debtors, certain student loans, certain farm indebtedness, and 
certain real property business indebtedness.\2\ In cases 
involving discharges of indebtedness that are excluded from 
gross income under the exceptions to the general rule, 
taxpayers generally reduce certain tax attributes, including 
basis in property, by the amount of the discharge of 
indebtedness.
---------------------------------------------------------------------------
    \2\Secs. 61(a)(12) and 108. A debt cancellation which constitutes a 
gift or bequest is not treated as income to the donee debtor (sec. 
102).
---------------------------------------------------------------------------
    The amount of discharge of indebtedness excluded from 
income by an insolvent debtor not in a Title 11 bankruptcy case 
cannot exceed the amount by which the debtor is insolvent. In 
the case of a discharge in bankruptcy or where the debtor is 
insolvent, any reduction in basis may not exceed the excess of 
the aggregate bases of properties held by the taxpayer 
immediately after the discharge over the aggregate of the 
liabilities of the taxpayer immediately after the discharge.\3\
---------------------------------------------------------------------------
    \3\Sec. 1017.
---------------------------------------------------------------------------
    For all taxpayers, the amount of discharge of indebtedness 
generally is equal to the difference between the adjusted issue 
price of the debt being cancelled and the amount used to 
satisfy the debt. These rules generally apply to the exchange 
of an old obligation for a new obligation, including a 
modification of indebtedness that is treated as an exchange (a 
debt-for-debt exchange).

Qualified principal residence indebtedness

    An exclusion from gross income is provided for any 
discharge of indebtedness income by reason of a discharge (in 
whole or in part) of qualified principal residence 
indebtedness. Qualified principal residence indebtedness means 
acquisition indebtedness (within the meaning of section 
163(h)(3)(B), except that the dollar limitation is $2 million) 
with respect to the taxpayer's principal residence. Acquisition 
indebtedness with respect to a principal residence generally 
means indebtedness which is incurred in the acquisition, 
construction, or substantial improvement of the principal 
residence of the individual and is secured by the residence. It 
also includes refinancing of such indebtedness to the extent 
the amount of the indebtedness resulting from such refinancing 
does not exceed the amount of the refinanced indebtedness. For 
these purposes, the term ``principal residence'' has the same 
meaning as under section 121.
    If, immediately before the discharge, only a portion of a 
discharged indebtedness is qualified principal residence 
indebtedness, the exclusion applies only to so much of the 
amount discharged as exceeds the portion of the debt which is 
not qualified principal residence indebtedness. Thus, assume 
that a principal residence is secured by an indebtedness of $1 
million, of which $800,000 is qualified principal residence 
indebtedness. If the residence is sold for $700,000 and 
$300,000 of debt is discharged, then only $100,000 of the 
amount discharged may be excluded from gross income under the 
qualified principal residence indebtedness exclusion.
    The basis of the individual's principal residence is 
reduced by the amount excluded from income under the provision.
    The qualified principal residence indebtedness exclusion 
does not apply to a taxpayer in a Title 11 case; instead the 
general exclusion rules apply. In the case of an insolvent 
taxpayer not in a Title 11 case, the qualified principal 
residence indebtedness exclusion applies unless the taxpayer 
elects to have the general exclusion rules apply instead.
    The exclusion does 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.
    The exclusion for qualified principal residence 
indebtedness is effective for discharges of indebtedness before 
January 1, 2015.

                           REASONS FOR CHANGE

    The Committee believes the provision should be extended 
because taxpayers restructuring their acquisition debt on a 
principal residence or losing their principal residence in a 
foreclosure are also likely, due to their economic 
circumstances, to lack the necessary liquidity to pay taxes on 
the resulting discharged debt were it to be included in gross 
income. Additionally, the Committee also believes it is 
appropriate to provide relief to taxpayers who may have entered 
into a binding arrangement for the discharge of indebtedness 
prior to the expiration of the provision, but for whom the 
indebtedness was not actually discharged until the following 
taxable year.

                        Explanation of Provision

    The provision extends for two additional years (through 
December 31, 2016) the exclusion from gross income for 
discharges of qualified principal residence indebtedness. The 
provision also provides for an exclusion from gross income in 
the case of those taxpayers' whose qualified principal 
residence indebtedness was discharged on or after January 1, 
2017, if the discharge was pursuant to a binding written 
agreement entered into prior to January 1, 2017.

                             EFFECTIVE DATE

    The provision applies to discharges of indebtedness after 
December 31, 2014.

 3. Extension of parity for employer-provided mass transit and parking 
     benefits and modification of exclusion for bicycle commuting 
      reimbursements (sec. 103 of the bill and 132(f) of the Code)


                              PRESENT LAW

Qualified transportation fringes

    Qualified transportation fringe benefits provided by an 
employer are excluded from an employee's gross income for 
income tax purposes and from an employee's wages for employment 
tax purposes.\4\ Qualified transportation fringe benefits 
include parking, transit passes, vanpool benefits, and 
qualified bicycle commuting reimbursements.
---------------------------------------------------------------------------
    \4\Secs. 132(a)(5) and (f), 3121(a)(20), 3231(e)(5), 3306(b)(16) 
and 3401(a)(19).
---------------------------------------------------------------------------
    No amount is includible in the income of an employee merely 
because the employer offers the employee a choice between cash 
and qualified transportation fringe benefits (other than a 
qualified bicycle commuting reimbursement).
    Qualified transportation fringe benefits also include a 
cash reimbursement (under a bona fide reimbursement 
arrangement) by an employer to an employee for parking, transit 
passes, or vanpooling. In the case of transit passes, however, 
in general, a cash reimbursement is considered a qualified 
transportation fringe benefit only if a voucher or similar item 
that may be exchanged only for a transit pass is not readily 
available for direct distribution by the employer to the 
employee.

Mass transit parity

    Before February 17, 2009, the amount that could be excluded 
as qualified transportation fringe benefits was limited to $100 
per month in combined transit pass and vanpool benefits and 
$175 per month in qualified parking benefits. These limits are 
adjusted annually for inflation, using 1998 as the base year; 
for 2015, the limits are $130 and $250, respectively. Effective 
for months beginning on or after February 17, 2009,\5\ and 
before January 1, 2015, parity in qualified transportation 
fringe benefits is provided by temporarily increasing the 
monthly exclusion for combined employer-provided transit pass 
and vanpool benefits to the same level as the exclusion for 
employer-provided parking.
---------------------------------------------------------------------------
    \5\Parity was provided originally by the American Recovery and 
Reinvestment Act of 2009 (``ARRA''), Pub. L. No. 111-5, effective for 
months beginning on or after February 17, 2009, the date of enactment 
of ARRA.
---------------------------------------------------------------------------
    Effective January 1, 2015, the amount that can be excluded 
as qualified transportation fringe benefits is limited to $130 
per month in combined transit pass and vanpool benefits and 
$250 per month in qualified parking benefits.

Qualified bicycle commuting reimbursements

    Qualified bicycle commuting reimbursements with respect to 
a calendar year are limited to employer reimbursements during 
the 15 month period beginning on the first day of the calendar 
year for expenses incurred during the calendar year for the 
purchase of a bicycle and bicycle improvements, repairs and 
storage, by an employee who regularly uses the bicycle for 
commuting. For this purpose, commuting means to use the bicycle 
for a substantial portion of the travel between the employee's 
residence and place of employment. In the case of qualified 
bicycle commuting reimbursements, the amount that can be 
excluded for a taxable year is limited to $20 multiplied by the 
number of months during the year that the employee regularly 
uses the bicycle for commuting and does not receive another 
qualified transportation fringe benefit.

                           REASONS FOR CHANGE

    Maintaining parity between parking and mass transit 
benefits provides employees with an incentive to use public 
transportation and vanpools for their commute rather than 
driving to work in their personal vehicles, thus potentially 
easing traffic congestion and pollution.
    Some employees who regularly commute to work by bicycle do 
not use their own bicycles but use bicycles available through a 
bicycle-share program. The Committee believes that 
reimbursement from employers for an employee's use of a 
bicycle-share program for commuting to work should be accorded 
the same tax treatment as reimbursement for the cost of 
purchase and maintenance by an employee of his or her own 
bicycle used for commuting.

                        EXPLANATION OF PROVISION

Mass transit parity

    The provision extends parity in the exclusion for combined 
employer-provided transit pass and vanpool benefits and for 
employer-provided parking benefits for two years, that is, 
through December 31, 2016. Thus, for 2015, the monthly limit on 
the exclusion for combined transit pass and vanpool benefits is 
$250, the same as the monthly limit on the exclusion for 
qualified parking benefits. Similarly, for 2016, the same 
monthly limit will apply on the exclusion for combined transit 
pass and vanpool benefits and the exclusion for qualified 
parking benefits.
    In order for the extension to be effective retroactive to 
January 1, 2015, expenses incurred for months beginning after 
December 31, 2014, and before enactment of the provision, by an 
employee for employer-provided vanpool and transit benefits may 
be reimbursed (under a bona fide reimbursement arrangement) by 
employers on a tax-free basis to the extent they exceed $130 
per month and are no more than $250 per month. The Committee 
intends that the rule that an employer reimbursement is 
excludible only if vouchers are not available to provide the 
benefit continues to apply, except in the case of 
reimbursements for vanpool or transit benefits between $130 and 
$250 for months beginning after December 31, 2014, and before 
enactment of the provision. Further, the Committee intends that 
reimbursements for expenses incurred for months beginning after 
December 31, 2014, and before enactment of the provision, may 
be made in addition to the provision of benefits or 
reimbursements of up to $250 per month for expenses incurred 
for months beginning during 2015 and after enactment of the 
provision.

Qualified bicycle commuting reimbursements

    Under the provision, an employer reimbursement of the 
expense of a bicycle-share program for an employee who 
regularly uses the program for commuting qualifies for 
exclusion from gross income (and wages for employment tax 
purposes) as a qualified bicycle commuting reimbursement, 
subject to the $20-per-month limit on this exclusion and 
provided the employee does not receive another qualified 
transportation fringe benefit for the month. This provision 
applies to reimbursements for taxable years beginning before 
January 1, 2017.

                             EFFECTIVE DATE

    The provision relating to parity in the exclusion for 
combined employer-provided transit pass and vanpool benefits 
and for employer-provided parking benefits applies to months 
after December 31, 2014. The provision related to qualified 
bicycle commuting reimbursements is effective for taxable years 
beginning after December 31, 2014.

   4. Extension of mortgage insurance premiums treated as qualified 
   residence interest (sec. 104 of the bill and sec. 163 of the Code)


                              PRESENT LAW

In general

    Present law provides that qualified residence interest is 
deductible notwithstanding the general rule that personal 
interest is nondeductible.\6\
---------------------------------------------------------------------------
    \6\Sec. 163(h).
---------------------------------------------------------------------------

Acquisition indebtedness and home equity indebtedness

    Qualified residence interest is interest on acquisition 
indebtedness and home equity indebtedness with respect to a 
principal and a second residence of the taxpayer. The maximum 
amount of home equity indebtedness is $100,000. The maximum 
amount of acquisition indebtedness is $1 million. Acquisition 
indebtedness means debt that is incurred in acquiring, 
constructing, or substantially improving a qualified residence 
of the taxpayer, and that is secured by the residence. Home 
equity indebtedness is debt (other than acquisition 
indebtedness) that is secured by the taxpayer's principal or 
second residence, to the extent the aggregate amount of such 
debt does not exceed the difference between the total 
acquisition indebtedness with respect to the residence, and the 
fair market value of the residence.

Qualified mortgage insurance

    Certain premiums paid or accrued for qualified mortgage 
insurance by a taxpayer during the taxable year in connection 
with acquisition indebtedness on a qualified residence of the 
taxpayer are treated as interest that is qualified residence 
interest and thus deductible. The amount allowable as a 
deduction is phased out ratably by 10 percent for each $1,000 
(or fraction thereof) by which the taxpayer's adjusted gross 
income exceeds $100,000 ($500 and $50,000, respectively, in the 
case of a married individual filing a separate return). Thus, 
the deduction is not allowed if the taxpayer's adjusted gross 
income exceeds $109,000 ($54,500 in the case of married 
individual filing a separate return).
    For this purpose, qualified mortgage insurance means 
mortgage insurance provided by the Department of Veterans 
Affairs, the Federal Housing Administration, or the Rural 
Housing Service, and private mortgage insurance (defined in 
section two of the Homeowners Protection Act of 1998 as in 
effect on the date of enactment of the provision).
    Amounts paid for qualified mortgage insurance that are 
properly allocable to periods after the close of the taxable 
year are treated as paid in the period to which they are 
allocated. No deduction is allowed for the unamortized balance 
if the mortgage is paid before its term (except in the case of 
qualified mortgage insurance provided by the Department of 
Veterans Affairs or Rural Housing Service).
    The provision does not apply with respect to any mortgage 
insurance contract issued before January 1, 2007. The provision 
terminates for any amount paid or accrued after December 31, 
2014, or properly allocable to any period after that date.
    Reporting rules apply under the provision.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
present-law temporary provision. The Committee understands that 
the purpose of the provisions permitting deduction of home 
mortgage interest is to encourage home ownership while limiting 
significant disincentives to saving. The Committee believes 
that it would be consistent with the purpose of the provisions 
permitting deduction of home mortgage interest to permit the 
deduction of mortgage insurance premiums. While these premiums 
are not in the nature of interest, the Committee notes that 
purchase of such insurance is often demanded by lenders in 
order for home buyers to obtain financing (depending on the 
size of the buyer's down payment). The Committee believes that 
permitting deductibility of premiums for this type of insurance 
connected with home purchases will foster home ownership. In 
the case of higher income taxpayers who may not purchase 
mortgage insurance, however, the Committee believes the 
incentive of deductibility becomes unnecessary, and a phase-out 
is appropriate. It is not intended that prepayments be 
currently deductible, but rather, that they be deductible only 
in the period to which they relate. Reporting of payments is 
generally necessary to administer the provision.

                        EXPLANATION OF PROVISION

    The provision extends the deduction for private mortgage 
insurance premiums for two years (with respect to contracts 
entered into after December 31, 2006). Thus, the provision 
applies to amounts paid or accrued in 2015 and 2016 (and not 
properly allocable to any period after 2016).

                             EFFECTIVE DATE

    The provision applies to amounts paid or accrued after 
December 31, 2014.

5. Extension of deduction for State and local general sales taxes (sec. 
               105 of the bill and sec. 164 of the Code)


                              PRESENT LAW

    For purposes of determining regular tax liability, an 
itemized deduction is permitted for certain State and local 
taxes paid, including individual income taxes, real property 
taxes, and personal property taxes. The itemized deduction is 
not permitted for purposes of determining a taxpayer's 
alternative minimum taxable income. For taxable years beginning 
before 2015, at the election of the taxpayer, an itemized 
deduction may be taken for State and local general sales taxes 
in lieu of the itemized deduction provided under present law 
for State and local income taxes. As is the case for State and 
local income taxes, the itemized deduction for State and local 
general sales taxes is not permitted for purposes of 
determining a taxpayer's alternative minimum taxable income. 
Taxpayers have two options with respect to the determination of 
the sales tax deduction amount. Taxpayers may deduct the total 
amount of general State and local sales taxes paid by 
accumulating receipts showing general sales taxes paid. 
Alternatively, taxpayers may use tables created by the 
Secretary that show the allowable deduction. The tables are 
based on average consumption by taxpayers on a State-by-State 
basis taking into account number of dependents, modified 
adjusted gross income and rates of State and local general 
sales taxation. Taxpayers who live in more than one 
jurisdiction during the tax year are required to pro-rate the 
table amounts based on the time they live in each jurisdiction. 
Taxpayers who use the tables created by the Secretary may, in 
addition to the table amounts, deduct eligible general sales 
taxes paid with respect to the purchase of motor vehicles, 
boats, and other items specified by the Secretary. Sales taxes 
for items that may be added to the tables are not reflected in 
the tables themselves.
    A general sales tax is a tax imposed at one rate with 
respect to the sale at retail of a broad range of classes of 
items.\7\ No deduction is allowed for any general sales tax 
imposed with respect to an item at a rate other than the 
general rate of tax. However, in the case of food, clothing, 
medical supplies, and motor vehicles, the above rules are 
relaxed in two ways. First, if the tax does not apply with 
respect to some or all of such items, a tax that applies to 
other such items can still be considered a general sales tax. 
Second, the rate of tax applicable with respect to some or all 
of these items may be lower than the general rate. However, in 
the case of motor vehicles, if the rate of tax exceeds the 
general rate, such excess is disregarded and the general rate 
is treated as the rate of tax.
---------------------------------------------------------------------------
    \7\Sec. 164(b)(5)(B).
---------------------------------------------------------------------------
    A compensating use tax with respect to an item is treated 
as a general sales tax, provided such tax is complementary to a 
general sales tax and a deduction for sales taxes is allowable 
with respect to items sold at retail in the taxing jurisdiction 
that are similar to such item.

                           REASONS FOR CHANGE

    The Committee believes an extension of the option to deduct 
State and local sales taxes in lieu of deducting State and 
local income taxes is appropriate to continue to provide 
similar Federal tax treatment to residents of States that rely 
on sales taxes, rather than income taxes, to fund State and 
local governmental functions.

                        EXPLANATION OF PROVISION

    The provision extends the provision allowing taxpayers to 
elect to deduct State and local sales taxes in lieu of State 
and local income taxes for two years, through 2016.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2014.

  6. Extension of special rule for contributions of capital gain real 
property made for conservation purposes (sec. 106 of the bill and sec. 
                          170(b) of the Code)


                              PRESENT LAW

Charitable contributions generally

    In general, a deduction is permitted for charitable 
contributions, subject to certain limitations that depend on 
the type of taxpayer, the property contributed, and the donee 
organization. The amount of deduction generally equals the fair 
market value of the contributed property on the date of the 
contribution. Charitable deductions are provided for income, 
estate, and gift tax purposes.\8\
---------------------------------------------------------------------------
    \8\Secs. 170, 2055, and 2522, respectively.
---------------------------------------------------------------------------
    In general, in any taxable year, charitable contributions 
by a corporation are not deductible to the extent the aggregate 
contributions exceed 10 percent of the corporation's taxable 
income computed without regard to net operating or capital loss 
carrybacks. Total deductible contributions of an individual 
taxpayer to public charities, private operating foundations, 
and certain types of private nonoperating foundations generally 
may not exceed 50 percent of the taxpayer's contribution base, 
which is the taxpayer's adjusted gross income for a taxable 
year (disregarding any net operating loss carryback). To the 
extent a taxpayer has not exceeded the 50-percent limitation, 
(1) contributions of capital gain property to public charities 
generally may be deducted up to 30 percent of the taxpayer's 
contribution base, (2) contributions of cash to most private 
nonoperating foundations and certain other charitable 
organizations generally may be deducted up to 30 percent of the 
taxpayer's contribution base, and (3) contributions of capital 
gain property to private foundations and certain other 
charitable organizations generally may be deducted up to 20 
percent of the taxpayer's contribution base.
    Contributions in excess of the applicable percentage limits 
generally may be carried over and deducted over the next five 
taxable years, subject to the relevant percentage limitations 
on the deduction in each of those years.

Capital gain property

    Capital gain property means any capital asset or property 
used in the taxpayer's trade or business the sale of which at 
its fair market value, at the time of contribution, would have 
resulted in gain that would have been long-term capital gain. 
Contributions of capital gain property to a qualified charity 
are deductible at fair market value within certain limitations. 
Contributions of capital gain property to charitable 
organizations described in section 170(b)(1)(A) (e.g., public 
charities, private foundations other than private non-operating 
foundations, and certain governmental units) generally are 
deductible up to 30 percent of the taxpayer's contribution 
base. An individual may elect, however, to bring all these 
contributions of capital gain property for a taxable year 
within the 50-percent limitation category by reducing the 
amount of the contribution deduction by the amount of the 
appreciation in the capital gain property. Contributions of 
capital gain property to charitable organizations described in 
section 170(b)(1)(B) (e.g., private non-operating foundations) 
are deductible up to 20 percent of the taxpayer's contribution 
base.
    For purposes of determining whether a taxpayer's aggregate 
charitable contributions in a taxable year exceed the 
applicable percentage limitation, contributions of capital gain 
property are taken into account after other charitable 
contributions.

Qualified conservation contributions

    Qualified conservation contributions are one exception to 
the ``partial interest'' rule, which generally bars deductions 
for charitable contributions of partial interests in 
property.\9\ A qualified conservation contribution is a 
contribution of a qualified real property interest to a 
qualified organization exclusively for conservation purposes. A 
qualified real property interest is defined as: (1) the entire 
interest of the donor other than a qualified mineral interest; 
(2) a remainder interest; or (3) a restriction (granted in 
perpetuity) on the use that may be made of the real property. 
Qualified organizations include certain governmental units, 
public charities that meet certain public support tests, and 
certain supporting organizations. Conservation purposes 
include: (1) the preservation of land areas for outdoor 
recreation by, or for the education of, the general public; (2) 
the protection of a relatively natural habitat of fish, 
wildlife, or plants, or similar ecosystem; (3) the preservation 
of open space (including farmland and forest land) where such 
preservation will yield a significant public benefit and is 
either for the scenic enjoyment of the general public or 
pursuant to a clearly delineated Federal, State, or local 
governmental conservation policy; and (4) the preservation of 
an historically important land area or a certified historic 
structure.
---------------------------------------------------------------------------
    \9\Secs. 170(f)(3)(B)(iii) and 170(h).
---------------------------------------------------------------------------
    Qualified conservation contributions of capital gain 
property are subject to the same limitations and carryover 
rules as other charitable contributions of capital gain 
property.

Temporary rules regarding contributions of capital gain real property 
        for conservation purposes

            In general
    Under a temporary provision\10\ the 30-percent contribution 
base limitation on contributions of capital gain property by 
individuals does not apply to qualified conservation 
contributions (as defined under present law). Instead, 
individuals may deduct the fair market value of any qualified 
conservation contribution to the extent of the excess of 50 
percent of the contribution base over the amount of all other 
allowable charitable contributions. These contributions are not 
taken into account in determining the amount of other allowable 
charitable contributions.
---------------------------------------------------------------------------
    \10\Sec. 170(b)(1)(E).
---------------------------------------------------------------------------
    Individuals are allowed to carry over any qualified 
conservation contributions that exceed the 50-percent 
limitation for up to 15 years.
    For example, assume an individual with a contribution base 
of $100 makes a qualified conservation contribution of property 
with a fair market value of $80 and makes other charitable 
contributions subject to the 50-percent limitation of $60. The 
individual is allowed a deduction of $50 in the current taxable 
year for the non-conservation contributions (50 percent of the 
$100 contribution base) and is allowed to carry over the excess 
$10 for up to 5 years. No current deduction is allowed for the 
qualified conservation contribution, but the entire $80 
qualified conservation contribution may be carried forward for 
up to 15 years.
            Farmers and ranchers
    In the case of an individual who is a qualified farmer or 
rancher for the taxable year in which the contribution is made, 
a qualified conservation contribution is allowable up to 100 
percent of the excess of the taxpayer's contribution base over 
the amount of all other allowable charitable contributions.
    In the above example, if the individual is a qualified 
farmer or rancher, in addition to the $50 deduction for non-
conservation contributions, an additional $50 for the qualified 
conservation contribution is allowed and $30 may be carried 
forward for up to 15 years as a contribution subject to the 
100-percent limitation.
    In the case of a corporation (other than a publicly traded 
corporation) that is a qualified farmer or rancher for the 
taxable year in which the contribution is made, any qualified 
conservation contribution is allowable up to 100 percent of the 
excess of the corporation's taxable income (as computed under 
section 170(b)(2)) over the amount of all other allowable 
charitable contributions. Any excess may be carried forward for 
up to 15 years as a contribution subject to the 100-percent 
limitation.\11\
---------------------------------------------------------------------------
    \11\Sec. 170(b)(2)(B).
---------------------------------------------------------------------------
    As an additional condition of eligibility for the 100 
percent limitation, with respect to any contribution of 
property in agriculture or livestock production, or that is 
available for such production, by a qualified farmer or 
rancher, the qualified real property interest must include a 
restriction that the property remain generally available for 
such production. (There is no requirement as to any specific 
use in agriculture or farming, or necessarily that the property 
be used for such purposes, merely that the property remain 
available for such purposes.)
    A qualified farmer or rancher means a taxpayer whose gross 
income from the trade or business of farming (within the 
meaning of section 2032A(e)(5)) is greater than 50 percent of 
the taxpayer's gross income for the taxable year.
            Termination
    The temporary rules regarding contributions of capital gain 
real property for conservation purposes do not apply to 
contributions made in taxable years beginning after December 
31, 2014.\12\
---------------------------------------------------------------------------
    \12\Secs. 170(b)(1)(E)(vi) and 170(b)(2)(B)(iii).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the special rule that provides 
an increased incentive to make charitable contributions of 
partial interests in real property for conservation purposes is 
an important way of encouraging conservation and preservation, 
and should be extended for two additional years.

                        EXPLANATION OF PROVISION

    The provision extends the increased percentage limits and 
extended carryforward period for contributions of capital gain 
real property for conservation purposes for two years, i.e., 
for contributions made in taxable years beginning before 
January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective for contributions made in 
taxable years beginning after December 31, 2014.

 7. Extension of deduction for qualified tuition and related expenses 
            (sec. 107 of the bill and sec. 222 of the Code)


                              PRESENT LAW

    An individual is allowed a deduction for qualified tuition 
and related expenses for higher education paid by the 
individual during the taxable year.\13\ The deduction is 
allowed in computing adjusted gross income. The term qualified 
tuition and related expenses is defined in the same manner as 
for the Hope and Lifetime Learning credits, and includes 
tuition and fees required for the enrollment or attendance of 
the taxpayer, the taxpayer's spouse, or any dependent of the 
taxpayer with respect to whom the taxpayer may claim a personal 
exemption, at an eligible institution of higher education for 
courses of instruction of such individual at such 
institution.\14\ The expenses must be in connection with 
enrollment at an institution of higher education during the 
taxable year, or with an academic period beginning during the 
taxable year or during the first three months of the next 
taxable year. The deduction is not available for tuition and 
related expenses paid for elementary or secondary education.
---------------------------------------------------------------------------
    \13\Sec. 222.
    \14\The deduction generally is not available for expenses with 
respect to a course or education involving sports, games, or hobbies, 
and is not available for student activity fees, athletic fees, 
insurance expenses, or other expenses unrelated to an individual's 
academic course of instruction.
---------------------------------------------------------------------------
    The maximum deduction is $4,000 for an individual whose 
adjusted gross income for the taxable year does not exceed 
$65,000 ($130,000 in the case of a joint return), or $2,000 for 
other individuals whose adjusted gross income does not exceed 
$80,000 ($160,000 in the case of a joint return). No deduction 
is allowed for an individual whose adjusted gross income 
exceeds the relevant adjusted gross income limitations, for a 
married individual who does not file a joint return, or for an 
individual with respect to whom a personal exemption deduction 
may be claimed by another taxpayer for the taxable year. The 
deduction is not available for taxable years beginning after 
December 31, 2014.
    The amount of qualified tuition and related expenses must 
be reduced by certain scholarships, educational assistance 
allowances, and other amounts paid for the benefit of such 
individual,\15\ and by the amount of such expenses taken into 
account for purposes of determining any exclusion from gross 
income of: (1) income from certain U.S. savings bonds used to 
pay higher education tuition and fees; and (2) income from a 
Coverdell education savings account.\16\ Additionally, such 
expenses must be reduced by the earnings portion (but not the 
return of principal) of distributions from a qualified tuition 
program if an exclusion under section 529 is claimed with 
respect to expenses eligible for the qualified tuition 
deduction. No deduction is allowed for any expense for which a 
deduction is otherwise allowed or with respect to an individual 
for whom a Hope or Lifetime Learning credit is elected for such 
taxable year.
---------------------------------------------------------------------------
    \15\Secs. 222(d)(1) and 25A(g)(2).
    \16\Sec. 222(c). These reductions are the same as those that apply 
to the Hope and Lifetime Learning credits.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee observes that the cost of a college education 
continues to rise, and thus believes that the extension of the 
qualified tuition deduction is appropriate to mitigate the 
impact of rising tuition costs on students and their families. 
The Committee further believes that the tuition deduction 
provides an important financial incentive for individuals to 
pursue higher education.

                        EXPLANATION OF PROVISION

    The provision extends the qualified tuition deduction for 
two years, through 2016.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2014.

8. Extension of tax-free distributions from individual retirement plans 
for charitable purposes (sec. 108 of the bill and sec. 408(d)(8) of the 
                                 Code)


                              PRESENT LAW

In general

    If an amount withdrawn from a traditional individual 
retirement arrangement (``IRA'') or a Roth IRA is donated to a 
charitable organization, the rules relating to the tax 
treatment of withdrawals from IRAs apply to the amount 
withdrawn and the charitable contribution is subject to the 
normally applicable limitations on deductibility of such 
contributions. An exception applies in the case of a qualified 
charitable distribution.

Charitable contributions

    In computing taxable income, an individual taxpayer who 
itemizes deductions generally is allowed to deduct the amount 
of cash and up to the fair market value of property contributed 
to the following entities: (1) a charity described in section 
170(c)(2); (2) certain veterans' organizations, fraternal 
societies, and cemetery companies;\17\ and (3) a Federal, 
State, or local governmental entity, but only if the 
contribution is made for exclusively public purposes.\18\ The 
deduction also is allowed for purposes of calculating 
alternative minimum taxable income.
---------------------------------------------------------------------------
    \17\Secs. 170(c)(3)-(5).
    \18\Sec. 170(c)(1).
---------------------------------------------------------------------------
    The amount of the deduction allowable for a taxable year 
with respect to a charitable contribution of property may be 
reduced depending on the type of property contributed, the type 
of charitable organization to which the property is 
contributed, and the income of the taxpayer.\19\
---------------------------------------------------------------------------
    \19\Secs. 170(b) and (e).
---------------------------------------------------------------------------
    A taxpayer who takes the standard deduction (who does not 
itemize deductions) may not take a separate deduction for 
charitable contributions.\20\
---------------------------------------------------------------------------
    \20\Sec. 170(a).
---------------------------------------------------------------------------
    A payment to a charity (regardless of whether it is termed 
a ``contribution'') in exchange for which the donor receives an 
economic benefit is not deductible, except to the extent that 
the donor can demonstrate, among other things, that the payment 
exceeds the fair market value of the benefit received from the 
charity. To facilitate distinguishing charitable contributions 
from purchases of goods or services from charities, present law 
provides that no charitable contribution deduction is allowed 
for a separate contribution of $250 or more unless the donor 
obtains a contemporaneous written acknowledgement of the 
contribution from the charity indicating whether the charity 
provided any good or service (and an estimate of the value of 
any such good or service provided) to the taxpayer in 
consideration for the contribution.\21\ In addition, present 
law requires that any charity that receives a contribution 
exceeding $75 made partly as a gift and partly as consideration 
for goods or services furnished by the charity (a ``quid pro 
quo'' contribution) is required to inform the contributor in 
writing of an estimate of the value of the goods or services 
furnished by the charity and that only the portion exceeding 
the value of the goods or services may be deductible as a 
charitable contribution.\22\
---------------------------------------------------------------------------
    \21\Sec. 170(f)(8). For any contribution of a cash, check, or other 
monetary gift, no deduction is allowed unless the donor maintains as a 
record of such contribution a bank record or written communication from 
the donee charity showing the name of the donee organization, the date 
of the contribution, and the amount of the contribution. Sec. 
170(f)(17).
    \22\Sec. 6115.
---------------------------------------------------------------------------
    Under present law, total deductible contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations generally may not exceed 50 percent of the 
taxpayer's contribution base, which is the taxpayer's adjusted 
gross income for a taxable year (disregarding any net operating 
loss carryback). To the extent a taxpayer has not exceeded the 
50-percent limitation, (1) contributions of capital gain 
property to public charities generally may be deducted up to 30 
percent of the taxpayer's contribution base, (2) contributions 
of cash to most private nonoperating foundations and certain 
other charitable organizations generally may be deducted up to 
30 percent of the taxpayer's contribution base, and (3) 
contributions of capital gain property to private foundations 
and certain other charitable organizations generally may be 
deducted up to 20 percent of the taxpayer's contribution base.
    Contributions by individuals in excess of the 50-percent, 
30-percent, and 20-percent limits generally may be carried over 
and deducted over the next five taxable years, subject to the 
relevant percentage limitations on the deduction in each of 
those years.
    In general, a charitable deduction is not allowed for 
income, estate, or gift tax purposes if the donor transfers an 
interest in property to a charity (e.g., a remainder) while 
also either retaining an interest in that property (e.g., an 
income interest) or transferring an interest in that property 
to a noncharity for less than full and adequate 
consideration.\23\ Exceptions to this general rule are provided 
for, among other interests, remainder interests in charitable 
remainder annuity trusts, charitable remainder unitrusts, and 
pooled income funds, and present interests in the form of a 
guaranteed annuity or a fixed percentage of the annual value of 
the property.\24\ For such interests, a charitable deduction is 
allowed to the extent of the present value of the interest 
designated for a charitable organization.
---------------------------------------------------------------------------
    \23\Secs. 170(f), 2055(e)(2), and 2522(c)(2).
    \24\Sec. 170(f)(2).
---------------------------------------------------------------------------

IRA rules

    Within limits, individuals may make deductible and 
nondeductible contributions to a traditional IRA. Amounts in a 
traditional IRA are includible in income when withdrawn (except 
to the extent the withdrawal represents a return of 
nondeductible contributions). Certain individuals also may make 
nondeductible contributions to a Roth IRA (deductible 
contributions cannot be made to Roth IRAs). Qualified 
withdrawals from a Roth IRA are excludable from gross income. 
Withdrawals from a Roth IRA that are not qualified withdrawals 
are includible in gross income to the extent attributable to 
earnings. Includible amounts withdrawn from a traditional IRA 
or a Roth IRA before attainment of age 59\1/2\ are subject to 
an additional 10-percent early withdrawal tax, unless an 
exception applies. Under present law, minimum distributions are 
required to be made from tax-favored retirement arrangements, 
including IRAs. Minimum required distributions from a 
traditional IRA must generally begin by April 1 of the calendar 
year following the year in which the IRA owner attains age 
70\1/2\.\25\
---------------------------------------------------------------------------
    \25\Minimum distribution rules also apply in the case of 
distributions after the death of a traditional or Roth IRA owner.
---------------------------------------------------------------------------
    If an individual has made nondeductible contributions to a 
traditional IRA, a portion of each distribution from an IRA is 
nontaxable until the total amount of nondeductible 
contributions has been received. In general, the amount of a 
distribution that is nontaxable is determined by multiplying 
the amount of the distribution by the ratio of the IRA's 
nondeductible contributions to the IRA's account balance. In 
making the calculation, all traditional IRAs of an individual 
are treated as a single IRA, all distributions during any 
taxable year are treated as a single distribution, and, in 
general, the value of the account, income on the account, and 
investment in the contract (basis) are computed as of the close 
of the calendar year.
    In the case of a distribution from a Roth IRA that is not a 
qualified distribution, in determining the portion of the 
distribution attributable to earnings, contributions and 
distributions are deemed to be distributed in the following 
order: (1) regular Roth IRA contributions; (2) taxable 
conversion contributions;\26\ (3) nontaxable conversion 
contributions; and (4) earnings. In determining the amount of 
taxable distributions from a Roth IRA, all Roth IRA 
distributions in the same taxable year are treated as a single 
distribution, all regular Roth IRA contributions for a year are 
treated as a single contribution, and all conversion 
contributions during the year are treated as a single 
contribution.
---------------------------------------------------------------------------
    \26\Conversion contributions refer to conversions of amounts in a 
traditional IRA to a Roth IRA and rollovers of nonRoth amounts from an 
employer-sponsored plan to a Roth IRA.
---------------------------------------------------------------------------
    Taxable distributions from an IRA are generally subject to 
withholding unless the individual elects not to have 
withholding apply.\27\ Elections not to have withholding apply 
are to be made in the time and manner prescribed by the 
Secretary.
---------------------------------------------------------------------------
    \27\Sec. 3405.
---------------------------------------------------------------------------

Qualified charitable distributions

    Otherwise taxable IRA distributions from a traditional or 
Roth IRA are excluded from gross income to the extent they are 
qualified charitable distributions.\28\ The amount excluded may 
not exceed $100,000 per taxpayer per taxable year. Special 
rules apply in determining the amount of an IRA distribution 
that is otherwise taxable. The otherwise applicable rules 
regarding taxation of IRA distributions and the deduction of 
charitable contributions continue to apply to distributions 
from an IRA that are not qualified charitable distributions. A 
qualified charitable distribution is taken into account for 
purposes of the minimum distribution rules applicable to 
traditional IRAs to the same extent the distribution would have 
been taken into account under such rules had the distribution 
not been directly distributed under the qualified charitable 
distribution provision. An IRA does not fail to qualify as an 
IRA as a result of qualified charitable distributions being 
made from the IRA.
---------------------------------------------------------------------------
    \28\Sec. 408(d)(8). The exclusion does not apply to distributions 
from employer-sponsored retirement plans, including SIMPLE IRAs and 
simplified employee pensions (``SEPs'').
---------------------------------------------------------------------------
    A qualified charitable distribution is any distribution 
from an IRA directly by the IRA trustee to an organization 
described in section 170(b)(1)(A) (other than an organization 
described in section 509(a)(3) or a donor advised fund (as 
defined in section 4966(d)(2)). Distributions are eligible for 
the exclusion only if made on or after the date the IRA owner 
attains age 70\1/2\ and only to the extent the distribution 
would be includible in gross income (without regard to this 
provision).
    The exclusion applies only if a charitable contribution 
deduction for the entire distribution otherwise would be 
allowable (under present law), determined without regard to the 
generally applicable percentage limitations. Thus, for example, 
if the deductible amount is reduced because of a benefit 
received in exchange, or if a deduction is not allowable 
because the donor did not obtain sufficient substantiation, the 
exclusion is not available with respect to any part of the IRA 
distribution.
    If the IRA owner has any IRA that includes nondeductible 
contributions, a special rule applies in determining the 
portion of a distribution that is includible in gross income 
(but for the qualified charitable distribution provision) and 
thus is eligible for qualified charitable distribution 
treatment. Under the special rule, the distribution is treated 
as consisting of income first, up to the aggregate amount that 
would be includible in gross income (but for the qualified 
charitable distribution provision) if the aggregate balance of 
all IRAs having the same owner were distributed during the same 
year. In determining the amount of subsequent IRA distributions 
includible in income, proper adjustments are to be made to 
reflect the amount treated as a qualified charitable 
distribution under the special rule.
    Distributions that are excluded from gross income by reason 
of the qualified charitable distribution provision are not 
taken into account in determining the deduction for charitable 
contributions under section 170.
    Under present law, the exclusion does not apply to 
distributions made in taxable years beginning after December 
31, 2014.

                           REASONS FOR CHANGE

    The Committee believes that facilitating charitable 
contributions from IRAs will increase giving to charitable 
organizations. Therefore, the Committee believes that the 
exclusion for qualified charitable distributions should be 
extended for two years.

                        EXPLANATION OF PROVISION

    The provision extends the exclusion from gross income for 
qualified charitable distributions from an IRA for two years, 
i.e., for distributions made in taxable years beginning before 
January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective for distributions made in 
taxable years beginning after December 31, 2014.

                       B. Business Tax Extenders


1. Extension and modification of research credit (sec. 111 of the bill 
         and secs. 38 and 41 and new sec. 3111(f) of the Code)


                              PRESENT LAW

Research credit

            General rule
    For general research expenditures, a taxpayer may claim a 
research credit equal to 20 percent of the amount by which the 
taxpayer's qualified research expenses for a taxable year 
exceed its base amount for that year.\29\ Thus, the research 
credit is generally available with respect to incremental 
increases in qualified research. An alternative simplified 
credit (with a 14-percent rate and a different base amount) may 
be claimed in lieu of this credit.\30\
---------------------------------------------------------------------------
    \29\Sec. 41(a)(1). Except where otherwise specified, all section 
references are to the Internal Revenue Code of 1986, as amended (the 
``Code'').
    \30\Sec. 41(c)(5).
---------------------------------------------------------------------------
    A 20-percent research tax credit also is available with 
respect to the excess of (1) 100 percent of corporate cash 
expenses (including grants or contributions) paid for basic 
research conducted by universities (and certain nonprofit 
scientific research organizations) over (2) the sum of (a) the 
greater of two minimum basic research floors plus (b) an amount 
reflecting any decrease in nonresearch giving to universities 
by the corporation as compared to such giving during a fixed-
base period, as adjusted for inflation.\31\ This separate 
credit computation commonly is referred to as the basic 
research credit.
---------------------------------------------------------------------------
    \31\Sec. 41(a)(2) and (e). The base period for the basic research 
credit generally extends from 1981 through 1983.
---------------------------------------------------------------------------
    Finally, a research credit is available for a taxpayer's 
expenditures on research undertaken by an energy research 
consortium.\32\ This separate credit computation commonly is 
referred to as the energy research credit. Unlike the other 
research credits, the energy research credit applies to all 
qualified expenditures, not just those in excess of a base 
amount.
---------------------------------------------------------------------------
    \32\Sec. 41(a)(3).
---------------------------------------------------------------------------
    The research credit, including the basic research credit 
and the energy research credit, expires for amounts paid or 
incurred after December 31, 2014.\33\
---------------------------------------------------------------------------
    \33\Sec. 41(h).
---------------------------------------------------------------------------
            Computation of general research credit
    The general research tax credit applies only to the extent 
that the taxpayer's qualified research expenses for the current 
taxable year exceed its base amount. The base amount for the 
current year generally is computed by multiplying the 
taxpayer's fixed-base percentage by the average amount of the 
taxpayer's gross receipts for the four preceding years. If a 
taxpayer both incurred qualified research expenses and had 
gross receipts during each of at least three years from 1984 
through 1988, then its fixed-base percentage is the ratio that 
its total qualified research expenses for the 1984-1988 period 
bears to its total gross receipts for that period (subject to a 
maximum fixed-base percentage of 16 percent). Special rules 
apply to all other taxpayers (so called start-up firms).\34\ In 
computing the research credit, a taxpayer's base amount cannot 
be less than 50 percent of its current-year qualified research 
expenses.
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    \34\The Small Business Job Protection Act of 1996 expanded the 
definition of start-up firms under section 41(c)(3)(B)(i) to include 
any firm if the first taxable year in which such firm had both gross 
receipts and qualified research expenses began after 1983. A special 
rule (enacted in 1993) is designed to gradually recompute a start-up 
firm's fixed-base percentage based on its actual research experience. 
Under this special rule, a start-up firm is assigned a fixed-base 
percentage of three percent for each of its first five taxable years 
after 1993 in which it incurs qualified research expenses. A start-up 
firm's fixed-base percentage for its sixth through tenth taxable years 
after 1993 in which it incurs qualified research expenses is a phased-
in ratio based on the firm's actual research experience. For all 
subsequent taxable years, the taxpayer's fixed-base percentage is its 
actual ratio of qualified research expenses to gross receipts for any 
five years selected by the taxpayer from its fifth through tenth 
taxable years after 1993. Sec. 41(c)(3)(B).
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            Alternative simplified credit
    The alternative simplified credit is equal to 14 percent of 
qualified research expenses that exceed 50 percent of the 
average qualified research expenses for the three preceding 
taxable years.\35\ The rate is reduced to 6 percent if a 
taxpayer has no qualified research expenses in any one of the 
three preceding taxable years.\36\ An election to use the 
alternative simplified credit applies to all succeeding taxable 
years unless revoked with the consent of the Secretary.\37\
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    \35\Sec. 41(c)(5)(A).
    \36\Sec. 41(c)(5)(B).
    \37\Sec. 41(c)(5)(C).
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            Eligible expenses
    Qualified research expenses eligible for the research tax 
credit consist of: (1) in-house expenses of the taxpayer for 
wages and supplies attributable to qualified research; (2) 
certain time-sharing costs for computer use in qualified 
research; and (3) 65 percent of amounts paid or incurred by the 
taxpayer to certain other persons for qualified research 
conducted on the taxpayer's behalf (so-called contract research 
expenses).\38\ Notwithstanding the limitation for contract 
research expenses, qualified research expenses include 100 
percent of amounts paid or incurred by the taxpayer to an 
eligible small business, university, or Federal laboratory for 
qualified energy research.
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    \38\Under a special rule, 75 percent of amounts paid to a research 
consortium for qualified research are treated as qualified research 
expenses eligible for the research credit (rather than 65 percent under 
the general rule under section 41(b)(3) governing contract research 
expenses) if (1) such research consortium is a tax-exempt organization 
that is described in section 501(c)(3) (other than a private 
foundation) or section 501(c)(6) and is organized and operated 
primarily to conduct scientific research, and (2) such qualified 
research is conducted by the consortium on behalf of the taxpayer and 
one or more persons not related to the taxpayer. Sec. 41(b)(3)(C).
---------------------------------------------------------------------------
    To be eligible for the credit, the research not only has to 
satisfy the requirements of section 174, but also must be 
undertaken for the purpose of discovering information that is 
technological in nature, the application of which is intended 
to be useful in the development of a new or improved business 
component of the taxpayer, and substantially all of the 
activities of which constitute elements of a process of 
experimentation for functional aspects, performance, 
reliability, or quality of a business component. Research does 
not qualify for the credit if substantially all of the 
activities relate to style, taste, cosmetic, or seasonal design 
factors.\39\ In addition, research does not qualify for the 
credit if: (1) conducted after the beginning of commercial 
production of the business component; (2) related to the 
adaptation of an existing business component to a particular 
customer's requirements; (3) related to the duplication of an 
existing business component from a physical examination of the 
component itself or certain other information; (4) related to 
certain efficiency surveys, management function or technique, 
market research, market testing, or market development, routine 
data collection or routine quality control; (5) related to 
software developed primarily for internal use by the taxpayer; 
(6) conducted outside the United States, Puerto Rico, or any 
U.S. possession; (7) in the social sciences, arts, or 
humanities; or (8) funded by any grant, contract, or otherwise 
by another person (or government entity).\40\
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    \39\Sec. 41(d)(3).
    \40\Sec. 41(d)(4).
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            Relation to deduction
    Deductions allowed to a taxpayer under section 174 (or any 
other section) are reduced by an amount equal to 100 percent of 
the taxpayer's research tax credit determined for the taxable 
year.\41\ Taxpayers may alternatively elect to claim a reduced 
research tax credit amount under section 41 in lieu of reducing 
deductions otherwise allowed.\42\
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    \41\Sec. 280C(c). For example, assume that a taxpayer makes credit-
eligible research expenditures of $1 million during the year and that 
the base amount is $600,000. Under the standard credit calculation 
(i.e., where a taxpayer may claim a research credit equal to 20 percent 
of the amount by which its qualified expenses for the year exceed its 
base period amount), the taxpayer is allowed a credit equal to 20 
percent of the $400,000 increase in research expenditures, or $80,000 
(($1 million - $600,000) * 20% = $80,000). To avoid a double benefit, 
the amount of the taxpayer's deduction under section 174 is reduced by 
$80,000 (the amount of the research credit), leaving a deduction of 
$920,000 ($1 million - $80,000).
    \42\Sec. 280C(c)(3). Taxpayers making this election reduce the 
allowable research credit by the maximum corporate tax rate (currently 
35 percent). Continuing with the example from the prior footnote, an 
electing taxpayer would have its credit reduced to $52,000 ($80,000 - 
($80,000 * 0.35%)), but would retain its $1 million deduction for 
research expenses. For example, this option might be desirable for a 
taxpayer who cannot claim the full amount of the research credit 
otherwise allowable due to the limitation imposed by the alternative 
minimum tax.
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FICA taxes

    The Federal Insurance Contributions Act (``FICA'') imposes 
tax on employers and employees based on the amount of wages (as 
defined for FICA purposes) paid to an employee during the year, 
often referred to as ``payroll'' taxes.\43\ The tax imposed on 
the employer and on the employee is each composed of two parts: 
(1) the Social Security or old age, survivors, and disability 
insurance (``OASDI'') tax equal to 6.2 percent of covered wages 
up to the taxable wage base ($118,500 for 2015); and (2) the 
Medicare or hospital insurance (``HI'') tax equal to 1.45 
percent of all covered wages.\44\ The employee portion of the 
FICA tax generally must be withheld and remitted to the Federal 
government by the employer.
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    \43\Secs. 3101-3128.
    \44\For taxable years beginning after 2012, the employee portion of 
the HI tax under FICA (not the employer portion) is increased by an 
additional tax of 0.9 percent on wages received in excess of a 
threshold amount. The threshold amount is $250,000 in the case of a 
joint return, $125,000 in the case of a married individual filing a 
separate return, and $200,000 in any other case.
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    An employer generally files quarterly employment tax 
returns showing its liability for FICA taxes with respect to 
its employees' wages for the quarter, as well as the employee 
FICA taxes and income taxes withheld from the employees' wages.

Specified credits allowed against alternative minimum tax

    For any taxable year, the general business credit (which is 
the sum of the various business credits) generally may not 
exceed the excess of the taxpayer's net income tax\45\ over the 
greater of (1) the taxpayer's tentative minimum tax or (2) 25 
percent of so much of the taxpayer's net regular tax 
liability\46\ as exceeds $25,000.\47\ Any general business 
credit in excess of this limitation may be carried back one 
year and forward up to 20 years.\48\ The tentative minimum tax 
is an amount equal to specified rates of tax imposed on the 
excess of the alternative minimum taxable income over an 
exemption amount.\49\ Generally, the tentative minimum tax of a 
C corporation with average annual gross receipts of less than 
$7.5 million for prior three-year periods is zero.\50\
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    \45\The term ``net income tax'' means the sum of the regular tax 
liability and the alternative minimum tax, reduced by the credits 
allowable under sections 21 through 30D. Sec. 38(c)(1).
    \46\The term ``net regular tax liability'' means the regular tax 
liability reduced by the sum of certain nonrefundable personal and 
other credits. Sec. 38(c)(1).
    \47\Sec. 38(c)(1).
    \48\Sec. 39(a)(1).
    \49\See sec. 55(b). For example, assume a taxpayer has a regular 
tax of $80,000, a tentative minimum tax of $100,000, and a research 
credit determined under section 41 of $90,000 for a taxable year (and 
no other credits). Under present law, the taxpayer's research credit is 
limited to the excess of $100,000 over the greater of (1) $100,000 or 
(2) $13,750 (25% of the excess of $80,000 over $25,000). Accordingly, 
no research credit may be claimed ($100,000-$100,000 = $0) for the 
taxable year and the taxpayer's net tax liability is $100,000. The 
$90,000 research credit may be carried back or forward under the rules 
applicable to the general business credit.
    \50\Sec. 55(e).
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    In applying the tax liability limitation to a list of 
``specified credits'' that are part of the general business 
credit, the tentative minimum tax is treated as being zero.\51\ 
Thus, the specified credits generally may offset both regular 
tax and alternative minimum tax (``AMT'') liabilities.
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    \51\See section 38(c)(4)(B) for the list of specified credits, 
which does not presently include the research credit determined under 
section 41.
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    For taxable years beginning in 2010, an eligible small 
business was allowed to offset both the regular and AMT 
liability with the general business credits determined for the 
taxable year (``eligible small business credits'').\52\ For 
this purpose, an eligible small business was, with respect to 
any taxable year, a corporation, the stock of which was not 
publicly traded, a partnership, or a sole proprietor, if the 
average annual gross receipts did not exceed $50 million.\53\ 
Credits determined with respect to a partnership or S 
corporation were not treated as eligible small business credits 
by a partner or shareholder unless the partner or shareholder 
met the gross receipts test for the taxable year in which the 
credits were treated as current year business credits.\54\
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    \52\Sec. 38(c)(5)(B).
    \53\Sec. 38(c)(5)(C).
    \54\Sec. 38(c)(5)(D).
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                           REASONS FOR CHANGE

    The Committee acknowledges that research is important to 
the economy. Research is the basis of new products, new 
services, new industries, and new jobs. There can be cases 
where an individual business may not find it profitable to 
invest in research as much as it otherwise might because it is 
difficult to capture the full benefits from the research and 
prevent such benefits from being used by competitors. At the 
same time, research may create great benefits that spill over 
to society at large. To encourage activities that will result 
in these spillover benefits to society at large, the government 
acts to promote research in a variety of ways, including 
granting patents and direct funding of research. Another way 
for the government to promote research is through tax 
incentives such as the research credit. The Committee therefore 
believes it is appropriate to extend the present-law research 
credit.
    In addition, the Committee wants to help small businesses 
have better access to and be able to benefit from the research 
credit. In some cases, a small business may not have sufficient 
income tax liability for a particular year against which to 
apply the credit. In that case, the Committee believes it is 
appropriate to allow a limited amount of a taxpayer's research 
credit to be claimed against its payroll tax liability. The 
Committee also believes that in the case of small businesses, 
it is appropriate to allow the research credit to be claimed 
against the AMT.

                        EXPLANATION OF PROVISION

Research credit

    The provision extends the present law credit for two years, 
for qualified research expenses paid or incurred before January 
1, 2017.

Payroll tax credit

            In general
    Under the provision, a qualified small business may elect 
for any taxable year to claim a certain amount of its research 
credit as a payroll tax credit against its employer OASDI 
liability, rather than against its income tax liability.\55\ If 
a taxpayer makes an election under this provision, the amount 
so elected is treated as a research credit for purposes of 
section 280C.\56\
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    \55\The credit does not apply against its employer HI liability or 
against the employee portion of FICA taxes the employer is required to 
withhold and remit to the government.
    \56\Thus, taxpayers are either denied a section 174 deduction in 
the amount of the credit or may elect a reduced research credit amount. 
The election is not taken into account for purposes of determining any 
amount allowable as a payroll tax deduction.
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    A qualified small business is defined, with respect to any 
taxable year, as a corporation (including an S corporation) or 
partnership (1) with gross receipts of less than $5 million for 
the taxable year,\57\ and (2) that did not have gross receipts 
for any taxable year before the five taxable year period ending 
with the taxable year. An individual carrying on one or more 
trades or businesses also may be considered a qualified small 
business if the individual meets the conditions set forth in 
(1) and (2), taking into account its aggregate gross receipts 
received with respect to all trades or businesses. A qualified 
small business does not include an organization exempt from 
income tax under section 501.
---------------------------------------------------------------------------
    \57\For this purpose, gross receipts are determined under the rules 
of section 448(c)(3), without regard to subparagraph (A) thereof.
---------------------------------------------------------------------------
    The payroll tax credit portion is the least of (1) an 
amount specified by the taxpayer that does not exceed $250,000, 
(2) the research credit determined for the taxable year, or (3) 
in the case of a qualified small business other than a 
partnership or S corporation, the amount of the business credit 
carryforward under section 39 from the taxable year (determined 
before the application of this provision to the taxable year).
    For purposes of this provision, all members of the same 
controlled group or group under common control are treated as a 
single taxpayer.\58\ The $250,000 amount is allocated among the 
members in proportion to each member's qualified research 
expenses. Each member may separately elect the payroll tax 
credit, but not in excess of its allocated dollar amount.
---------------------------------------------------------------------------
    \58\For this purpose, all persons or entities treated as a single 
taxpayer under section 41(f)(1) are treated as a single person.
---------------------------------------------------------------------------
    A taxpayer may make an annual election under this section, 
specifying the amount of its research credit not to exceed 
$250,000 that may be used as a payroll tax credit, on or before 
the due date (including extensions) of its originally filed 
return.\59\ A taxpayer may not make an election for a taxable 
year if it has made such an election for five or more preceding 
taxable years. An election to apply the research credit against 
OASDI liability may not be revoked without the consent of the 
Secretary of the Treasury (``Secretary''). In the case of a 
partnership or S corporation, an election to apply the credit 
against its OASDI liability is made at the entity level.
---------------------------------------------------------------------------
    \59\In the case of a qualified small business that is a 
partnership, this is the return required to be filed under section 
6031. In the case of a qualified small business that is an S 
corporation, this is the return required to be filed under section 
6037. In the case of any other qualified small business, this is the 
return of tax for the taxable year.
---------------------------------------------------------------------------
            Application of credit against OASDI tax liability
    The payroll tax portion of the research credit is allowed 
as a credit against the qualified small business's OASDI tax 
liability for the first calendar quarter beginning after the 
date on which the qualified small business files its income tax 
or information return for the taxable year. The credit may not 
exceed the OASDI tax liability for a calendar quarter on the 
wages paid with respect to all employees of the qualified small 
business.
    If the payroll tax portion of the credit exceeds the 
qualified small business's OASDI tax liability for a calendar 
quarter, the excess is allowed as a credit against the OASDI 
liability for the following calendar quarter. Any amount not 
credited for the following calendar quarter is allowed as a 
credit against the qualified small business's OASDI tax 
liability in succeeding calendar quarters until the entire 
credit amount is used.
            Other rules
    The Secretary is directed to prescribe such regulations as 
are necessary to carry out the purposes of the provision, 
including (1) to prevent the avoidance of the purposes of the 
limitations and aggregation rules through the use of successor 
companies or other means, (2) to minimize compliance and 
record-keeping burdens, and (3) for recapture of the credit 
amount applied against OASDI taxes in the case of an adjustment 
to the payroll tax portion of the research credit, including 
requiring amended returns in such a case.

Specified credits allowed against alternative minimum tax

    The provision also provides that, in the case of an 
eligible small business (as defined in section 38(c)(5)(C)), 
the research credit determined under section 41 for taxable 
years beginning after December 31, 2014 is a specified credit. 
Thus, these research credits of an eligible small business may 
offset both regular tax and AMT liabilities.\60\
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    \60\Using the above example, under this provision, the limitation 
would be the excess of $80,000 over the greater of (1) $0 or (2) 
$13,750. Since $13,750 is greater than $0, the $80,000 would be reduced 
by $13,750 such that the research credit limitation would be $66,250. 
Hence, the taxpayer would be able to claim a research credit of $66,250 
against its net income tax liability, as well as its AMT liability, 
which would result in $33,750 of total tax owed ($100,000 - $66,250). 
The remaining $23,750 of its research credit ($90,000 - $66,250) may be 
carried back or forward, as applicable.
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                             EFFECTIVE DATE

    The provision to extend the research credit for two years 
is effective for amounts paid or incurred after December 31, 
2014. The provision to allow the research credit against 
employer OASDI tax is effective for credits determined for 
taxable years beginning after December 31, 2014. The provision 
to allow the research credit against AMT is effective for 
research credits of eligible small businesses determined for 
taxable years beginning after December 31, 2014, and to 
carrybacks of such credits.

 2. Extension and modification of temporary minimum low-income housing 
tax credit rate for non-Federally subsidized buildings (sec. 112 of the 
                     bill and sec. 42 of the Code)


                              PRESENT LAW

In general

    The low-income housing credit may be claimed over a 10-year 
credit period after each low-income building is placed in 
service. The amount of the credit for any taxable year in the 
credit period is the applicable percentage of the qualified 
basis of each qualified low-income building.

Present value credit

    The calculation of the applicable percentage is designed to 
produce a credit equal to: (1) 70 percent of the present value 
of the building's qualified basis in the case of newly 
constructed or substantially rehabilitated housing that is not 
Federally subsidized (the ``70-percent credit''); or (2) 30 
percent of the present value of the building's qualified basis 
in the case of newly constructed or substantially rehabilitated 
housing that is Federally subsidized and existing housing that 
is substantially rehabilitated (the ``30-percent credit''). 
Where existing housing is substantially rehabilitated, the 
existing housing is eligible for the 30-percent credit and the 
qualified rehabilitation expenses (if not Federally subsidized) 
are eligible for the 70-percent credit.

Calculation of the applicable percentage

            In general
    The credit percentage for a low-income building is set for 
the earlier of: (1) the month the building is placed in 
service; or (2) at the election of the taxpayer, (a) the month 
the taxpayer and the housing credit agency enter into a binding 
agreement with respect to such building for a credit 
allocation, or (b) in the case of a tax-exempt bond-financed 
project for which no credit allocation is required, the month 
in which the tax-exempt bonds are issued.
    These credit percentages (used for the 70-percent credit 
and 30-percent credit) are adjusted monthly by the IRS on a 
discounted after-tax basis (assuming a 28-percent tax rate) 
based on the average of the Applicable Federal Rates for mid-
term and long-term obligations for the month the building is 
placed in service. The discounting formula assumes that each 
credit is received on the last day of each year and that the 
present value is computed on the last day of the first year. In 
a project consisting of two or more buildings placed in service 
in different months, a separate credit percentage may apply to 
each building.
            Special rule
    Under this rule the applicable percentage is set at a 
minimum of nine percent for newly constructed non-Federally 
subsidized buildings placed in service after July 30, 2008, and 
before January 1, 2015.

                           REASONS FOR CHANGE

    There is a critical shortage of affordable housing. 
Historically low Federal interest rates result in lower credit 
amounts for low-income housing tax credit properties. To reduce 
uncertainty and financial risk in the adjustable rate, the 
Committee believes that an extension of the temporary minimum 
percentage for newly constructed non-Federally subsidized 
buildings is warranted. Similarly, the Committee believes 
establishing a temporary minimum percentage for existing non-
Federally subsidized buildings also is appropriate to increase 
the financial feasibility for the renovation and preservation 
of older properties.

                        EXPLANATION OF PROVISION

    The provision extends the temporary minimum applicable 
percentage of nine percent for newly constructed non-Federally 
subsidized buildings with respect to which credit allocations 
are made before January 1, 2017. The provision also establishes 
a four-percent minimum credit rate for acquisition of existing 
housing that is not Federally subsidized. Any existing housing 
that is also financed with tax-exempt bonds is considered 
Federally subsidized for this purpose and therefore is not 
eligible for the four-percent minimum credit rate. This minimum 
credit rate only applies to the acquisition of existing 
buildings that receive housing credit dollar allocations which 
are subject to caps from State housing credit agencies. The 
four-percent minimum credit rate applies to buildings placed in 
service after the date of enactment with respect to which 
credit allocations are made before January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective on January 1, 2015.

 3. Extension of military housing allowance exclusion for determining 
area median gross income (sec. 113 of the bill and secs. 42 and 142 of 
                               the Code)


                              PRESENT LAW

In general

    In order to be eligible for the low-income housing credit, 
a qualified low-income building must be part of a qualified 
low-income housing project. In general, a qualified low-income 
housing project is defined as a project that satisfies one of 
two tests at the election of the taxpayer. The first test is 
met if 20 percent or more of the residential units in the 
project are both rent-restricted, and occupied by individuals 
whose income is 50 percent or less of area median gross income 
(the ``20-50 test''). The second test is met if 40 percent or 
more of the residential units in such project are both rent-
restricted, and occupied by individuals whose income is 60 
percent or less of area median gross income (the ``40-60 
test''). These income figures are adjusted for family size.

Rule for income determinations before July 30, 2008 and on or after 
        January 1, 2015

    The recipients of the military basic housing allowance must 
include these amounts for purposes of low-income credit 
eligibility income test, as described above.

Special rule for income determination before January 1, 2015

    Under a temporary provision, the basic housing allowance 
(i.e., payments under 37 U.S.C. sec. 403) is not included in 
income for the low-income credit income eligibility rules. The 
provision is limited in application to qualified buildings. A 
qualified building is defined as any building located:
          1. any county which contains a qualified military 
        installation to which the number of members of the 
        Armed Forces assigned to units based out of such 
        qualified military installation has increased by 20 
        percent or more as of June 1, 2008, over the personnel 
        level on December 31, 2005; and
          2. any counties adjacent to a county described in 
        (1), above.
    For these purposes, a qualified military installation is 
any military installation or facility with at least 1000 
members of the Armed Forces assigned to it.
    The provision applies to income determinations: (1) made 
after July 30, 2008, and before January 1, 2015, in the case of 
qualified buildings which received credit allocations on or 
before July 30, 2008, or qualified buildings placed in service 
on or before July 30, 2008, to the extent a credit allocation 
was not required with respect to such building by reason of 
section 42(h)(4) (i.e., such qualified building was at least 50 
percent tax-exempt bond financed with bonds subject to the 
private activity bond volume cap) but only with respect to 
bonds issued before July 30, 2008; and (2) made after July 30, 
2008, in the case of qualified buildings which received credit 
allocations after July 30, 2008 and before January 1, 2015, or 
qualified buildings placed in service after July 30, 2008, and 
before January 1, 2015, to the extent a credit allocation was 
not required with respect to such qualified building by reason 
of 42(h)(4) (i.e., such qualified building was at least 50 
percent tax-exempt bond financed with bonds subject to the 
private activity bond volume cap) but only with respect to 
bonds issued after July 30, 2008, and before January 1, 2015.

                           REASONS FOR CHANGE

    The Committee believes that encouraging owners of low-
income housing credit properties to rent such subsidized units 
to military families is appropriate.

                        EXPLANATION OF PROVISION

    The provision extends the special rule two additional years 
(through December 31, 2016).

                             EFFECTIVE DATE

    The provision is effective as if included in the enactment 
of section 3005 of the Housing Assistance Tax Act of 2008.

4. Extension of Indian employment tax credit (sec. 114 of the bill and 
                         sec. 45A of the Code)


                              PRESENT LAW

    In general, a credit against income tax liability is 
allowed to employers for the first $20,000 of qualified wages 
and qualified employee health insurance costs paid or incurred 
by the employer with respect to certain employees.\61\ The 
credit is equal to 20 percent of the excess of eligible 
employee qualified wages and health insurance costs during the 
current year over the amount of such wages and costs incurred 
by the employer during 1993. The credit is an incremental 
credit, such that an employer's current-year qualified wages 
and qualified employee health insurance costs (up to $20,000 
per employee) are eligible for the credit only to the extent 
that the sum of such costs exceeds the sum of comparable costs 
paid during 1993. No deduction is allowed for the portion of 
the wages equal to the amount of the credit.
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    \61\Sec. 45A.
---------------------------------------------------------------------------
    Qualified wages means wages paid or incurred by an employer 
for services performed by a qualified employee. A qualified 
employee means any employee who is an enrolled member of an 
Indian tribe or the spouse of an enrolled member of an Indian 
tribe, who performs substantially all of the services within an 
Indian reservation, and whose principal place of abode while 
performing such services is on or near the reservation in which 
the services are performed. An ``Indian reservation'' is a 
reservation as defined in section 3(d) of the Indian Financing 
Act of 1974\62\ or section 4(10) of the Indian Child Welfare 
Act of 1978.\63\ For purposes of the preceding sentence, 
section 3(d) is applied by treating ``former Indian 
reservations in Oklahoma'' as including only lands that are (1) 
within the jurisdictional area of an Oklahoma Indian tribe as 
determined by the Secretary of the Interior, and (2) recognized 
by such Secretary as an area eligible for trust land status 
under 25 C.F.R. Part 151 (as in effect on August 5, 1997).
---------------------------------------------------------------------------
    \62\Pub. L. No. 93-262.
    \63\Pub. L. No. 95-608.
---------------------------------------------------------------------------
    An employee is not treated as a qualified employee for any 
taxable year of the employer if the total amount of wages paid 
or incurred by the employer with respect to such employee 
during the taxable year exceeds an amount determined at an 
annual rate of $30,000 (which after adjustment for inflation is 
$45,000 for 2014).\64\ In addition, an employee will not be 
treated as a qualified employee under certain specific 
circumstances, such as where the employee is related to the 
employer (in the case of an individual employer) or to one of 
the employer's shareholders, partners, or grantors. Similarly, 
an employee will not be treated as a qualified employee where 
the employee has more than a five percent ownership interest in 
the employer. Finally, an employee will not be considered a 
qualified employee to the extent the employee's services relate 
to gaming activities or are performed in a building housing 
such activities.
---------------------------------------------------------------------------
    \64\See Instructions for Form 8845, Indian Employment Credit 
(2014).
---------------------------------------------------------------------------
    The wage credit is available for wages paid or incurred in 
taxable years beginning on or before December 31, 2014.

                           REASONS FOR CHANGE

    To further encourage employment on Indian reservations, the 
Committee believes it is appropriate to extend the Indian 
employment credit an additional two years.

                        EXPLANATION OF PROVISION

    The provision extends for two years the present-law Indian 
employment credit (through taxable years beginning on or before 
December 31, 2016).

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2014.

 5. Extension and modification of new markets tax credit (sec. 115 of 
                   the bill and sec. 45D of the Code)


                              PRESENT LAW

    Section 45D provides a new markets tax credit for qualified 
equity investments made to acquire stock in a corporation, or a 
capital interest in a partnership, that is a qualified 
community development entity (``CDE'').\65\ The amount of the 
credit allowable to the investor (either the original purchaser 
or a subsequent holder) is (1) a five-percent credit for the 
year in which the equity interest is purchased from the CDE and 
for each of the following two years, and (2) a six-percent 
credit for each of the following four years.\66\ The credit is 
determined by applying the applicable percentage (five or six 
percent) to the amount paid to the CDE for the investment at 
its original issue, and is available to the taxpayer who holds 
the qualified equity investment on the date of the initial 
investment or on the respective anniversary date that occurs 
during the taxable year.\67\ The credit is recaptured if at any 
time during the seven-year period that begins on the date of 
the original issue of the investment the entity (1) ceases to 
be a qualified CDE, (2) the proceeds of the investment cease to 
be used as required, or (3) the equity investment is 
redeemed.\68\
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    \65\Section 45D was added by section 121(a) of the Community 
Renewal Tax Relief Act of 2000, Pub. L. No. 106-554.
    \66\Sec. 45D(a)(2).
    \67\Sec. 45D(a)(3).
    \68\Sec. 45D(g).
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    A qualified CDE is any domestic corporation or partnership: 
(1) whose primary mission is serving or providing investment 
capital for low-income communities or low-income persons; (2) 
that maintains accountability to residents of low-income 
communities by their representation on any governing board of 
or any advisory board to the CDE; and (3) that is certified by 
the Secretary as being a qualified CDE.\69\ A qualified equity 
investment means stock (other than nonqualified preferred 
stock) in a corporation or a capital interest in a partnership 
that is acquired at its original issue directly (or through an 
underwriter) from a CDE for cash, and includes an investment of 
a subsequent purchaser if such investment was a qualified 
equity investment in the hands of the prior holder.\70\ 
Substantially all of the investment proceeds must be used by 
the CDE to make qualified low-income community investments and 
the investment must be designated as a qualified equity 
investment by the CDE. For this purpose, qualified low-income 
community investments include: (1) capital or equity 
investments in, or loans to, qualified active low-income 
community businesses; (2) certain financial counseling and 
other services to businesses and residents in low-income 
communities; (3) the purchase from another CDE of any loan made 
by such entity that is a qualified low-income community 
investment; or (4) an equity investment in, or loan to, another 
CDE.\71\
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    \69\Sec. 45D(c).
    \70\Sec. 45D(b).
    \71\Sec. 45D(d).
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    A ``low-income community'' is a population census tract 
with either (1) a poverty rate of at least 20 percent or (2) 
median family income which does not exceed 80 percent of the 
greater of metropolitan area median family income or statewide 
median family income (for a non-metropolitan census tract, does 
not exceed 80 percent of statewide median family income). In 
the case of a population census tract located within a high 
migration rural county, low-income is defined by reference to 
85 percent (as opposed to 80 percent) of statewide median 
family income.\72\ For this purpose, a high migration rural 
county is any county that, during the 20-year period ending 
with the year in which the most recent census was conducted, 
has a net out-migration of inhabitants from the county of at 
least 10 percent of the population of the county at the 
beginning of such period.
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    \72\Sec. 45D(e).
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    The Secretary is authorized to designate ``targeted 
populations'' as low-income communities for purposes of the new 
markets tax credit.\73\ For this purpose, a ``targeted 
population'' is defined by reference to section 103(20) of the 
Riegle Community Development and Regulatory Improvement Act of 
1994\74\ (the ``Act'') to mean individuals, or an identifiable 
group of individuals, including an Indian tribe, who are low-
income persons or otherwise lack adequate access to loans or 
equity investments. Section 103(17) of the Act provides that 
``low-income'' means (1) for a targeted population within a 
metropolitan area, less than 80 percent of the area median 
family income; and (2) for a targeted population within a non-
metropolitan area, less than the greater of--80 percent of the 
area median family income, or 80 percent of the statewide non-
metropolitan area median family income.\75\ A targeted 
population is not required to be within any census tract. In 
addition, a population census tract with a population of less 
than 2,000 is treated as a low-income community for purposes of 
the credit if such tract is within an empowerment zone, the 
designation of which is in effect under section 1391 of the 
Code, and is contiguous to one or more low-income communities.
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    \73\Sec. 45D(e)(2).
    \74\Pub. L. No. 103-325.
    \75\Pub. L. No. 103-325.
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    A qualified active low-income community business is defined 
as a business that satisfies, with respect to a taxable year, 
the following requirements: (1) at least 50 percent of the 
total gross income of the business is derived from the active 
conduct of trade or business activities in any low-income 
community; (2) a substantial portion of the tangible property 
of the business is used in a low-income community; (3) a 
substantial portion of the services performed for the business 
by its employees is performed in a low-income community; and 
(4) less than five percent of the average of the aggregate 
unadjusted bases of the property of the business is 
attributable to certain financial property or to certain 
collectibles.\76\
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    \76\Sec. 45D(d)(2).
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    The maximum annual amount of qualified equity investments 
was $3.5 billion for calendar years 2010, 2011, 2012, 2013, and 
2014. The new markets tax credit expired on December 31, 2014. 
No amount of unused allocation limitation may be carried to any 
calendar year after 2019.

                           REASONS FOR CHANGE

    The Committee believes that the new markets tax credit has 
proven to be an effective means of providing equity and other 
investments to benefit businesses in low income communities, 
and that it is appropriate to provide for the allocation of 
additional tax credit authority for another two calendar years. 
The Committee also believes that it is appropriate to provide 
for a one-time adjustment to the credit limitation (by the rate 
of inflation from 2008 through 2014) in order to partially 
offset allocation erosion due to inflation.

                        EXPLANATION OF PROVISION

    The provision extends the new markets tax credit for two 
years, through 2016, permitting up to $3.94 billion in 
qualified equity investments for each of the 2015 and 2016 
calendar years. The provision also extends for two years, 
through 2021, the carryover period for unused new markets tax 
credits.

                             EFFECTIVE DATE

    The provision applies to calendar years beginning after 
December 31, 2014.

  6. Extension and modification of railroad track maintenance credit 
            (sec. 116 of the bill and sec. 45G of the Code)


                              PRESENT LAW

    Present law provides a 50-percent business tax credit for 
qualified railroad track maintenance expenditures paid or 
incurred by an eligible taxpayer during taxable years beginning 
before January 1, 2015.\77\ The credit is limited to the 
product of $3,500 times the number of miles of railroad track 
(1) owned or leased by an eligible taxpayer as of the close of 
its taxable year, and (2) assigned to the eligible taxpayer by 
a Class II or Class III railroad that owns or leases such track 
at the close of the taxable year.\78\ Each mile of railroad 
track may be taken into account only once, either by the owner 
of such mile or by the owner's assignee, in computing the per-
mile limitation. The credit also may reduce a taxpayer's tax 
liability below its tentative minimum tax.\79\ Basis of the 
railroad track must be reduced (but not below zero) by an 
amount equal to 100 percent of the taxpayer's qualified 
railroad track maintenance tax credit determined for the 
taxable year.\80\
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    \77\Sec. 45G(a) and (f).
    \78\Sec. 45G(b)(1).
    \79\Sec. 38(c)(4).
    \80\Sec. 45G(e)(3).
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    Qualified railroad track maintenance expenditures are 
defined as gross expenditures (whether or not otherwise 
chargeable to capital account) for maintaining railroad track 
(including roadbed, bridges, and related track structures) 
owned or leased as of January 1, 2005, by a Class II or Class 
III railroad (determined without regard to any consideration 
for such expenditure given by the Class II or Class III 
railroad which made the assignment of such track).\81\
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    \81\Sec. 45G(d).
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    An eligible taxpayer means any Class II or Class III 
railroad, and any person who transports property using the rail 
facilities of a Class II or Class III railroad or who furnishes 
railroad-related property or services to a Class II or Class 
III railroad, but only with respect to miles of railroad track 
assigned to such person by such railroad under the 
provision.\82\
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    \82\Sec. 45G(c).
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    The terms Class II or Class III railroad have the meanings 
given by the Surface Transportation Board.\83\
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    \83\Sec. 45G(e)(1).
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                           REASONS FOR CHANGE

    The Committee believes that Class II and Class III 
railroads are an important part of the nation's railway system. 
Therefore, the Committee believes that this incentive for 
railroad track maintenance expenditures should be extended and 
expanded prospectively to apply to qualified railroad track 
owned or leased by January 1, 2015.

                        EXPLANATION OF PROVISION

    The provision extends the present law credit for two years, 
for qualified railroad track maintenance expenditures paid or 
incurred in taxable years beginning after December 31, 2014, 
and before January 1, 2017.
    The provision also provides that qualified railroad track 
maintenance expenditures are defined as gross expenditures 
(whether or not otherwise chargeable to capital account) for 
maintaining railroad track (including roadbed, bridges, and 
related track structures) owned or leased as of January 1, 
2015, by a Class II or Class III railroad (determined without 
regard to any consideration for such expenditure given by the 
Class II or Class III railroad which made the assignment of 
such track).

                             EFFECTIVE DATE

    The provision is effective for expenditures paid or 
incurred in taxable years beginning after December 31, 2014.

7. Extension of mine rescue team training credit (sec. 117 of the bill 
                       and sec. 45N of the Code)


                              PRESENT LAW

    An eligible employer may claim a general business credit 
against income tax with respect to each qualified mine rescue 
team employee equal to the lesser of: (1) 20 percent of the 
amount paid or incurred by the taxpayer during the taxable year 
with respect to the training program costs of the qualified 
mine rescue team employee (including the wages of the employee 
while attending the program); or (2) $10,000.\84\ A qualified 
mine rescue team employee is any full-time employee of the 
taxpayer who is a miner eligible for more than six months of a 
taxable year to serve as a mine rescue team member by virtue of 
either having completed the initial 20 hour course of 
instruction prescribed by the Mine Safety and Health 
Administration's Office of Educational Policy and Development, 
or receiving at least 40 hours of refresher training in such 
instruction.\85\
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    \84\Sec. 45N(a).
    \85\Sec. 45N(b).
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    An eligible employer is any taxpayer which employs 
individuals as miners in underground mines in the United 
States.\86\ The term ``wages'' has the meaning given to such 
term by section 3306(b)\87\ (determined without regard to any 
dollar limitation contained in that section).\88\
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    \86\Sec. 45N(c).
    \87\Section 3306(b) defines wages for purposes of Federal 
Unemployment Tax.
    \88\Sec. 45N(d).
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    No deduction is allowed for the portion of the expenses 
otherwise deductible that is equal to the amount of the 
credit.\89\ The credit does not apply to taxable years 
beginning after December 31, 2014.\90\ Additionally, the credit 
is not allowable for purposes of computing the alternative 
minimum tax.\91\
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    \89\Sec. 280C(e).
    \90\Sec. 45N(e).
    \91\Sec. 38(c).
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                           REASONS FOR CHANGE

    The Committee believes that training mine rescue team 
employees will help ensure a positive outcome for individuals 
operating in and around a mine in the event of an accident. 
Therefore, the Committee believes that this incentive for costs 
incurred to train mine rescue teams should be extended.

                        EXPLANATION OF PROVISION

    The provision extends the credit for two years through 
taxable years beginning on or before December 31, 2016.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2014.

8. Extension and modification of employer wage credit for employees who 
are active duty members of the uniformed services (sec. 118 of the bill 
                       and sec. 45P of the Code)


                              PRESENT LAW

Differential pay

    In general, compensation paid by an employer to an employee 
is deductible by the employer unless the expense must be 
capitalized.\92\ In the case of an employee who is called to 
active duty with respect to the armed forces of the United 
States, some employers voluntarily pay the employee the 
difference between the compensation that the employer would 
have paid to the employee during the period of military service 
less the amount of pay received by the employee from the 
military. This payment by the employer is often referred to as 
``differential pay.''
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    \92\Sec. 162(a)(1).
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Wage credit for differential pay

    If an employer qualifies as an eligible small business 
employer, the employer is allowed a credit against its income 
tax liability for a taxable year in an amount equal to 20 
percent of the sum of the eligible differential wage payments 
for each of the employer's qualified employees during the year.
    An eligible small business employer means, with respect to 
a taxable year, an employer that: (1) employed on average less 
than 50 employees on business days during the taxable year; and 
(2) under a written plan of the taxpayer, provides eligible 
differential wage payments to every qualified employee. For 
this purpose, members of controlled groups, groups under common 
control, and affiliated service groups are treated as a single 
employer.\93\ The credit is not available with respect to an 
employer that has failed to comply with the employment and 
reemployment rights of members of the uniformed services.\94\
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    \93\Sec. 414(b), (c), (m) and (o).
    \94\Chapter 43 of Title 38 of the United States Code deals with 
these rights.
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    Differential wage payment means any payment that: (1) is 
made by an employer to an individual with respect to any period 
during which the individual is performing service in the 
uniformed services of the United States while on active duty 
for a period of more than 30 days, and (2) represents all or a 
portion of the wages that the individual would have received 
from the employer if the individual were performing services 
for the employer.\95\ Eligible differential wage payments are 
so much of the differential wage payments paid to a qualified 
employee as does not exceed $20,000. A qualified employee is an 
individual who has been an employee of the employer for the 91-
day period immediately preceding the period for which any 
differential wage payment is made.
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    \95\Sec. 3401(h)(2).
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    No deduction may be taken for that portion of compensation 
that is equal to the credit.\96\ In addition, the amount of any 
other income tax credit otherwise allowable with respect to 
compensation paid to an employee must be reduced by the 
differential wage payment credit allowed with respect to the 
employee. The credit is not allowable against a taxpayer's 
alternative minimum tax liability. Certain rules applicable to 
the work opportunity tax credit in the case of tax-exempt 
organizations, estates and trusts, regulated investment 
companies, real estate investment trusts and certain 
cooperatives apply also to the differential wage payment 
credit.\97\
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    \96\Sec. 280C(a).
    \97\Sec. 52(c), (d), (e).
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    The credit is available with respect to amounts paid after 
June 17, 2008,\98\ and before January 1, 2015.
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    \98\The credit was originally provided by the Heroes Earnings 
Assistance and Relief Tax Act of 2008 (``HEART Act''), Pub. L. No. 110-
245, effective for amounts paid after June 17, 2008, the date of 
enactment of the HEART Act.
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                           REASONS FOR CHANGE

    The credit for differential wage payments serves to 
encourage employers to make differential wage payments to 
employees who are serving on active duty in the military. 
Besides continuing the current incentive by extending the 
credit, the Committee wishes to expand its incentive effect by 
making the credit available to all employers, regardless of 
size, and to increase the credit rate.

                        EXPLANATION OF PROVISION

    The provision extends the availability of the differential 
wage payment credit for two years, that is, to amounts paid 
before January 1, 2017.
    The provision also modifies the credit by making it 
available to an employer of any size, rather than only to 
eligible small business employers, and by increasing the credit 
rate to 100 percent of eligible differential wage payments 
(that is, differential wage payments up to $20,000).

                             EFFECTIVE DATE

    The provision applies to payments made after December 31, 
2014.

9. Extension and modification of work opportunity tax credit (sec. 119 
              of the bill and secs. 51 and 52 of the Code)


                              PRESENT LAW

In general

    The work opportunity tax credit is available on an elective 
basis for employers hiring individuals from one or more of nine 
targeted groups. The amount of the credit available to an 
employer is determined by the amount of qualified wages paid by 
the employer. Generally, qualified wages consist of wages 
attributable to service rendered by a member of a targeted 
group during the one-year period beginning with the day the 
individual begins work for the employer (two years in the case 
of an individual in the long-term family assistance recipient 
category).

Targeted groups eligible for the credit

    Generally, an employer is eligible for the credit only for 
qualified wages paid to members of a targeted group.
            (1) Families receiving TANF
    An eligible recipient is an individual certified by a 
designated local employment agency (e.g., a State employment 
agency) as being a member of a family eligible to receive 
benefits under the Temporary Assistance for Needy Families 
Program (``TANF'') for a period of at least nine months part of 
which is during the 18-month period ending on the hiring date. 
For these purposes, members of the family are defined to 
include only those individuals taken into account for purposes 
of determining eligibility for the TANF.
            (2) Qualified veteran
    Prior to enactment of the ``VOW to Hire Heroes Act of 
2011'' (the ``VOW Act''),\99\ there were two subcategories of 
qualified veterans to whom wages paid by an employer were 
eligible for the credit. Employers who hired veterans who were 
eligible to receive assistance under a supplemental nutritional 
assistance program were entitled to a maximum credit of 40 
percent of $6,000 of qualified first-year wages paid to such 
individual.\100\ Employers who hired veterans who were entitled 
to compensation for a service-connected disability were 
entitled to a maximum wage credit of 40 percent of $12,000 of 
qualified first-year wages paid to such individual.\101\
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    \99\Pub. L. No. 112-56 (Nov. 21, 2011).
    \100\For these purposes, a qualified veteran must be certified by 
the designated local agency as a member of a family receiving 
assistance under a supplemental nutrition assistance program under the 
Food and Nutrition Act of 2008 for a period of at least three months, 
part of which is during the 12-month period ending on the hiring date. 
For these purposes, members of a family are defined to include only 
those individuals taken into account for purposes of determining 
eligibility for a supplemental nutrition assistance program under the 
Food and Nutrition Act of 2008.
    \101\The qualified veteran must be certified as entitled to 
compensation for a service-connected disability and (1) have a hiring 
date which is not more than one year after having been discharged or 
released from active duty in the Armed Forces of the United States; or 
(2) have been unemployed for six months or more (whether or not 
consecutive) during the one-year period ending on the date of hiring. 
For these purposes, being entitled to compensation for a service-
connected disability is defined with reference to section 101 of Title 
38, U.S. Code, which means having a disability rating of 10 percent or 
higher for service connected injuries.
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    The VOW Act modified the work opportunity credit with 
respect to qualified veterans, by adding additional 
subcategories. There are now five subcategories of qualified 
veterans: (1) in the case of veterans who were eligible to 
receive assistance under a supplemental nutritional assistance 
program (for at least a three month period during the year 
prior to the hiring date) the employer is entitled to a maximum 
credit of 40 percent of $6,000 of qualified first-year wages; 
(2) in the case of a qualified veteran who is entitled to 
compensation for a service-connected disability, who is hired 
within one year of discharge, the employer is entitled to a 
maximum credit of 40 percent of $12,000 of qualified first-year 
wages; (3) in the case of a qualified veteran who is entitled 
to compensation for a service-connected disability, and who has 
been unemployed for an aggregate of at least six months during 
the one year period ending on the hiring date, the employer is 
entitled to a maximum credit of 40 percent of $24,000 of 
qualified first-year wages; (4) in the case of a qualified 
veteran unemployed for at least four weeks but less than six 
months (whether or not consecutive) during the one-year period 
ending on the date of hiring, the maximum credit equals 40 
percent of $6,000 of qualified first-year wages; and (5) in the 
case of a qualified veteran unemployed for at least six months 
(whether or not consecutive) during the one-year period ending 
on the date of hiring, the maximum credit equals 40 percent of 
$14,000 of qualified first-year wages.
    A veteran is an individual who has served on active duty 
(other than for training) in the Armed Forces for more than 180 
days or who has been discharged or released from active duty in 
the Armed Forces for a service-connected disability. However, 
any individual who has served for a period of more than 90 days 
during which the individual was on active duty (other than for 
training) is not a qualified veteran if any of this active duty 
occurred during the 60-day period ending on the date the 
individual was hired by the employer. This latter rule is 
intended to prevent employers who hire current members of the 
armed services (or those departed from service within the last 
60 days) from receiving the credit.
            (3) Qualified ex-felon
    A qualified ex-felon is an individual certified as: (1) 
having been convicted of a felony under any State or Federal 
law; and (2) having a hiring date within one year of release 
from prison or the date of conviction.
            (4) Designated community resident
    A designated community resident is an individual certified 
as being at least age 18 but not yet age 40 on the hiring date 
and as having a principal place of abode within an empowerment 
zone, enterprise community, renewal community or a rural 
renewal community. For these purposes, a rural renewal county 
is a county outside a metropolitan statistical area (as defined 
by the Office of Management and Budget) which had a net 
population loss during the five-year periods 1990-1994 and 
1995-1999. Qualified wages do not include wages paid or 
incurred for services performed after the individual moves 
outside an empowerment zone, enterprise community, renewal 
community or rural renewal community.
            (5) Vocational rehabilitation referral
    A vocational rehabilitation referral is an individual who 
is certified by a designated local agency as an individual who 
has a physical or mental disability that constitutes a 
substantial handicap to employment and who has been referred to 
the employer while receiving, or after completing: (a) 
vocational rehabilitation services under an individualized, 
written plan for employment under a State plan approved under 
the Rehabilitation Act of 1973; (b) under a rehabilitation plan 
for veterans carried out under Chapter 31 of Title 38, U.S. 
Code; or (c) an individual work plan developed and implemented 
by an employment network pursuant to subsection (g) of section 
1148 of the Social Security Act. Certification will be provided 
by the designated local employment agency upon assurances from 
the vocational rehabilitation agency that the employee has met 
the above conditions.
            (6) Qualified summer youth employee
    A qualified summer youth employee is an individual: (1) who 
performs services during any 90-day period between May 1 and 
September 15; (2) who is certified by the designated local 
agency as being 16 or 17 years of age on the hiring date; (3) 
who has not been an employee of that employer before; and (4) 
who is certified by the designated local agency as having a 
principal place of abode within an empowerment zone, enterprise 
community, or renewal community. As with designated community 
residents, no credit is available on wages paid or incurred for 
service performed after the qualified summer youth moves 
outside of an empowerment zone, enterprise community, or 
renewal community. If, after the end of the 90-day period, the 
employer continues to employ a youth who was certified during 
the 90-day period as a member of another targeted group, the 
limit on qualified first-year wages will take into account 
wages paid to the youth while a qualified summer youth 
employee.
            (7) Qualified supplemental nutrition assistance program 
                    benefits recipient
    A qualified supplemental nutrition assistance program 
benefits recipient is an individual at least age 18 but not yet 
age 40 certified by a designated local employment agency as 
being a member of a family receiving assistance under a food 
and nutrition program under the Food and Nutrition Act of 2008 
for a period of at least six months ending on the hiring date. 
In the case of families that cease to be eligible for food and 
nutrition assistance under section 6(o) of the Food and 
Nutrition Act of 2008, the six-month requirement is replaced 
with a requirement that the family has been receiving food and 
nutrition assistance for at least three of the five months 
ending on the date of hire. For these purposes, members of the 
family are defined to include only those individuals taken into 
account for purposes of determining eligibility for a food and 
nutrition assistance program under the Food and Nutrition Act 
of 2008.
            (8) Qualified SSI recipient
    A qualified SSI recipient is an individual designated by a 
local agency as receiving supplemental security income 
(``SSI'') benefits under Title XVI of the Social Security Act 
for any month ending within the 60-day period ending on the 
hiring date.
            (9) Long-term family assistance recipient
    A qualified long-term family assistance recipient is an 
individual certified by a designated local agency as being: (1) 
a member of a family that has received family assistance for at 
least 18 consecutive months ending on the hiring date; (2) a 
member of a family that has received such family assistance for 
a total of at least 18 months (whether or not consecutive) 
after August 5, 1997 (the date of enactment of the welfare-to-
work tax credit) if the individual is hired within two years 
after the date that the 18-month total is reached; or (3) a 
member of a family who is no longer eligible for family 
assistance because of either Federal or State time limits, if 
the individual is hired within two years after the Federal or 
State time limits made the family ineligible for family 
assistance.

Qualified wages

    Generally, qualified wages are defined as cash wages paid 
by the employer to a member of a targeted group. The employer's 
deduction for wages is reduced by the amount of the credit.
    For purposes of the credit, generally, wages are defined by 
reference to the FUTA definition of wages contained in section 
3306(b) (without regard to the dollar limitation therein 
contained). Special rules apply in the case of certain 
agricultural labor and certain railroad labor.

Calculation of the credit

    The credit available to an employer for qualified wages 
paid to members of all targeted groups except for long-term 
family assistance recipients equals 40 percent (25 percent for 
employment of 400 hours or less) of qualified first-year wages. 
Generally, qualified first-year wages are qualified wages (not 
in excess of $6,000) attributable to service rendered by a 
member of a targeted group during the one-year period beginning 
with the day the individual began work for the employer. 
Therefore, the maximum credit per employee is $2,400 (40 
percent of the first $6,000 of qualified first-year wages). 
With respect to qualified summer youth employees, the maximum 
credit is $1,200 (40 percent of the first $3,000 of qualified 
first-year wages). Except for long-term family assistance 
recipients, no credit is allowed for second-year wages.
    In the case of long-term family assistance recipients, the 
credit equals 40 percent (25 percent for employment of 400 
hours or less) of $10,000 for qualified first-year wages and 50 
percent of the first $10,000 of qualified second-year wages. 
Generally, qualified second-year wages are qualified wages (not 
in excess of $10,000) attributable to service rendered by a 
member of the long-term family assistance category during the 
one-year period beginning on the day after the one-year period 
beginning with the day the individual began work for the 
employer. Therefore, the maximum credit per employee is $9,000 
(40 percent of the first $10,000 of qualified first-year wages 
plus 50 percent of the first $10,000 of qualified second-year 
wages).
    For calculation of the credit with respect to qualified 
veterans, see the description of ``qualified veteran'' above.

Certification rules

    Generally, an individual is not treated as a member of a 
targeted group unless: (1) on or before the day on which an 
individual begins work for an employer, the employer has 
received a certification from a designated local agency that 
such individual is a member of a targeted group; or (2) on or 
before the day an individual is offered employment with the 
employer, a pre-screening notice is completed by the employer 
with respect to such individual, and not later than the 28th 
day after the individual begins work for the employer, the 
employer submits such notice, signed by the employer and the 
individual under penalties of perjury, to the designated local 
agency as part of a written request for certification. For 
these purposes, a pre-screening notice is a document (in such 
form as the Secretary may prescribe) which contains information 
provided by the individual on the basis of which the employer 
believes that the individual is a member of a targeted group.
    An otherwise qualified unemployed veteran is treated as 
certified by the designated local agency as having aggregate 
periods of unemployment (whichever is applicable under the 
qualified veterans rules described above) if such veteran is 
certified by such agency as being in receipt of unemployment 
compensation under a State or Federal law for such applicable 
periods. The Secretary of the Treasury is authorized to provide 
alternative methods of certification for unemployed veterans.

Minimum employment period

    No credit is allowed for qualified wages paid to employees 
who work less than 120 hours in the first year of employment.

Qualified tax-exempt organizations employing qualified veterans

    The credit is not available to qualified tax-exempt 
organizations other than those employing qualified veterans. 
The special rules, described below, were enacted in the VOW 
Act.
    If a qualified tax-exempt organization employs a qualified 
veteran (as described above), a tax credit against the FICA 
taxes of the organization is allowed on the wages of the 
qualified veteran which are paid for the veteran's services in 
furtherance of the activities related to the function or 
purpose constituting the basis of the organization's exemption 
under section 501.
    The credit available to such tax-exempt employer for 
qualified wages paid to a qualified veteran equals 26 percent 
(16.25 percent for employment of 400 hours or less) of 
qualified first-year wages. The amount of qualified first-year 
wages eligible for the credit is the same as those for non-tax-
exempt employers (i.e., $6,000, $12,000, $14,000 or $24,000, 
depending on the category of qualified veteran).
    A qualified tax-exempt organization means an employer that 
is described in section 501(c) and exempt from tax under 
section 501(a).
    The Social Security Trust Funds are held harmless from the 
effects of this provision by a transfer from the Treasury 
General Fund.

Treatment of possessions

    The VOW Act provided a reimbursement mechanism for the U.S. 
possessions (American Samoa, Guam, the Commonwealth of the 
Northern Mariana Islands, the Commonwealth of Puerto Rico, and 
the United States Virgin Islands). The Treasury Secretary is to 
pay to each mirror code possession (Guam, the Commonwealth of 
the Northern Mariana Islands, and the United States Virgin 
Islands) an amount equal to the loss to that possession as a 
result of the VOW Act changes to the qualified veterans rules. 
Similarly, the Treasury Secretary is to pay to each non-mirror 
Code possession (American Samoa and the Commonwealth of Puerto 
Rico) the amount that the Secretary estimates as being equal to 
the loss to that possession that would have occurred as a 
result of the VOW Act changes if a mirror code tax system had 
been in effect in that possession. The Secretary will make this 
payment to a non-mirror Code possession only if that possession 
establishes to the satisfaction of the Secretary that the 
possession has implemented (or, at the discretion of the 
Secretary, will implement) an income tax benefit that is 
substantially equivalent to the qualified veterans credit 
allowed under the VOW Act modifications.
    An employer that is allowed a credit against U.S. tax under 
the VOW Act with respect to a qualified veteran must reduce the 
amount of the credit claimed by the amount of any credit (or, 
in the case of a non-mirror Code possession, another tax 
benefit) that the employer claims against its possession income 
tax.

Other rules

    The work opportunity tax credit is not allowed for wages 
paid to a relative or dependent of the taxpayer. No credit is 
allowed for wages paid to an individual who is a more than 
fifty-percent owner of the entity. Similarly, wages paid to 
replacement workers during a strike or lockout are not eligible 
for the work opportunity tax credit. Wages paid to any employee 
during any period for which the employer received on-the-job 
training program payments with respect to that employee are not 
eligible for the work opportunity tax credit. The work 
opportunity tax credit generally is not allowed for wages paid 
to individuals who had previously been employed by the 
employer. In addition, many other technical rules apply.

Expiration

    The work opportunity tax credit is not available for 
individuals who begin work for an employer after December 31, 
2014.

                           REASONS FOR CHANGE

    Given the level of unemployment and general economic 
conditions, the Committee believes that the credit should be 
extended and expanded. By expanding the credit to long-term 
unemployed individuals, the Committee believes it is providing 
an incentive for employers to hire individuals who have 
suffered particularly acute harm during the economic downturn.

                        EXPLANATION OF PROVISION

    The provision extends for two years the present-law 
employment credit provision (for qualified wages paid to 
individuals who begin work prior to January 1, 2017). 
Additionally, the provision expands the work opportunity tax 
credit to employers who hire individuals who are qualified 
long-term unemployment recipients. For purposes of the 
provision, such persons are individuals who have been certified 
by the designated local agency as being in a period of 
unemployment of 27 weeks or more, which includes a period in 
which the individual was receiving unemployment compensation 
under State or Federal law. With respect to wages paid to such 
individuals, employers would be eligible for a 40 percent 
credit on the first $6,000 of wages paid to such individual, 
for a maximum credit of $2,400 per eligible employee.

                             EFFECTIVE DATE

    The provision is effective for individuals who begin work 
for the employer after December 31, 2014.

 10. Extension and modification of qualified zone academy bonds (sec. 
          120 of the bill and secs. 54E and 6431 of the Code)


                              PRESENT LAW

Tax-exempt bonds

    Interest on State and local governmental bonds generally is 
excluded from gross income for Federal income tax purposes if 
the proceeds of the bonds are used to finance direct activities 
of these governmental units or if the bonds are repaid with 
revenues of the governmental units. These can include tax-
exempt bonds which finance public schools.\102\ An issuer must 
file with the Internal Revenue Service certain information 
about the bonds issued in order for that bond issue to be tax-
exempt.\103\ Generally, this information return is required to 
be filed no later the 15th day of the second month after the 
close of the calendar quarter in which the bonds were issued.
---------------------------------------------------------------------------
    \102\Sec. 103.
    \103\Sec. 149(e).
---------------------------------------------------------------------------
    The tax exemption for State and local bonds does not apply 
to any arbitrage bond.\104\ An arbitrage bond is defined as any 
bond that is part of an issue if any proceeds of the issue are 
reasonably expected to be used (or intentionally are used) to 
acquire higher yielding investments or to replace funds that 
are used to acquire higher yielding investments.\105\ In 
general, arbitrage profits may be earned only during specified 
periods (e.g., defined ``temporary periods'') before funds are 
needed for the purpose of the borrowing or on specified types 
of investments (e.g., ``reasonably required reserve or 
replacement funds''). Subject to limited exceptions, investment 
profits that are earned during these periods or on such 
investments must be rebated to the Federal Government.
---------------------------------------------------------------------------
    \104\Sec. 103(a) and (b)(2).
    \105\Sec. 148.
---------------------------------------------------------------------------

Qualified zone academy bonds

    As an alternative to traditional tax-exempt bonds, State 
and local governments were given the authority to issue 
``qualified zone academy bonds.''\106\ A total of $400 million 
of qualified zone academy bonds is authorized to be issued 
annually in calendar years 1998 through 2008, $1,400 million in 
2009 and 2010, and $400 million in 2011, 2012, 2013 and 2014. 
Each calendar year's bond limitation is allocated to the States 
according to their respective populations of individuals below 
the poverty line. Each State, in turn, allocates the bond 
authority to qualified zone academies within such State.
---------------------------------------------------------------------------
    \106\See secs. 54E and 1397E.
---------------------------------------------------------------------------
    A taxpayer holding a qualified zone academy bond on the 
credit allowance date is entitled to a credit. The credit is 
includible in gross income (as if it were a taxable interest 
payment on the bond), and may be claimed against regular income 
tax and alternative minimum tax liability.
    Qualified zone academy bonds are a type of qualified tax 
credit bond and subject to the general rules applicable to 
qualified tax credit bonds.\107\ The Treasury Department sets 
the credit rate at a rate estimated to allow issuance of 
qualified zone academy bonds without discount and without 
interest cost to the issuer.\108\ The Secretary determines 
credit rates for tax credit bonds based on general assumptions 
about credit quality of the class of potential eligible issuers 
and such other factors as the Secretary deems appropriate. The 
Secretary may determine credit rates based on general credit 
market yield indexes and credit ratings. The maximum term of 
the bond is determined by the Treasury Department, so that the 
present value of the obligation to repay the principal on the 
bond is 50 percent of the face value of the bond.
---------------------------------------------------------------------------
    \107\Sec. 54A.
    \108\Given the differences in credit quality and other 
characteristics of individual issuers, the Secretary cannot set credit 
rates in a manner that will allow each issuer to issue tax credit bonds 
at par.
---------------------------------------------------------------------------
    ``Qualified zone academy bonds'' are defined as any bond 
issued by a State or local government, provided that (1) 100 
percent of the available project proceeds are used for the 
purpose of renovating, providing equipment to, developing 
course materials for use at, or training teachers and other 
school personnel in a ``qualified zone academy'' and (2) 
private entities have promised to contribute to the qualified 
zone academy certain equipment, technical assistance or 
training, employee services, or other property or services with 
a value equal to at least 10 percent of the bond proceeds.
    A school is a ``qualified zone academy'' if (1) the school 
is a public school that provides education and training below 
the college level, (2) the school operates a special academic 
program in cooperation with businesses to enhance the academic 
curriculum and increase graduation and employment rates, and 
(3) either (a) the school is located in an empowerment zone or 
enterprise community designated under the Code, or (b) it is 
reasonably expected that at least 35 percent of the students at 
the school will be eligible for free or reduced-cost lunches 
under the school lunch program established under the National 
School Lunch Act.
    Under section 6431, an issuer of specified tax credit 
bonds, may elect to receive a payment in lieu of a credit being 
allowed to the holder of the bond (``direct-pay bonds''). 
Section 6431 is not available for qualified zone academy bond 
allocations from the national limitation for years after 2010 
or any carry forward of those allocations.

                           REASONS FOR CHANGE

    The Committee believes there is a continuing need to 
finance school renovations and therefore extension of the 
qualified zone academy bond program is warranted. Further, the 
Committee believes that the inability to attract sufficient 
private contributions to meet the current 10 percent private 
contribution requirement may hinder the ability of some school 
districts to fully utilize the qualified zone academy bond 
program. Therefore, the Committee believes it is appropriate to 
lower the required match to five percent to make the 
requirement more manageable for school districts to meet.

                        EXPLANATION OF PROVISION

    The provision extends the qualified zone academy bond 
program for two years. The provision authorizes issuance of up 
to $400 million of qualified zone academy bonds for 2015 and 
$400 million for 2016. The option to issue direct-pay bonds is 
not available. The provision also reduces the private business 
contribution requirement from 10 percent to five percent.

                             EFFECTIVE DATE

    The provision applies to obligations issued after December 
31, 2014.

 11. Extension of classification of certain race horses as three-year 
        property (sec. 121 of the bill and sec. 168 of the Code)


                              PRESENT LAW

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or 
amortization.\109\ Tangible property generally is depreciated 
under the modified accelerated cost recovery system 
(``MACRS''), which determines depreciation by applying specific 
recovery periods,\110\ placed-in-service conventions, and 
depreciation methods to the cost of various types of 
depreciable property.\111\ In particular, the statute assigns a 
three-year recovery period for any race horse (1) that is 
placed in service after December 31, 2008 and before January 1, 
2015\112\ and (2) that is placed in service after December 31, 
2014 and that is more than two years old at such time it is 
placed in service by the purchaser.\113\ A seven-year recovery 
period is assigned to any race horse that is placed in service 
after December 31, 2014 and that is two years old or younger at 
the time it is placed in service.\114\
---------------------------------------------------------------------------
    \109\See secs. 263(a) and 167.
    \110\The applicable recovery period for an asset is determined in 
part by statute and in part by historic Treasury guidance. Exercising 
authority granted by Congress, the Secretary issued Revenue Procedure 
87-56 (1987-2 C.B. 674), laying out the framework of recovery periods 
for enumerated classes of assets. The Secretary clarified and modified 
the list of asset classes in Revenue Procedure 88-22 (1988-1 C.B. 785). 
In November 1988, Congress revoked the Secretary's authority to modify 
the class lives of depreciable property. Revenue Procedure 87-56, as 
modified, remains in effect except to the extent that the Congress has, 
since 1988, statutorily modified the recovery period for certain 
depreciable assets, effectively superseding any administrative guidance 
with regard to such property.
    \111\Sec. 168.
    \112\Sec. 168(e)(3)(A)(i)(I), as in effect after amendment by the 
Food, Conservation and Energy Act of 2008, Pub. L. No. 110-246, sec. 
15344(b).
    \113\Sec. 168(e)(3)(A)(i)(II). A horse is more than two years old 
after the day that is 24 months after its actual birthdate. Rev. Proc. 
87-56, 1987-2 C.B. 674, as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785.
    \114\Rev. Proc. 87-56, 1987-2 C.B. 674, asset class 01.225.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the horse industry is important 
to a number of State and local economies. Therefore, the 
Committee believes that this incentive for race horses should 
be extended.

                        EXPLANATION OF PROVISION

    The provision extends the present-law three-year recovery 
period for race horses for two years to apply to any race horse 
(regardless of age when placed in service) which is placed in 
service before January 1, 2017. Subsequently, the three-year 
recovery period for race horses will only apply to those which 
are more than two years old when placed in service by the 
purchaser after December 31, 2016.

                             EFFECTIVE DATE

    The provision applies to property placed in service after 
December 31, 2014.

  12. Extension of 15-year straight-line cost recovery for qualified 
      leasehold improvements, qualified restaurant buildings and 
 improvements, and qualified retail improvements (sec. 122 of the bill 
                       and sec. 168 of the Code)


                              PRESENT LAW

In general

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or amortization. 
Tangible property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property.\115\ The cost of 
nonresidential real property is recovered using the straight-
line method of depreciation and a recovery period of 39-years. 
Nonresidential real property is subject to the mid-month 
placed-in-service convention. Under the mid-month convention, 
the depreciation allowance for the first year in which property 
is placed in service is based on the number of months the 
property was in service, and property placed in service at any 
time during a month is treated as having been placed in service 
in the middle of the month.
---------------------------------------------------------------------------
    \115\Sec. 168.
---------------------------------------------------------------------------

Depreciation of leasehold improvements

    Generally, depreciation allowances for improvements made on 
leased property are determined under MACRS, even if the MACRS 
recovery period assigned to the property is longer than the 
term of the lease. This rule applies regardless of whether the 
lessor or the lessee places the leasehold improvements in 
service. If a leasehold improvement constitutes an addition or 
improvement to nonresidential real property already placed in 
service, the improvement generally is depreciated using the 
straight-line method over a 39-year recovery period, beginning 
in the month the addition or improvement was placed in service. 
However, exceptions exist for certain qualified leasehold 
improvements, qualified restaurant property, and qualified 
retail improvement property.

Qualified leasehold improvement property

    Section 168(e)(3)(E)(iv) provides a statutory 15-year 
recovery period for qualified leasehold improvement property 
placed in service before January 1, 2015. Qualified leasehold 
improvement property is any improvement to an interior portion 
of a building that is nonresidential real property, provided 
certain requirements are met.\116\ The improvement must be made 
under or pursuant to a lease either by the lessee (or 
sublessee), or by the lessor, of that portion of the building 
to be occupied exclusively by the lessee (or sublessee). The 
improvement must be placed in service more than three years 
after the date the building was first placed in service. 
Qualified leasehold improvement property does not include any 
improvement for which the expenditure is attributable to the 
enlargement of the building, any elevator or escalator, any 
structural component benefiting a common area, or the internal 
structural framework of the building.\117\ If a lessor makes an 
improvement that qualifies as qualified leasehold improvement 
property, such improvement does not qualify as qualified 
leasehold improvement property to any subsequent owner of such 
improvement.\118\ An exception to the rule applies in the case 
of death and certain transfers of property that qualify for 
non-recognition treatment.\119\
---------------------------------------------------------------------------
    \116\Sec. 168(e)(6).
    \117\Sec. 168(e)(6) and (k)(3).
    \118\Sec. 168(e)(6)(A).
    \119\Sec. 168(e)(6)(B).
---------------------------------------------------------------------------
    Qualified leasehold improvement property is generally 
recovered using the straight-line method and a half-year 
convention.\120\ Qualified leasehold improvement property 
placed in service after December 31, 2014 is subject to the 
general rules described above.
---------------------------------------------------------------------------
    \120\Sec. 168(b)(3)(G) and (d).
---------------------------------------------------------------------------

Qualified restaurant property

    Section 168(e)(3)(E)(v) provides a statutory 15-year 
recovery period for qualified restaurant property placed in 
service before January 1, 2015. Qualified restaurant property 
is any section 1250 property that is a building or an 
improvement to a building, if more than 50 percent of the 
building's square footage is devoted to the preparation of, and 
seating for on-premises consumption of, prepared meals.\121\ 
Qualified restaurant property is recovered using the straight-
line method and a half-year convention.\122\ Additionally, 
qualified restaurant property is not eligible for bonus 
depreciation unless it also satisfies the definition of 
qualified leasehold improvement property.\123\ Qualified 
restaurant property placed in service after December 31, 2014 
is subject to the general rules described above.
---------------------------------------------------------------------------
    \121\Sec. 168(e)(7).
    \122\Sec. 168(b)(3)(H) and (d).
    \123\Sec. 168(e)(7)(B).
---------------------------------------------------------------------------

Qualified retail improvement property

    Section 168(e)(3)(E)(ix) provides a statutory 15-year 
recovery period for qualified retail improvement property 
placed in service before January 1, 2015. Qualified retail 
improvement property is any improvement to an interior portion 
of a building which is nonresidential real property if such 
portion is open to the general public\124\ and is used in the 
retail trade or business of selling tangible personal property 
to the general public, and such improvement is placed in 
service more than three years after the date the building was 
first placed in service.\125\ Qualified retail improvement 
property does not include any improvement for which the 
expenditure is attributable to the enlargement of the building, 
any elevator or escalator, any structural component benefiting 
a common area, or the internal structural framework of the 
building.\126\ In the case of an improvement made by the owner 
of such improvement, the improvement is a qualified retail 
improvement only so long as the improvement is held by such 
owner.\127\
---------------------------------------------------------------------------
    \124\Improvements to portions of a building not open to the general 
public (e.g., stock room in back of retail space) do not qualify under 
the provision.
    \125\Sec. 168(e)(8).
    \126\Sec. 168(e)(8)(C).
    \127\Sec. 168(e)(8)(B).
---------------------------------------------------------------------------
    Retail establishments that qualify for the 15-year recovery 
period include those primarily engaged in the sale of goods. 
Examples of these retail establishments include, but are not 
limited to, grocery stores, clothing stores, hardware stores, 
and convenience stores. Establishments primarily engaged in 
providing services, such as professional services, financial 
services, personal services, health services, and 
entertainment, do not qualify. Generally, it is intended that 
businesses defined as a store retailer under the current North 
American Industry Classification System (industry sub-sectors 
441 through 453) qualify while those in other industry classes 
do not qualify.
    Qualified retail improvement property is recovered using 
the straight-line method and a half-year convention.\128\ 
Additionally, qualified retail improvement property is not 
eligible for bonus depreciation unless it also satisfies the 
definition of qualified leasehold improvement property.\129\ 
Qualified retail improvement property placed in service after 
December 31, 2014 is subject to the general rules described 
above.
---------------------------------------------------------------------------
    \128\Sec. 168(b)(3)(I) and (d).
    \129\Sec. 168(e)(8)(D).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that taxpayers should not be 
required to recover the costs of certain leasehold improvements 
beyond the useful life of the investment. The 39-year recovery 
period for leasehold improvements for property placed in 
service after December 31, 2014, extends beyond the useful life 
of many such investments. Although lease terms differ, the 
Committee believes that lease terms for commercial real estate 
are also typically shorter than the 39-year recovery period. In 
the interests of simplicity and administrability, a uniform 
period for the recovery of leasehold improvements is desirable. 
Therefore, the provision extends the 15-year recovery period 
for leasehold improvements.
    The Committee also believes that unlike other commercial 
buildings, restaurant buildings generally are more specialized 
structures. Restaurants also experience considerably more 
traffic and remain open longer than most commercial properties. 
This daily use causes rapid deterioration of restaurant 
properties and forces restaurateurs to constantly repair and 
upgrade their facilities. As such, restaurant facilities 
generally have a shorter life span than other commercial 
establishments. The provision extends the 15-year recovery 
period for improvements made to restaurant buildings and 
continues to apply the 15-year recovery period to new 
restaurants, to more accurately reflect the true economic life 
of such properties.
    The Committee believes that taxpayers should not be 
required to recover the costs of certain improvements beyond 
the useful life of the investment. The 39-year recovery period 
for improvements to owner-occupied (i.e., not leased) retail 
property extends beyond the useful life of many such 
investments. Additionally, the Committee believes that 
retailers should not be treated differently based on whether 
the building in which they operate is owned or leased. As many 
small business retailers own the building in which they operate 
their business, the Committee believes this provision will 
provide relief to small businesses. Therefore, the provision 
extends the 15-year recovery period for qualified retail 
improvements.

                        EXPLANATION OF PROVISION

    The provision extends the present-law provisions for 
qualified leasehold improvement property, qualified restaurant 
property, and qualified retail improvement property for two 
years to apply to property placed in service before January 1, 
2017.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014.

      13. Extension of seven-year recovery period for motorsports 
entertainment complexes (sec. 123 of the bill and sec. 168 of the Code)


                              PRESENT LAW

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or 
amortization.\130\ Tangible property generally is depreciated 
under the modified accelerated cost recovery system 
(``MACRS''), which determines depreciation by applying specific 
recovery periods,\131\ placed-in-service conventions, and 
depreciation methods to the cost of various types of 
depreciable property.\132\ The cost of nonresidential real 
property is recovered using the straight-line method of 
depreciation and a recovery period of 39 years.\133\ 
Nonresidential real property is subject to the mid-month 
convention, which treats all property placed in service during 
any month (or disposed of during any month) as placed in 
service (or disposed of) on the mid-point of such month.\134\ 
All other property generally is subject to the half-year 
convention, which treats all property placed in service during 
any taxable year (or disposed of during any taxable year) as 
placed in service (or disposed of) on the mid-point of such 
taxable year.\135\ Land improvements (such as roads and fences) 
are recovered using the 150-percent declining balance method 
and a recovery period of 15 years.\136\ An exception exists for 
the theme and amusement park industry, whose assets are 
assigned a recovery period of seven years.\137\ Additionally, a 
motorsports entertainment complex placed in service on or 
before December 31, 2014 is assigned a recovery period of seven 
years.\138\ For these purposes, a motorsports entertainment 
complex means a racing track facility which is permanently 
situated on land and which during the 36-month period following 
its placed-in-service date hosts a racing event.\139\ The term 
motorsports entertainment complex also includes ancillary 
facilities, land improvements (e.g., parking lots, sidewalks, 
fences), support facilities (e.g., food and beverage retailing, 
souvenir vending), and appurtenances associated with such 
facilities (e.g., ticket booths, grandstands).
---------------------------------------------------------------------------
    \130\See secs. 263(a) and 167.
    \131\The applicable recovery period for an asset is determined in 
part by statute and in part by historic Treasury guidance. Exercising 
authority granted by Congress, the Secretary issued Revenue Procedure 
87-56 (1987-2 C.B. 674), laying out the framework of recovery periods 
for enumerated classes of assets. The Secretary clarified and modified 
the list of asset classes in Revenue Procedure 88-22 (1988-1 C.B. 785). 
In November 1988, Congress revoked the Secretary's authority to modify 
the class lives of depreciable property. Revenue Procedure 87-56, as 
modified, remains in effect except to the extent that the Congress has, 
since 1988, statutorily modified the recovery period for certain 
depreciable assets, effectively superseding any administrative guidance 
with regard to such property.
    \132\Sec. 168.
    \133\Sec. 168(b)(3)(A) and (c).
    \134\Sec. 168(d)(2)(A) and (d)(4)(B).
    \135\Sec. 168(d)(1) and (d)(4)(A). However, if substantial property 
is placed in service during the last three months of a taxable year, a 
special rule requires use of the mid-quarter convention, which treats 
all property placed in service (or disposed of) during any quarter as 
placed in service (or disposed of) on the mid-point of such quarter. 
Sec. 168(d)(3) and (d)(4)(C).
    \136\Sec. 168(b)(2)(A) and asset class 00.3 of Rev. Proc. 87-56, 
1987-2 C.B. 674. Under the 150-percent declining balance method, the 
depreciation rate is determined by dividing 150 percent by the 
appropriate recovery period, switching to the straight-line method for 
the first taxable year where using the straight-line method with 
respect to the adjusted basis as of the beginning of that year will 
yield a larger depreciation allowance. Sec. 168(b)(2) and (b)(1)(B).
    \137\Asset class 80.0 of Rev. Proc. 87-56, 1987-2 C.B. 674.
    \138\Sec. 168(e)(3)(C)(ii).
    \139\Sec. 168(i)(15).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that extending the depreciation 
incentive for the motorsports industry will encourage State and 
local economic development. Thus, the provision extends the 
seven-year recovery period for motorsports entertainment 
complex property.

                        EXPLANATION OF PROVISION

    The provision extends the present-law seven-year recovery 
period for motorsports entertainment complexes for two years to 
apply to property placed in service on or before December 31, 
2016.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014.

14. Extension and modification of accelerated depreciation for business 
property on an Indian reservation (sec. 124 of the bill and sec. 168(j) 
                              of the Code)


                              PRESENT LAW

    With respect to certain property used in connection with 
the conduct of a trade or business within an Indian 
reservation, depreciation deductions under section 168(j) are 
determined using the following recovery periods:

3-year property--2 years
5-year property--3 years
7-year property--4 years
10-year property--6 years
15-year property--9 years
20-year property--12 years
Nonresidential real property--22 years\140\
---------------------------------------------------------------------------
    \140\Section 168(j)(2) does not provide shorter recovery periods 
for water utility property, residential rental property, or railroad 
grading and tunnel bores.
---------------------------------------------------------------------------
    ``Qualified Indian reservation property'' eligible for 
accelerated depreciation includes property described in the 
table above which is: (1) used by the taxpayer predominantly in 
the active conduct of a trade or business within an Indian 
reservation; (2) not used or located outside the reservation on 
a regular basis; (3) not acquired (directly or indirectly) by 
the taxpayer from a person who is related to the taxpayer;\141\ 
and (4) is not property placed in service for purposes of 
conducting gaming activities.\142\ Certain ``qualified 
infrastructure property'' may be eligible for the accelerated 
depreciation even if located outside an Indian reservation, 
provided that the purpose of such property is to connect with 
qualified infrastructure property located within the 
reservation (e.g., roads, power lines, water systems, railroad 
spurs, and communications facilities).\143\
---------------------------------------------------------------------------
    \141\For these purposes, the term ``related persons'' is defined in 
section 465(b)(3)(C).
    \142\Sec. 168(j)(4)(A).
    \143\Sec. 168(j)(4)(C).
---------------------------------------------------------------------------
    An ``Indian reservation'' means a reservation as defined in 
section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 
1452(d))\144\ or section 4(10) of the Indian Child Welfare Act 
of 1978 (25 U.S.C. 1903(10)).\145\ For purposes of the 
preceding sentence, section 3(d) is applied by treating 
``former Indian reservations in Oklahoma'' as including only 
lands that are (1) within the jurisdictional area of an 
Oklahoma Indian tribe as determined by the Secretary of the 
Interior, and (2) recognized by such Secretary as an area 
eligible for trust land status under 25 C.F.R. Part 151 (as in 
effect on August 5, 1997).\146\
---------------------------------------------------------------------------
    \144\Pub. L. No. 93-262.
    \145\Pub. L. No. 95-608.
    \146\Sec. 168(j)(6).
---------------------------------------------------------------------------
    The depreciation deduction allowed for regular tax purposes 
is also allowed for purposes of the alternative minimum 
tax.\147\ The accelerated depreciation for qualified Indian 
reservation property is available with respect to property 
placed in service on or before December 31, 2014.\148\
---------------------------------------------------------------------------
    \147\Sec. 168(j)(3).
    \148\Sec. 168(j)(8).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that extending this depreciation 
incentive will encourage economic development within Indian 
reservations and expand employment opportunities on such 
reservations. In addition, the Committee believes that allowing 
taxpayers to elect out of accelerated recovery periods for 
qualified Indian reservation property for a taxable year will 
make the provision more consistent with the electability of 
other accelerated depreciation provisions.\149\
---------------------------------------------------------------------------
    \149\See, e.g., sec. 168(g)(7), (k)(2)(D)(iii), (l)(3)(D), 
(m)(2)(B)(iii), and (n)(2)(B)(v).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    The provision extends for two years the present-law 
accelerated depreciation for qualified Indian reservation 
property to apply to property placed in service on or before 
December 31, 2016.
    The provision also provides that a taxpayer may annually 
elect out of section 168(j) on a class-by-class basis for 
qualified Indian reservation property placed in service after 
December 31, 2014 and before January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014.

  15. Extension of bonus depreciation (sec. 125 of the bill and sec. 
                          168(k) of the Code)


                              PRESENT LAW

In general

    An additional first-year depreciation deduction is allowed 
equal to 50 percent of the adjusted basis of qualified property 
acquired and placed in service before January 1, 2015 (January 
1, 2016 for certain longer-lived and transportation 
property).\150\
---------------------------------------------------------------------------
    \150\Sec. 168(k). The additional first-year depreciation deduction 
is subject to the general rules regarding whether an item must be 
capitalized under section 263A.
---------------------------------------------------------------------------
    The additional first-year depreciation deduction is allowed 
for both the regular tax and the alternative minimum tax 
(``AMT''),\151\ but is not allowed in computing earnings and 
profits.\152\ The basis of the property and the depreciation 
allowances in the year of purchase and later years are 
appropriately adjusted to reflect the additional first-year 
depreciation deduction.\153\ The amount of the additional 
first-year depreciation deduction is not affected by a short 
taxable year.\154\ The taxpayer may elect out of additional 
first-year depreciation for any class of property for any 
taxable year.\155\
---------------------------------------------------------------------------
    \151\Sec. 168(k)(2)(G). See also Treas. Reg. sec. 1.168(k)-1(d).
    \152\Treas. Reg. sec. 1.168(k)-1(f)(7).
    \153\Sec. 168(k)(1)(B).
    \154\Ibid.
    \155\Sec. 168(k)(2)(D)(iii). See Treas. Reg. sec. 1.168(k)-1(e)(2) 
for the definition of a class of property.
---------------------------------------------------------------------------
    The interaction of the additional first-year depreciation 
allowance with the otherwise applicable depreciation allowance 
may be illustrated as follows. Assume that in 2014, a taxpayer 
purchased new depreciable property and placed it in 
service.\156\ The property's cost is $10,000, and it is five-
year property subject to the 200 percent declining balance 
method and half-year convention. The amount of additional 
first-year depreciation allowed is $5,000. The remaining $5,000 
of the cost of the property is depreciable under the rules 
applicable to five-year property. Thus, $1,000\157\ also is 
allowed as a depreciation deduction in 2014. The total 
depreciation deduction with respect to the property for 2014 is 
$6,000. The remaining $4,000 adjusted basis of the property 
generally is recovered through otherwise applicable 
depreciation rules.
---------------------------------------------------------------------------
    \156\Assume that the cost of the property is not eligible for 
expensing under section 179 or Treas. Reg. sec. 1.263(a)-1(f).
    \157\The $1,000 depreciation deduction results from the application 
of the half-year convention and the 200 percent declining balance 
method to the remaining $5,000.
---------------------------------------------------------------------------
    Property qualifying for the additional first-year 
depreciation deduction must meet all of the following 
requirements.\158\ First, the property must be (1) property to 
which the modified accelerated cost recovery system (``MACRS'') 
applies with an applicable recovery period of 20 years or less; 
(2) water utility property (as defined in section 168(e)(5)); 
(3) computer software other than computer software covered by 
section 197; or (4) qualified leasehold improvement property 
(as defined in section 168(k)(3)).\159\ Second, the original 
use\160\ of the property must commence with the taxpayer.\161\ 
Third, the taxpayer must acquire the property within the 
applicable time period (as described below). Finally, the 
property must be placed in service before January 1, 2015. An 
extension of the placed-in-service date of one year (i.e., 
before January 1, 2016) is provided for certain property with a 
recovery period of 10 years or longer and certain 
transportation property.\162\
---------------------------------------------------------------------------
    \158\Requirements relating to actions taken before 2008 are not 
described herein since they have little (if any) remaining effect.
    \159\The additional first-year depreciation deduction is not 
available for any property that is required to be depreciated under the 
alternative depreciation system of MACRS. Sec. 168(k)(2)(D)(i). The 
additional first-year depreciation deduction also is not available for 
qualified New York Liberty Zone leasehold improvement property as 
defined in section 1400L(c)(2). Sec. 168(k)(2)(D)(ii).
    \160\The term ``original use'' means the first use to which the 
property is put, whether or not such use corresponds to the use of such 
property by the taxpayer. If in the normal course of its business a 
taxpayer sells fractional interests in property to unrelated third 
parties, then the original use of such property begins with the first 
user of each fractional interest (i.e., each fractional owner is 
considered the original user of its proportionate share of the 
property). Treas. Reg. sec. 1.168(k)-1(b)(3).
    \161\A special rule applies in the case of certain leased property. 
In the case of any property that is originally placed in service by a 
person and that is sold to the taxpayer and leased back to such person 
by the taxpayer within three months after the date that the property 
was placed in service, the property would be treated as originally 
placed in service by the taxpayer not earlier than the date that the 
property is used under the leaseback. If property is originally placed 
in service by a lessor, such property is sold within three months after 
the date that the property was placed in service, and the user of such 
property does not change, then the property is treated as originally 
placed in service by the taxpayer not earlier than the date of such 
sale. Sec. 168(k)(2)(E)(ii).
    \162\Property qualifying for the extended placed-in-service date 
must have an estimated production period exceeding one year and a cost 
exceeding $1 million. Transportation property generally is defined as 
tangible personal property used in the trade or business of 
transporting persons or property. Certain aircraft which is not 
transportation property, other than for agricultural or firefighting 
uses, also qualifies for the extended placed-in-service-date, if at the 
time of the contract for purchase, the purchaser made a nonrefundable 
deposit of the lesser of 10 percent of the cost or $100,000, and which 
has an estimated production period exceeding four months and a cost 
exceeding $200,000.
---------------------------------------------------------------------------
    To qualify, property must be acquired (1) before January 1, 
2015, or (2) pursuant to a binding written contract which was 
entered before January 1, 2015. With respect to property that 
is manufactured, constructed, or produced by the taxpayer for 
use by the taxpayer, the taxpayer must begin the manufacture, 
construction, or production of the property before January 1, 
2015.\163\ Property that is manufactured, constructed, or 
produced for the taxpayer by another person under a contract 
that is entered into prior to the manufacture, construction, or 
production of the property is considered to be manufactured, 
constructed, or produced by the taxpayer.\164\ For property 
eligible for the extended placed-in-service date, a special 
rule limits the amount of costs eligible for the additional 
first-year depreciation. With respect to such property, only 
the portion of the basis that is properly attributable to the 
costs incurred before January 1, 2015 (``progress 
expenditures'') is eligible for the additional first-year 
depreciation deduction.\165\
---------------------------------------------------------------------------
    \163\Sec. 168(k)(2)(E)(i).
    \164\Treas. Reg. sec. 1.168(k)-1(b)(4)(iii).
    \165\Sec. 168(k)(2)(B)(ii). For purposes of determining the amount 
of eligible progress expenditures, rules similar to section 46(d)(3), 
as in effect prior to the Tax Reform Act of 1986, apply.
---------------------------------------------------------------------------
    The limitation under section 280F on the amount of 
depreciation deductions allowed with respect to certain 
passenger automobiles is increased in the first year by $8,000 
for automobiles that qualify (and for which the taxpayer does 
not elect out of the additional first-year deduction).\166\ The 
$8,000 amount is not indexed for inflation.
---------------------------------------------------------------------------
    \166\Sec. 168(k)(2)(F).
---------------------------------------------------------------------------

Special rule for long-term contracts

    In general, in the case of a long-term contract, the 
taxable income from the contract is determined under the 
percentage-of-completion method.\167\ Solely for purposes of 
determining the percentage of completion under section 
460(b)(1)(A), the cost of qualified property with a MACRS 
recovery period of seven years or less is taken into account as 
a cost allocated to the contract as if bonus depreciation had 
not been enacted for property placed in service before January 
1, 2015 (January 1, 2016 in the case of certain longer-lived 
and transportation property).\168\
---------------------------------------------------------------------------
    \167\See sec. 460.
    \168\Sec. 460(c)(6). Other dates involving prior years are not 
described herein.
---------------------------------------------------------------------------

Election to accelerate AMT credits in lieu of bonus depreciation

    A corporation otherwise eligible for additional first-year 
depreciation may elect to claim additional AMT credits in lieu 
of claiming additional depreciation with respect to ``eligible 
qualified property.''\169\ In the case of a corporation making 
this election, the straight line method is used for the regular 
tax and the AMT with respect to eligible qualified 
property.\170\
---------------------------------------------------------------------------
    \169\Sec. 168(k)(4). Eligible qualified property means qualified 
property eligible for bonus depreciation with minor effective date 
differences having little (if any) remaining significance.
    \170\Sec. 168(k)(4)(A).
---------------------------------------------------------------------------
    Generally, an election under this provision for a taxable 
year applies to subsequent taxable years. However, each time 
the provision has been extended, a corporation which has 
previously made an election has been allowed to elect not to 
claim additional minimum tax credits, or, if no election had 
previously been made, to make an election to claim additional 
credits with respect to property subject to the extension.\171\
---------------------------------------------------------------------------
    \171\Sec. 168(k)(4)(H), (I), (J), and (K).
---------------------------------------------------------------------------
    A corporation making an election increases the tax 
liability limitation under section 53(c) on the use of minimum 
tax credits by the bonus depreciation amount.\172\ The 
aggregate increase in credits allowable by reason of the 
increased limitation is treated as refundable.\173\
---------------------------------------------------------------------------
    \172\Sec. 168(k)(4)(B)(ii).
    \173\Sec. 168(k)(4)(F).
---------------------------------------------------------------------------
    The bonus depreciation amount generally is equal to 20 
percent of bonus depreciation\174\ for eligible qualified 
property that could be claimed as a deduction absent an 
election under this provision. As originally enacted, the bonus 
depreciation amount for all taxable years was limited to the 
lesser of (1) $30 million, or (2) six percent of the minimum 
tax credits allocable to the adjusted net minimum tax imposed 
for taxable years beginning before January 1, 2006.\175\ 
However, extensions of this provision have provided that this 
limitation applies separately to property subject to each 
extension.
---------------------------------------------------------------------------
    \174\For this purpose, bonus depreciation is the difference between 
(i) the aggregate amount of depreciation determined if section 
168(k)(1) applied to all eligible qualified property placed in service 
during the taxable year, and (ii) the amount of depreciation that would 
be so determined if section 168(k)(1) did not so apply. This 
determination is made using the most accelerated depreciation method 
and the shortest life otherwise allowable for each property. Sec. 
168(k)(4)(C).
    \175\Sec. 168(k)(4)(C)(iii).
---------------------------------------------------------------------------
    All corporations treated as a single employer under section 
52(a) are treated as one taxpayer for purposes of the 
limitation, as well as for electing the application of this 
provision.\176\
---------------------------------------------------------------------------
    \176\Sec. 168(k)(4)(C)(iv).
---------------------------------------------------------------------------
    In the case of a corporation making an election which is a 
partner in a partnership, for purposes of determining the 
electing partner's distributive share of partnership items, 
bonus depreciation does not apply to any eligible qualified 
property and the straight line method is used with respect to 
that property.\177\
---------------------------------------------------------------------------
    \177\Sec. 168(k)(4)(G)(ii).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that allowing additional first-year 
depreciation will accelerate purchases of equipment and other 
assets, and promote capital investment, modernization, and 
growth.

                        EXPLANATION OF PROVISION

    The provision extends the 50-percent additional first-year 
depreciation deduction for two years, generally through 2016 
(through 2017 for certain longer-lived and transportation 
property).
    The provision provides that solely for purposes of 
determining the percentage of completion under section 
460(b)(1)(A), the cost of qualified property with a MACRS 
recovery period of seven years or less which is placed in 
service before January 1, 2017 (January 1, 2018, in the case of 
certain longer-lived and transportation property) is taken into 
account as a cost allocated to the contract as if bonus 
depreciation had not been enacted.
    The provision also extends the election to increase the AMT 
credit limitation in lieu of bonus depreciation for two years 
to property placed in service before January 1, 2017 (January 
1, 2018, in the case of certain longer-lived property and 
transportation property). A bonus depreciation amount, maximum 
amount, and maximum increase amount is computed separately with 
respect to property to which the extension of additional first-
year depreciation applies (``round 5 extension 
property'').\178\
---------------------------------------------------------------------------
    \178\An election with respect to round 5 extension property is 
binding for all property that is eligible qualified property solely by 
reason of the extension of the 50-percent additional first-year 
depreciation deduction.
---------------------------------------------------------------------------
    Under the provision, a corporation that has an election in 
effect with respect to round 4 extension property to claim 
minimum tax credits in lieu of bonus depreciation is treated as 
having an election in effect for round 5 extension property, 
unless the corporation elects otherwise. The provision also 
allows a corporation that does not have an election in effect 
with respect to round 4 extension property to elect to claim 
minimum tax credits in lieu of bonus depreciation for round 5 
extension property. A separate bonus depreciation amount, 
maximum amount, and maximum increase amount is computed and 
applied to round 5 extension property.\179\
---------------------------------------------------------------------------
    \179\In computing the maximum amount, the maximum increase amount 
for round 5 extension property is reduced by bonus depreciation amounts 
for preceding taxable years only with respect to round 5 extension 
property.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014, in taxable years ending after such 
date.

  16. Extension of enhanced charitable deduction for contributions of 
     food inventory (sec. 126 of the bill and sec. 170 of the Code)


                              PRESENT LAW

Charitable contributions in general

    In general, an income tax deduction is permitted for 
charitable contributions, subject to certain limitations that 
depend on the type of taxpayer, the property contributed, and 
the donee organization.\180\
---------------------------------------------------------------------------
    \180\Sec. 170.
---------------------------------------------------------------------------
    Charitable contributions of cash are deductible in the 
amount contributed. In general, contributions of capital gain 
property are deductible at fair market value with certain 
exceptions. Capital gain property means any capital asset or 
property used in the taxpayer's trade or business the sale of 
which at its fair market value, at the time of contribution, 
would have resulted in gain that would have been long-term 
capital gain. Contributions of other appreciated property 
generally are deductible at the donor's basis in the property. 
Contributions of depreciated property generally are deductible 
at the fair market value of the property.

General rules regarding contributions of inventory

    Under present law, a taxpayer's deduction for charitable 
contributions of inventory generally is limited to the 
taxpayer's basis (typically, cost) in the inventory, or if less 
the fair market value of the inventory.
    For certain contributions of inventory, C corporations may 
claim an enhanced deduction equal to the lesser of (1) basis 
plus one-half of the item's appreciation (i.e., basis plus one-
half of fair market value in excess of basis) or (2) two times 
basis.\181\ In general, a C corporation's charitable 
contribution deductions for a year may not exceed 10 percent of 
the corporation's taxable income.\182\ To be eligible for the 
enhanced deduction, the contributed property generally must be 
inventory of the taxpayer and must be contributed to a 
charitable organization described in section 501(c)(3) (except 
for private nonoperating foundations), and the donee must (1) 
use the property consistent with the donee's exempt purpose 
solely for the care of the ill, the needy, or infants; (2) not 
transfer the property in exchange for money, other property, or 
services; and (3) provide the taxpayer a written statement that 
the donee's use of the property will be consistent with such 
requirements.\183\ In the case of contributed property subject 
to the Federal Food, Drug, and Cosmetic Act, as amended, the 
property must satisfy the applicable requirements of such Act 
on the date of transfer and for 180 days prior to the 
transfer.\184\
---------------------------------------------------------------------------
    \181\Sec. 170(e)(3).
    \182\Sec. 170(b)(2).
    \183\Sec. 170(e)(3)(A)(i)-(iii).
    \184\Sec. 170(e)(3)(A)(iv).
---------------------------------------------------------------------------
    A donor making a charitable contribution of inventory must 
make a corresponding adjustment to the cost of goods sold by 
decreasing the cost of goods sold by the lesser of the fair 
market value of the property or the donor's basis with respect 
to the inventory.\185\
---------------------------------------------------------------------------
    \185\Treas. Reg. sec. 1.170A-4A(c)(3).
---------------------------------------------------------------------------
    To use the enhanced deduction, the taxpayer must establish 
that the fair market value of the donated item exceeds basis. 
The valuation of food inventory has been the subject of 
disputes between taxpayers and the IRS.\186\
---------------------------------------------------------------------------
    \186\Lucky Stores Inc. v. Commissioner, 105 T.C. 420 (1995) 
(holding that the value of surplus bread inventory donated to charity 
was the full retail price of the bread rather than half the retail 
price, as the IRS asserted).
---------------------------------------------------------------------------

Temporary rule expanding and modifying the enhanced deduction for 
        contributions of food inventory

    Under a temporary provision, any taxpayer engaged in a 
trade or business, whether or not a C corporation, is eligible 
to claim the enhanced deduction for donations of food 
inventory.\187\ For taxpayers other than C corporations, the 
total deduction for donations of food inventory in a taxable 
year generally may not exceed 10 percent of the taxpayer's net 
income for such taxable year from all sole proprietorships, S 
corporations, or partnerships (or other non C corporations) 
from which contributions of apparently wholesome food are made. 
For example, if a taxpayer is a sole proprietor, a shareholder 
in an S corporation, and a partner in a partnership, and each 
business makes charitable contributions of food inventory, the 
taxpayer's deduction for donations of food inventory is limited 
to 10 percent of the taxpayer's net income from the sole 
proprietorship and the taxpayer's interests in the S 
corporation and partnership. However, if only the sole 
proprietorship and the S corporation made charitable 
contributions of food inventory, the taxpayer's deduction would 
be limited to 10 percent of the net income from the trade or 
business of the sole proprietorship and the taxpayer's interest 
in the S corporation, but not the taxpayer's interest in the 
partnership.\188\
---------------------------------------------------------------------------
    \187\Sec. 170(e)(3)(C).
    \188\The 10 percent limitation does not affect the application of 
the generally applicable percentage limitations. For example, if 10 
percent of a sole proprietor's net income from the proprietor's trade 
or business was greater than 50 percent of the proprietor's 
contribution base, the available deduction for the taxable year (with 
respect to contributions to public charities) would be 50 percent of 
the proprietor's contribution base. Consistent with present law, such 
contributions may be carried forward because they exceed the 50 percent 
limitation. Contributions of food inventory by a taxpayer that is not a 
C corporation that exceed the 10 percent limitation but not the 50 
percent limitation could not be carried forward.
---------------------------------------------------------------------------
    Under the temporary provision, the enhanced deduction for 
food is available only for food that qualifies as ``apparently 
wholesome food.'' Apparently wholesome food is defined as food 
intended for human consumption that meets all quality and 
labeling standards imposed by Federal, State, and local laws 
and regulations even though the food may not be readily 
marketable due to appearance, age, freshness, grade, size, 
surplus, or other conditions.
    The provision does not apply to contributions made after 
December 31, 2014.

                           REASONS FOR CHANGE

    The Committee believes that charitable organizations 
benefit from charitable contributions of food inventory by non 
C corporations and that the enhanced deduction is a useful 
incentive for the making of such contributions. Accordingly, 
the Committee believes it is appropriate to extend the special 
rule for charitable contributions of food inventory for two 
years.

                        EXPLANATION OF PROVISION

    The provision extends the special rule for charitable 
contributions of food inventory for two years to contributions 
made before January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective for contributions made after 
December 31, 2014.

 17. Extension and modification of increased expensing limitations and 
treatment of certain real property as section 179 property (sec. 127 of 
                   the bill and sec. 179 of the Code)


                              PRESENT LAW

    A taxpayer may elect under section 179 to deduct (or 
``expense'') the cost of qualifying property, rather than to 
recover such costs through depreciation deductions, subject to 
limitation. For taxable years beginning in 2014, the maximum 
amount a taxpayer may expense is $500,000 of the cost of 
qualifying property placed in service for the taxable 
year.\189\ The $500,000 amount is reduced (but not below zero) 
by the amount by which the cost of qualifying property placed 
in service during the taxable year exceeds $2,000,000.\190\ The 
$500,000 and $2,000,000 amounts are not indexed for inflation. 
In general, qualifying property is defined as depreciable 
tangible personal property that is purchased for use in the 
active conduct of a trade or business.\191\ Qualifying property 
excludes investments in air conditioning and heating 
units.\192\ For taxable years beginning before 2015, qualifying 
property also includes off-the-shelf computer software and 
qualified real property (i.e., qualified leasehold improvement 
property, qualified restaurant property, and qualified retail 
improvement property).\193\ Of the $500,000 expense amount 
available under section 179, the maximum amount available with 
respect to qualified real property is $250,000 for each taxable 
year.\194\
---------------------------------------------------------------------------
    \189\For the years 2003 through 2006, the relevant dollar amount is 
$100,000 (indexed for inflation); in 2007, the dollar limitation is 
$125,000; for the 2008 and 2009 years, the relevant dollar amount is 
$250,000; and for the years 2010 through 2013, the relevant dollar 
limitation is $500,000. Sec. 179(b)(1).
    \190\For the years 2003 through 2006, the relevant dollar amount is 
$400,000 (indexed for inflation); in 2007, the dollar limitation is 
$500,000; for the 2008 and 2009 years, the relevant dollar amount is 
$800,000; and for the years 2010 through 2013, the relevant dollar 
limitation is $2,000,000. Sec. 179(b)(2).
    \191\Passenger automobiles subject to the section 280F limitation 
are eligible for section 179 expensing only to the extent of the dollar 
limitations in section 280F. For sport utility vehicles above the 6,000 
pound weight rating, which are not subject to the limitation under 
section 280F, the maximum cost that may be expensed for any taxable 
year under section 179 is $25,000. Sec. 179(b)(5).
    \192\Sec. 179(d)(1) flush language.
    \193\Sec. 179(d)(1)(A)(ii) and (f).
    \194\Sec. 179(f)(3).
---------------------------------------------------------------------------
    For taxable years beginning in 2015 and thereafter, a 
taxpayer may elect to deduct up to $25,000 of the cost of 
qualifying property placed in service for the taxable year, 
subject to limitation. The $25,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$200,000. The $25,000 and $200,000 amounts are not indexed for 
inflation. In general, qualifying property is defined as 
depreciable tangible personal property (not including off-the-
shelf computer software, qualified real property, or air 
conditioning and heating units) that is purchased for use in 
the active conduct of a trade or business.
    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for such taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision).\195\ Any amount 
that is not allowed as a deduction because of the taxable 
income limitation may be carried forward to succeeding taxable 
years (subject to limitations). However, amounts attributable 
to qualified real property that are disallowed under the trade 
or business income limitation may only be carried over to 
taxable years in which the definition of eligible section 179 
property includes qualified real property.\196\ Thus, if a 
taxpayer's section 179 deduction for 2013 with respect to 
qualified real property is limited by the taxpayer's active 
trade or business income, such disallowed amount may be carried 
over to 2014. Any such carryover amounts that are not used in 
2014 are treated as property placed in service in 2014 for 
purposes of computing depreciation. That is, the unused 
carryover amount from 2013 is considered placed in service on 
the first day of the 2014 taxable year.\197\
---------------------------------------------------------------------------
    \195\Sec. 179(b)(3).
    \196\Section 179(f)(4) details the special rules that apply to 
disallowed amounts with respect to qualified real property.
    \197\For example, assume that during 2013, a company's only asset 
purchases are section 179-eligible equipment costing $100,000 and 
qualifying leasehold improvements costing $200,000. Assume the company 
has no other asset purchases during 2013, and has a taxable income 
limitation of $150,000. The maximum section 179 deduction the company 
can claim for 2013 is $150,000, which is allocated pro rata between the 
properties, such that the carryover to 2014 is allocated $100,000 to 
the qualified leasehold improvements and $50,000 to the equipment.
    Assume further that in 2014, the company had no asset purchases and 
had no taxable income. The $100,000 carryover from 2013 attributable to 
qualified leasehold improvements is treated as placed in service as of 
the first day of the company's 2014 taxable year under section 
179(f)(4)(C). The $50,000 carryover allocated to equipment is carried 
over to 2014 under section 179(b)(3)(B).
---------------------------------------------------------------------------
    No general business credit under section 38 is allowed with 
respect to any amount for which a deduction is allowed under 
section 179.\198\ If a corporation makes an election under 
section 179 to deduct expenditures, the full amount of the 
deduction does not reduce earnings and profits. Rather, the 
expenditures that are deducted reduce corporate earnings and 
profits ratably over a five-year period.\199\
---------------------------------------------------------------------------
    \198\Sec. 179(d)(9).
    \199\Sec. 312(k)(3)(B).
---------------------------------------------------------------------------
    An expensing election is made under rules prescribed by the 
Secretary.\200\ In general, any election or specification made 
with respect to any property may not be revoked except with the 
consent of the Commissioner. However, an election or 
specification under section 179 may be revoked by the taxpayer 
without consent of the Commissioner for taxable years beginning 
after 2002 and before 2015.\201\ Such revocation, once made, is 
irrevocable.
---------------------------------------------------------------------------
    \200\Sec. 179(c)(1).
    \201\Sec. 179(c)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that section 179 expensing provides 
two important benefits for small businesses. First, it lowers 
the cost of capital for tangible property used in a trade or 
business. With a lower cost of capital, the Committee believes 
small businesses will invest in more equipment and employ more 
workers. Second, it eliminates depreciation recordkeeping 
requirements with respect to expensed property. In order to 
increase the value of these benefits and to increase the number 
of taxpayers eligible, the provision increases the amount 
allowed to be expensed under section 179 and increases the 
amount of the phase-out threshold. In addition, in order to 
counteract the negative impact of inflation on the limit and 
phase-out threshold of this provision for small businesses, the 
provision indexes such amounts for inflation.
    The Committee also believes that qualified real property 
(i.e., qualified leasehold improvement property, qualified 
restaurant property, and qualified retail improvement property) 
should continue to be included in the section 179 expensing 
provision to encourage small businesses to invest in these 
types of real property. Further, the Committee believes that 
purchased computer software should continue to be included in 
the section 179 expensing provision so that it is not 
disadvantaged relative to developed software. In addition, the 
Committee believes that the process of making and revoking 
section 179 elections should continue to be simpler and more 
efficient for taxpayers by eliminating the requirement of the 
consent of the Commissioner.

                        EXPLANATION OF PROVISION

    The provision provides that the maximum amount a taxpayer 
may expense, for taxable years beginning in 2015 and 2016, is 
$500,000 of the cost of qualifying property placed in service 
for the taxable year. The $500,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$2,000,000. The $500,000 and $2,000,000 amounts are indexed for 
inflation for taxable years beginning after 2014.
    In addition, the provision extends, for taxable years 
beginning in 2015 and 2016, the treatment of off-the-shelf 
computer software as qualifying property. The provision also 
extends the treatment of qualified real property as eligible 
section 179 property for taxable years beginning in 2015 and 
2016, including the limitation on carryovers and the maximum 
amount available with respect to qualified real property of 
$250,000 for each taxable year. For taxable years beginning in 
2015 and 2016, the provision continues to allow a taxpayer to 
revoke an election, or any specification contained therein, 
made under section 179 without the consent of the Commissioner.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2014.

18. Extension of election to expense mine safety equipment (sec. 128 of 
                  the bill and sec. 179E of the Code)


                              PRESENT LAW

    A taxpayer may elect to treat 50 percent of the cost of any 
qualified advanced mine safety equipment property as an expense 
in the taxable year in which the equipment is placed in 
service.\202\ ``Qualified advanced mine safety equipment 
property'' means any advanced mine safety equipment property 
for use in any underground mine located in the United States 
the original use of which commences with the taxpayer and which 
is placed in service after December 20, 2006, and before 
January 1, 2015.\203\
---------------------------------------------------------------------------
    \202\Sec. 179E(a).
    \203\Sec. 179E(c) and (g).
---------------------------------------------------------------------------
    Advanced mine safety equipment property means any of the 
following: (1) emergency communication technology or devices 
used to allow a miner to maintain constant communication with 
an individual who is not in the mine; (2) electronic 
identification and location devices that allow individuals not 
in the mine to track at all times the movements and location of 
miners working in or at the mine; (3) emergency oxygen-
generating, self-rescue devices that provide oxygen for at 
least 90 minutes; (4) pre-positioned supplies of oxygen 
providing each miner on a shift the ability to survive for at 
least 48 hours; and (5) comprehensive atmospheric monitoring 
systems that monitor the levels of carbon monoxide, methane, 
and oxygen that are present in all areas of the mine and that 
can detect smoke in the case of a fire in a mine.\204\
---------------------------------------------------------------------------
    \204\Sec. 179E(d).
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                           REASONS FOR CHANGE

    The Committee believes that mine safety equipment is vital 
to ensuring a safe workplace for the nation's underground mine 
workforce. Therefore, the Committee believes that this 
incentive for mine safety equipment property should be 
extended.

                        EXPLANATION OF PROVISION

    The provision extends for two years (through December 31, 
2016) the present-law placed-in-service date allowing a 
taxpayer to expense 50 percent of the cost of any qualified 
advanced mine safety equipment property.

                             EFFECTIVE DATE

    The provision applies to property placed in service after 
December 31, 2014.

     19. Extension of special expensing rules for certain film and 
     television productions; special expensing for live theatrical 
      productions (sec. 129 of the bill and sec. 181 of the Code)


                              PRESENT LAW

    Under section 181, a taxpayer may elect\205\ to deduct the 
cost of any qualifying film and television production, 
commencing prior to January 1, 2015, in the year the 
expenditure is incurred in lieu of capitalizing the cost and 
recovering it through depreciation allowances.\206\ A taxpayer 
may elect to deduct up to $15 million of the aggregate cost of 
the film or television production under this section.\207\ The 
threshold is increased to $20 million if a significant amount 
of the production expenditures are incurred in areas eligible 
for designation as a low-income community or eligible for 
designation by the Delta Regional Authority as a distressed 
county or isolated area of distress.\208\
---------------------------------------------------------------------------
    \205\See Treas. Reg. section 1.181-2 for rules on making an 
election under this section.
    \206\For this purpose, a production is treated as commencing on the 
first date of principal photography.
    \207\Sec. 181(a)(2)(A).
    \208\Sec. 181(a)(2)(B).
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    A qualified film or television production means any 
production of a motion picture (whether released theatrically 
or directly to video cassette or any other format) or 
television program if at least 75 percent of the total 
compensation expended on the production is for services 
performed in the United States by actors, directors, producers, 
and other relevant production personnel.\209\ The term 
``compensation'' does not include participations and residuals 
(as defined in section 167(g)(7)(B)).\210\ Each episode of a 
television series is treated as a separate production, and only 
the first 44 episodes of a particular series qualify under the 
provision.\211\ Qualified productions do not include sexually 
explicit productions as referenced by section 2257 of title 18 
of the U.S. Code.\212\
---------------------------------------------------------------------------
    \209\Sec. 181(d)(3)(A).
    \210\Sec. 181(d)(3)(B).
    \211\Sec. 181(d)(2)(B).
    \212\Sec. 181(d)(2)(C).
---------------------------------------------------------------------------
    For purposes of recapture under section 1245, any deduction 
allowed under section 181 is treated as if it were a deduction 
allowable for amortization.\213\
---------------------------------------------------------------------------
    \213\Sec. 1245(a)(2)(C).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that section 181 encourages domestic 
film and television productions and that the provision should 
be extended. The issue of runaway production (i.e., the 
production of American film and television projects abroad) 
affects all productions, regardless of cost, and therefore the 
Committee believes that it is appropriate to continue to treat 
as an expense the first $15 million ($20 million in certain 
cases) of production costs of otherwise qualified film and 
television productions.
    The Committee also believes that section 181 should be 
expanded to include some types of live theatrical productions 
in order to encourage investment in and financing of these 
types of commercial stage productions, thereby resulting in 
more live theatre jobs and shows. Therefore, the provision 
allows certain live theatrical productions to qualify for 
section 181.

                        EXPLANATION OF PROVISION

    The provision extends the special treatment for film and 
television productions under section 181 for two years to 
qualified film and television productions commencing prior to 
January 1, 2017.
    The provision also expands section 181 to include any 
qualified live theatrical production. A qualified live 
theatrical production is defined as a live staged production of 
a play (with or without music) which is derived from a written 
book or script and is produced or presented by a commercial 
entity in any venue which has an audience capacity of not more 
than 3,000, or a series of venues the majority of which have an 
audience capacity of not more than 3,000. In addition, 
qualified live theatrical productions include any live staged 
production which is produced or presented by a taxable entity 
no more than 10 weeks in a taxable year in any venue which has 
an audience capacity of not more than 6,500. An annualization 
rule applies in the case of a short taxable year for purposes 
of determining the number of weeks for which a production is 
produced or presented. In general, in the case of multiple 
live-staged productions, each such live-staged production is 
treated as a separate production. Similar to the exclusion for 
sexually explicit productions from the present-law definition 
of qualified productions, qualified live theatrical productions 
do not include stage performances that would be excluded by 
section 2257(h)(1) of title 18 of the U.S. Code, if such 
provision were extended to live stage performances.

                             EFFECTIVE DATE

    The provision applies to productions commencing after 
December 31, 2014. For purposes of this provision, the date on 
which a qualified live theatrical production commences is the 
date of the first public performance of such production for a 
paying audience.

      20. Extension of deduction allowable with respect to income 
attributable to domestic production activities in Puerto Rico (sec. 130 
                 of the bill and sec. 199 of the Code)


                              PRESENT LAW

General

    Present law generally provides a deduction from taxable 
income (or, in the case of an individual, adjusted gross 
income) that is equal to nine percent of the lesser of the 
taxpayer's qualified production activities income or taxable 
income for the taxable year. For taxpayers subject to the 35-
percent corporate income tax rate, the nine-percent deduction 
effectively reduces the corporate income tax rate to slightly 
less than 32 percent on qualified production activities income.
    In general, qualified production activities income is equal 
to domestic production gross receipts reduced by the sum of: 
(1) the costs of goods sold that are allocable to those 
receipts; and (2) other expenses, losses, or deductions which 
are properly allocable to those receipts.
    Domestic production gross receipts generally are gross 
receipts of a taxpayer that are derived from: (1) any sale, 
exchange, or other disposition, or any lease, rental, or 
license, of qualifying production property\214\ that was 
manufactured, produced, grown or extracted by the taxpayer in 
whole or in significant part within the United States; (2) any 
sale, exchange, or other disposition, or any lease, rental, or 
license, of qualified film\215\ produced by the taxpayer; (3) 
any lease, rental, license, sale, exchange, or other 
disposition of electricity, natural gas, or potable water 
produced by the taxpayer in the United States; (4) construction 
of real property performed in the United States by a taxpayer 
in the ordinary course of a construction trade or business; or 
(5) engineering or architectural services performed in the 
United States for the construction of real property located in 
the United States.
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    \214\Qualifying production property generally includes any tangible 
personal property, computer software, and sound recordings.
    \215\Qualified film includes any motion picture film or videotape 
(including live or delayed television programming, but not including 
certain sexually explicit productions) if 50 percent or more of the 
total compensation relating to the production of the film (including 
compensation in the form of residuals and participations) constitutes 
compensation for services performed in the United States by actors, 
production personnel, directors, and producers.
---------------------------------------------------------------------------
    The amount of the deduction for a taxable year is limited 
to 50 percent of the wages paid by the taxpayer, and properly 
allocable to domestic production gross receipts, during the 
calendar year that ends in such taxable year.\216\ Wages paid 
to bona fide residents of Puerto Rico generally are not 
included in the definition of wages for purposes of computing 
the wage limitation amount.\217\
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    \216\For purposes of the provision, ``wages'' include the sum of 
the amounts of wages as defined in section 3401(a) and elective 
deferrals that the taxpayer properly reports to the Social Security 
Administration with respect to the employment of employees of the 
taxpayer during the calendar year ending during the taxpayer's taxable 
year.
    \217\Section 3401(a)(8)(C) excludes wages paid to United States 
citizens who are bona fide residents of Puerto Rico from the term wages 
for purposes of income tax withholding.
---------------------------------------------------------------------------

Rules for Puerto Rico

    When used in the Code in a geographical sense, the term 
``United States'' generally includes only the States and the 
District of Columbia.\218\ A special rule for determining 
domestic production gross receipts, however, provides that in 
the case of any taxpayer with gross receipts from sources 
within the Commonwealth of Puerto Rico, the term ``United 
States'' includes the Commonwealth of Puerto Rico, but only if 
all of the taxpayer's Puerto Rico-sourced gross receipts are 
taxable under the Federal income tax for individuals or 
corporations.\219\ In computing the 50-percent wage limitation, 
the taxpayer is permitted to take into account wages paid to 
bona fide residents of Puerto Rico for services performed in 
Puerto Rico.\220\
---------------------------------------------------------------------------
    \218\Sec. 7701(a)(9).
    \219\Sec. 199(d)(8)(A).
    \220\Sec. 199(d)(8)(B).
---------------------------------------------------------------------------
    The special rules for Puerto Rico apply only with respect 
to the first nine taxable years of a taxpayer beginning after 
December 31, 2005 and before January 1, 2015.

                           REASONS FOR CHANGE

    The Committee believes that, notwithstanding expiration of 
the Puerto Rico and possession tax credit and the Puerto Rico 
economic activity credit for taxable years beginning after 
2005, the Code should grant a tax benefit for production in 
Puerto Rico. Consequently, the Committee believes that it is 
appropriate to treat Puerto Rico as part of the United States 
for purposes of the domestic production activities deduction.

                        DESCRIPTION OF PROVISION

    The provision extends the special domestic production 
activities rules for Puerto Rico to apply for the first eleven 
taxable years of a taxpayer beginning after December 31, 2005 
and before January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2014.

 21. Extension of modification of tax treatment of certain payments to 
controlling exempt organizations (sec. 131 of the bill and sec. 512 of 
                               the Code)


                              PRESENT LAW

    In general, organizations exempt from Federal income tax 
are subject to the unrelated business income tax on income 
derived from a trade or business regularly carried on by the 
organization that is not substantially related to the 
performance of the organization's tax-exempt functions.\221\ In 
general, interest, rents, royalties, and annuities are excluded 
from the unrelated business income of tax-exempt 
organizations.\222\
---------------------------------------------------------------------------
    \221\Sec. 511.
    \222\Sec. 512(b).
---------------------------------------------------------------------------
    Section 512(b)(13) provides rules regarding income derived 
by an exempt organization from a controlled subsidiary. In 
general, section 512(b)(13) treats otherwise excluded rent, 
royalty, annuity, and interest income as unrelated business 
taxable income if such income is received from a taxable or 
tax-exempt subsidiary that is 50-percent controlled by the 
parent tax-exempt organization to the extent the payment 
reduces the net unrelated income (or increases any net 
unrelated loss) of the controlled entity (determined as if the 
entity were tax exempt).
    In the case of a stock subsidiary, ``control'' means 
ownership by vote or value of more than 50 percent of the 
stock. In the case of a partnership or other entity, 
``control'' means ownership of more than 50 percent of the 
profits, capital, or beneficial interests. In addition, present 
law applies the constructive ownership rules of section 318 for 
purposes of section 512(b)(13). Thus, a parent exempt 
organization is deemed to control any subsidiary in which it 
holds more than 50 percent of the voting power or value, 
directly (as in the case of a first-tier subsidiary) or 
indirectly (as in the case of a second-tier subsidiary).
    For payments made pursuant to a binding written contract in 
effect on August 17, 2006 (or renewal of such a contract on 
substantially similar terms), the general rule of section 
512(b)(13) applies only to the portion of payments received or 
accrued in a taxable year that exceeds the amount of the 
payment that would have been paid or accrued if the amount of 
such payment had been determined under the principles of 
section 482 (i.e., at arm's length).\223\ A 20-percent penalty 
is imposed on the larger of such excess determined without 
regard to any amendment or supplement to a return of tax, or 
such excess determined with regard to all such amendments and 
supplements. This special rule does not apply to payments 
received or accrued after December 31, 2014.
---------------------------------------------------------------------------
    \223\Sec. 512(b)(13)(E).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    For certain qualifying payments of rent, royalties, 
annuities, or interest by a controlled subsidiary to its exempt 
parent pursuant to a binding written contract in effect on 
August 17, 2006 (or renewal of such a contract on substantially 
similar terms), the Committee believes that it is appropriate 
to include in the parent's unrelated business taxable income 
only the portion of such payment that exceeds the amount that 
would have been paid in an arm's-length transaction. The 
Committee therefore believes it is desirable to extend the 
special rule for an additional two years.

                        EXPLANATION OF PROVISION

    The provision extends the special rule for two years to 
payments received or accrued before January 1, 2017. 
Accordingly, under the provision, payments of rent, royalties, 
annuities, or interest by a controlled organization to a 
controlling organization pursuant to a binding written contract 
in effect on August 17, 2006 (or renewal of such a contract on 
substantially similar terms), may be includible in the 
unrelated business taxable income of the controlling 
organization only to the extent the payment exceeds the amount 
of the payment determined under the principles of section 482 
(i.e., at arm's length). Any such excess is subject to a 20-
percent penalty on the larger of such excess determined without 
regard to any amendment or supplement to a return of tax, or 
such excess determined with regard to all such amendments and 
supplements.

                             EFFECTIVE DATE

    The provision is effective for payments received or accrued 
after December 31, 2014.

22. Extension of treatment of certain dividends of regulated investment 
      companies (sec. 132 of the bill and sec. 871(k) of the Code)


                              PRESENT LAW

In general

    A regulated investment company (``RIC'') is an entity that 
meets certain requirements (including a requirement that its 
income generally be derived from passive investments such as 
dividends and interest and a requirement that it distribute at 
least 90 percent of its income) and that elects to be taxed 
under a special tax regime. Unlike an ordinary corporation, an 
entity that is taxed as a RIC can deduct amounts paid to its 
shareholders as dividends. In this manner, tax on RIC income is 
generally not paid by the RIC but rather by its shareholders. 
Income of a RIC distributed to shareholders as dividends is 
generally treated as an ordinary income dividend by those 
shareholders, unless other special rules apply. Dividends 
received by foreign persons from a RIC are generally subject to 
gross-basis tax under sections 871(a) or 881, and the RIC payor 
of such dividends is obligated to withhold such tax under 
sections 1441 and 1442.
    Under a temporary provision of prior law, a RIC that earned 
certain interest income that generally would not be subject to 
U.S. tax if earned by a foreign person directly could, to the 
extent of such net interest income, designate a dividend it 
paid as derived from such interest income for purposes of the 
treatment of a foreign RIC shareholder. A foreign person who is 
a shareholder in the RIC generally could treat such a 
designated dividend as exempt from gross-basis U.S. tax. Also, 
subject to certain requirements, the RIC was exempt from 
withholding the gross-basis tax on such dividends. Similar 
rules applied with respect to the designation of certain short-
term capital gain dividends. However, these provisions relating 
to dividends with respect to interest income and short-term 
capital gain of the RIC have expired, and therefore do not 
apply to dividends with respect to any taxable year of a RIC 
beginning after December 31, 2014.\224\
---------------------------------------------------------------------------
    \224\Secs. 871(k), 881(e), 1441(c)(12), 1441(a), and 1442.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend for two 
years the provision that allows certain interest income and 
short-term capital gain of RICs to be designated as not subject 
to gross-basis tax, or to withholding of such tax, with respect 
to foreign investors in the RIC. The Committee believes the 
extension will promote greater certainty for foreign investors 
in RICs.

                        EXPLANATION OF PROVISION

    The provision extends the rules exempting from gross-basis 
tax and from withholding of such tax the interest-related 
dividends and short-term capital gain dividends received from a 
RIC, to dividends with respect to taxable years of a RIC 
beginning before January 1, 2017.

                             EFFECTIVE DATE

    The provision applies to dividends paid with respect to any 
taxable year of a RIC beginning after December 31, 2014.

23. Extension of RIC qualified investment entity treatment under FIRPTA 
       (sec. 133 of the bill and secs. 897 and 1445 of the Code)


                              PRESENT LAW

    Special U.S. tax rules apply to capital gains of foreign 
persons that are attributable to dispositions of interests in 
U.S. real property. In general, although a foreign person (a 
foreign corporation or a nonresident alien individual) is not 
generally taxed on U.S. source capital gains unless certain 
personal presence or active business requirements are met, a 
foreign person who sells a U.S. real property interest 
(``USRPI'') is subject to tax at the same rates as a U.S. 
person, under the Foreign Investment in Real Property Tax Act 
(``FIRPTA'') provisions codified in section 897 of the Code. 
Withholding tax is also imposed under section 1445.
    A USRPI includes stock or a beneficial interest in any 
domestic corporation unless such corporation has not been a 
U.S. real property holding corporation (as defined) during the 
testing period. A USRPI does not include an interest in a 
domestically controlled ``qualified investment entity.'' A 
distribution from a ``qualified investment entity'' that is 
attributable to the sale of a USRPI is also subject to tax 
under FIRPTA unless the distribution is with respect to an 
interest that is regularly traded on an established securities 
market located in the United States and the recipient foreign 
corporation or nonresident alien individual did not hold more 
than five percent of that class of stock or beneficial interest 
within the one-year period ending on the date of 
distribution.\225\ Special rules apply to situations involving 
tiers of qualified investment entities.
---------------------------------------------------------------------------
    \225\Sections 857(b)(3)(F), 852(b)(3)(E), and 871(k)(2)(E) require 
dividend treatment, rather than capital gain treatment, for certain 
distributions to which FIRPTA does not apply by reason of this 
exception. See also section 881(e)(2).
---------------------------------------------------------------------------
    The term ``qualified investment entity'' includes a real 
estate investment trust (``REIT'') and also includes a 
regulated investment company (``RIC'') that meets certain 
requirements, although the inclusion of a RIC in that 
definition does not apply for certain purposes after December 
31, 2014.\226\
---------------------------------------------------------------------------
    \226\Section 897(h).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
qualified investment entity treatment of RICs under FIRPTA for 
two years. The Committee believes the extension will promote 
greater certainty for foreign investors in RICs.

                        EXPLANATION OF PROVISION

    The provision extends the inclusion of a RIC within the 
definition of a ``qualified investment entity'' under section 
897 through December 31, 2016, for those situations in which 
that inclusion would otherwise have expired after December 31, 
2014.

                             EFFECTIVE DATE

    The provision is generally effective on January 1, 2015.
    The provision does not apply with respect to the 
withholding requirement under section 1445 for any payment made 
before the date of enactment, but a RIC that withheld and 
remitted tax under section 1445 on distributions made after 
December 31, 2014 and before the date of enactment is not 
liable to the distributee with respect to such withheld and 
remitted amounts.

24. Extension of subpart F exception for active financing income (sec. 
           134 of the bill and secs. 953 and 954 of the Code)


                              PRESENT LAW

    Under the subpart F rules,\227\ 10-percent-or-greater U.S. 
shareholders of a controlled foreign corporation (``CFC'') are 
subject to U.S. tax currently on certain income earned by the 
CFC, whether or not such income is distributed to the 
shareholders. The income subject to current inclusion under the 
subpart F rules includes, among other things, insurance income 
and foreign base company income. Foreign base company income 
includes, among other things, foreign personal holding company 
income and foreign base company services income (i.e., income 
derived from services performed for or on behalf of a related 
person outside the country in which the CFC is organized).
---------------------------------------------------------------------------
    \227\Secs. 951-964.
---------------------------------------------------------------------------
    Foreign personal holding company income generally consists 
of the following: (1) dividends, interest, royalties, rents, 
and annuities; (2) net gains from the sale or exchange of (a) 
property that gives rise to the preceding types of income, (b) 
property that does not give rise to income, and (c) interests 
in trusts, partnerships, and real estate mortgage investment 
conduits (``REMICs''); (3) net gains from commodities 
transactions; (4) net gains from certain foreign currency 
transactions; (5) income that is equivalent to interest; (6) 
income from notional principal contracts; (7) payments in lieu 
of dividends; and (8) amounts received under personal service 
contracts.
    Insurance income subject to current inclusion under the 
subpart F rules includes any income of a CFC attributable to 
the issuing or reinsuring of any insurance or annuity contract 
in connection with risks located in a country other than the 
CFC's country of organization. Subpart F insurance income also 
includes income attributable to an insurance contract in 
connection with risks located within the CFC's country of 
organization, as the result of an arrangement under which 
another corporation receives a substantially equal amount of 
consideration for insurance of other country risks. Investment 
income of a CFC that is allocable to any insurance or annuity 
contract related to risks located outside the CFC's country of 
organization is taxable as subpart F insurance income.\228\
---------------------------------------------------------------------------
    \228\Prop. Treas. Reg. sec. 1.953-1(a).
---------------------------------------------------------------------------
    Temporary exceptions from foreign personal holding company 
income, foreign base company services income, and insurance 
income apply for subpart F purposes for certain income that is 
derived in the active conduct of a banking, financing, or 
similar business, as a securities dealer, or in the conduct of 
an insurance business (so-called ``active financing income'').
    With respect to income derived in the active conduct of a 
banking, financing, or similar business, a CFC is required to 
be predominantly engaged in such business and to conduct 
substantial activity with respect to such business to qualify 
for the active financing exceptions. In addition, certain nexus 
requirements apply, which provide that income derived by a CFC 
or a qualified business unit (``QBU'') of a CFC from 
transactions with customers is eligible for the exceptions if, 
among other things, substantially all of the activities in 
connection with such transactions are conducted directly by the 
CFC or QBU in its home country, and such income is treated as 
earned by the CFC or QBU in its home country for purposes of 
such country's tax laws. Moreover, the exceptions apply to 
income derived from certain cross border transactions, provided 
that certain requirements are met. Additional exceptions from 
foreign personal holding company income apply for certain 
income derived by a securities dealer within the meaning of 
section 475 and for gain from the sale of active financing 
assets.
    In the case of a securities dealer, the temporary exception 
from foreign personal holding company income applies to certain 
income. The income covered by the exception is any interest or 
dividend (or certain equivalent amounts) from any transaction, 
including a hedging transaction or a transaction consisting of 
a deposit of collateral or margin, entered into in the ordinary 
course of the dealer's trade or business as a dealer in 
securities within the meaning of section 475. In the case of a 
QBU of the dealer, the income is required to be attributable to 
activities of the QBU in the country of incorporation, or to a 
QBU in the country in which the QBU both maintains its 
principal office and conducts substantial business activity. A 
coordination rule provides that this exception generally takes 
precedence over the exception for income of a banking, 
financing or similar business, in the case of a securities 
dealer.
    In the case of insurance, a temporary exception from 
foreign personal holding company income applies for certain 
income of a qualifying insurance company with respect to risks 
located within the CFC's country of creation or organization. 
In the case of insurance, temporary exceptions from insurance 
income and from foreign personal holding company income also 
apply for certain income of a qualifying branch of a qualifying 
insurance company with respect to risks located within the home 
country of the branch, provided certain requirements are met 
under each of the exceptions. Further, additional temporary 
exceptions from insurance income and from foreign personal 
holding company income apply for certain income of certain CFCs 
or branches with respect to risks located in a country other 
than the United States, provided that the requirements for 
these exceptions are met. In the case of a life insurance or 
annuity contract, reserves for such contracts are determined 
under rules specific to the temporary exceptions. Present law 
also permits a taxpayer in certain circumstances, subject to 
approval by the IRS through the ruling process or in published 
guidance, to establish that the reserve of a life insurance 
company for life insurance and annuity contracts is the amount 
taken into account in determining the foreign statement reserve 
for the contract (reduced by catastrophe, equalization, or 
deficiency reserve or any similar reserve). IRS approval is to 
be based on whether the method, the interest rate, the 
mortality and morbidity assumptions, and any other factors 
taken into account in determining foreign statement reserves 
(taken together or separately) provide an appropriate means of 
measuring income for Federal income tax purposes.
    The temporary exceptions apply for taxable years of foreign 
corporations beginning after December 31, 1998 and before 
January 1, 2015, and for taxable years of U.S. shareholders 
with or within which such taxable years of such foreign 
corporations end.

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to extend the 
temporary provision for an additional two years to provide 
certainty and to allow for business planning.

                        EXPLANATION OF PROVISION

    The provision extends for two years (for taxable years 
beginning before January 1, 2017) the temporary exceptions from 
subpart F foreign personal holding company income, foreign base 
company services income, and insurance income for certain 
income that is derived in the active conduct of a banking, 
financing, or similar business, as a securities dealer, or in 
the conduct of an insurance business.

                             EFFECTIVE DATE

    The provision is effective for taxable years of foreign 
corporations beginning after December 31, 2014, and for taxable 
years of U.S. shareholders with or within which such taxable 
years of such foreign corporations end.

   25. Extension of look-thru treatment of payments between related 
controlled foreign corporations under foreign personal holding company 
      rules (sec. 135 of the bill and sec. 954(c)(6) of the Code)


                              PRESENT LAW

                               In general

    The rules of subpart F\229\ require U.S. shareholders with 
a 10-percent or greater interest in a controlled foreign 
corporation (``CFC'') to include certain income of the CFC 
(referred to as ``subpart F income'') on a current basis for 
U.S. tax purposes, regardless of whether the income is 
distributed to the shareholders.
---------------------------------------------------------------------------
    \229\Secs. 951-964.
---------------------------------------------------------------------------
    Subpart F income includes foreign base company income. One 
category of foreign base company income is foreign personal 
holding company income. For subpart F purposes, foreign 
personal holding company income generally includes dividends, 
interest, rents, and royalties, among other types of income. 
There are several exceptions to these rules. For example, 
foreign personal holding company income does not include 
dividends and interest received by a CFC from a related 
corporation organized and operating in the same foreign country 
in which the CFC is organized, or rents and royalties received 
by a CFC from a related corporation for the use of property 
within the country in which the CFC is organized. Interest, 
rent, and royalty payments do not qualify for this exclusion to 
the extent that such payments reduce the subpart F income of 
the payor. In addition, subpart F income of a CFC does not 
include any item of income from sources within the United 
States that is effectively connected with the conduct by such 
CFC of a trade or business within the United States (``ECI'') 
unless such item is exempt from taxation (or is subject to a 
reduced rate of tax) pursuant to a tax treaty.

The ``look-thru rule''

    Under the ``look-thru rule'' (sec. 954(c)(6)), dividends, 
interest (including factoring income that is treated as 
equivalent to interest under section 954(c)(1)(E)), rents, and 
royalties received or accrued by one CFC from a related CFC are 
not treated as foreign personal holding company income to the 
extent attributable or properly allocable to income of the 
payor that is neither subpart F income nor treated as ECI. For 
this purpose, a related CFC is a CFC that controls or is 
controlled by the other CFC, or a CFC that is controlled by the 
same person or persons that control the other CFC. Ownership of 
more than 50 percent of the CFC's stock (by vote or value) 
constitutes control for these purposes.
    The Secretary is authorized to prescribe regulations that 
are necessary or appropriate to carry out the look-thru rule, 
including such regulations as are necessary or appropriate to 
prevent the abuse of the purposes of such rule.
    The look-thru rule applies to taxable years of foreign 
corporations beginning after December 31, 2005 and before 
January 1, 2015, and to taxable years of U.S. shareholders with 
or within which such taxable years of foreign corporations end.

                           REASONS FOR CHANGE

    The Committee believes that it is appropriate to extend the 
look-thru rule for two years to help U.S. companies with 
overseas operations compete more effectively with foreign 
firms.

                        DESCRIPTION OF PROVISION

    The provision extends for two years the application of the 
look-thru rule, to taxable years of foreign corporations 
beginning before January 1, 2017, and to taxable years of U.S. 
shareholders with or within which such taxable years of foreign 
corporations end.

                             EFFECTIVE DATE

    The provision is effective for taxable years of foreign 
corporations beginning after December 31, 2014, and for taxable 
years of U.S. shareholders with or within which such taxable 
years of foreign corporations end.

  26. Extension of exclusion of 100 percent of gain on certain small 
    business stock (sec. 136 of the bill and sec. 1202 of the Code)


                              PRESENT LAW

In general

    A taxpayer other than a corporation may exclude 50 percent 
(60 percent for certain empowerment zone businesses) of the 
gain from the sale of certain small business stock acquired at 
original issue and held for at least five years.\230\ The 
amount of gain eligible for the exclusion by an individual with 
respect to the stock of any corporation is the greater of (1) 
ten times the taxpayer's basis in the stock or (2) $10 million 
(reduced by the amount of gain eligible for exclusion in prior 
years). To qualify as a small business, when the stock is 
issued, the aggregate gross assets (i.e., cash plus aggregate 
adjusted basis of other property) held by the corporation may 
not exceed $50 million. The corporation also must meet certain 
active trade or business requirements.
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    \230\Sec. 1202.
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    The portion of the gain includible in taxable income is 
taxed at a maximum rate of 28 percent under the regular 
tax.\231\ Seven percent of the excluded gain is an alternative 
minimum tax preference.\232\
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    \231\Sec. 1(h).
    \232\Sec. 57(a)(7).
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Special rules for stock acquired after February 17, 2009, and before 
        January 1, 2015

    For stock acquired after February 17, 2009, and before 
September 28, 2010, the percentage exclusion for qualified 
small business stock sold by an individual is increased to 75 
percent.
    For stock acquired after September 27, 2010, and before 
January 1, 2015, the percentage exclusion for qualified small 
business stock sold by an individual is increased to 100 
percent and the minimum tax preference does not apply.

                           REASONS FOR CHANGE

    The Committee believes that extending the increased 
exclusion and the elimination of the minimum tax preference 
will encourage and reward investment in qualified small 
business stock.

                        DESCRIPTION OF PROVISION

    The provision extends the 100-percent exclusion and the 
exception from minimum tax preference treatment for two years 
(for stock acquired before January 1, 2017).

                             EFFECTIVE DATE

    The provision is effective for stock acquired after 
December 31, 2014.

  27. Extension of basis adjustment to stock of S corporations making 
  charitable contributions of property (sec. 137 of the bill and sec. 
                           1367 of the Code)


                              PRESENT LAW

    Under present law, if an S corporation contributes money or 
other property to a charity, each shareholder takes into 
account the shareholder's pro rata share of the contribution in 
determining its own income tax liability.\233\ A shareholder of 
an S corporation reduces the basis in the stock of the S 
corporation by the amount of the charitable contribution that 
flows through to the shareholder.\234\
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    \233\Sec. 1366(a)(1)(A).
    \234\Sec. 1367(a)(2)(B).
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    In the case of charitable contributions made in taxable 
years beginning before January 1, 2015, the amount of a 
shareholder's basis reduction in the stock of an S corporation 
by reason of a charitable contribution made by the corporation 
is equal to the shareholder's pro rata share of the adjusted 
basis of the contributed property. For contributions made in 
taxable years beginning after December 31, 2014, the amount of 
the reduction is the shareholder's pro rata share of the fair 
market value of the contributed property.

                           REASONS FOR CHANGE

    The Committee believes that the treatment of contributions 
of property by S corporations made in certain taxable years 
beginning before January 1, 2015, is appropriate and should be 
extended.

                        EXPLANATION OF PROVISION

    The provision extends the rule relating to the basis 
reduction on account of charitable contributions of property 
for two years to contributions made in taxable years beginning 
before January 1, 2017.

                             EFFECTIVE DATE

    The provision applies to charitable contributions made in 
taxable years beginning after December 31, 2014.

  28. Extension of reduction in S corporation recognition period for 
  built-in gains tax (sec. 138 of the bill and sec. 1374 of the Code)


                              PRESENT LAW

In general

    A ``small business corporation'' (as defined in section 
1361(b)) may elect to be treated as an S corporation. Unlike C 
corporations, S corporations generally pay no corporate-level 
tax. Instead, items of income and loss of an S corporation pass 
through to its shareholders. Each shareholder takes into 
account separately its share of these items on its own income 
tax return.\235\
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    \235\Sec. 1366.
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    Under section 1374, a corporate level built-in gains tax, 
at the highest marginal rate applicable to corporations 
(currently 35 percent), is imposed on an S corporation's net 
recognized built-in gain\236\ that arose prior to the 
conversion of the C corporation to an S corporation and is 
recognized by the S corporation during the recognition period, 
i.e., the 10-year period beginning with the first day of the 
first taxable year for which the S election is in effect.\237\ 
If the taxable income of the S corporation is less than the 
amount of net recognized built-in gain in the year such built-
in gain is recognized (for example, because of post-conversion 
losses), no tax under section 1374 is imposed on the excess of 
such built-in gain over taxable income for that year. However, 
the untaxed excess of net recognized built-in gain over taxable 
income for that year is treated as recognized built-in gain in 
the succeeding taxable year.\238\ Treasury regulations provide 
that if a corporation sells an asset before or during the 
recognition period and reports the income from the sale using 
the installment method under section 453 during or after the 
recognition period, that income is subject to tax under section 
1374.\239\
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    \236\Certain built-in income items are treated as recognized built-
in gain for this purpose. Sec. 1374(d)(5).
    \237\Sec. 1374(d)(7)(A). The 10-year period refers to ten calendar 
years from the first day of the first taxable year for which the 
corporation was an S corporation. Treas. Reg. sec. 1.1374-1(d). A 
regulated investment company (RIC) or a real estate investment trust 
(REIT) that was formerly a C corporation (or that acquired assets from 
a C corporation) generally is subject to the rules of section 1374 as 
if the RIC or REIT were an S corporation, unless the relevant C 
corporation elects ``deemed sale'' treatment. Treas. Reg. secs. 
1.337(d)-7(b)(1) and (c)(1).
    \238\Sec. 1374(d)(2).
    \239\Treas. Reg. sec. 1.1374-4(h).
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    The built-in gains tax also applies to net recognized 
built-in gain attributable to any asset received by an S 
corporation from a C corporation in a transaction in which the 
S corporation's basis in the asset is determined (in whole or 
in part) by reference to the basis of such asset (or other 
property) in the hands of the C corporation.\240\ In the case 
of such a transaction, the recognition period for any asset 
transferred by the C corporation starts on the date the asset 
was acquired by the S corporation in lieu of the beginning of 
the first taxable year for which the corporation was an S 
corporation.\241\
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    \240\Sec. 1374(d)(8).
    \241\Sec. 1374(d)(8)(B).
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    The amount of the built-in gains tax under section 1374 is 
treated as a loss by each of the S corporation shareholders in 
computing its own income tax.\242\
---------------------------------------------------------------------------
    \242\Sec. 1366(f)(2). Shareholders continue to take into account 
all items of gain and loss under section 1366.
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Special rules for 2009, 2010, and 2011

    For any taxable year beginning in 2009 and 2010, no tax was 
imposed on the net recognized built-in gain of an S corporation 
under section 1374 if the seventh taxable year in the 
corporation's recognition period preceded such taxable 
year.\243\ Thus, with respect to gain that arose prior to the 
conversion of a C corporation to an S corporation, no tax was 
imposed under section 1374 if the seventh taxable year that the 
S corporation election was in effect preceded the taxable year 
beginning in 2009 or 2010.
---------------------------------------------------------------------------
    \243\Sec. 1374(d)(7)(B).
---------------------------------------------------------------------------
    For any taxable year beginning in 2011, no tax was imposed 
on the net recognized built-in gain of an S corporation under 
section 1374 if the fifth year in the corporation's recognition 
period preceded such taxable year.\244\ Thus, with respect to 
gain that arose prior to the conversion of a C corporation to 
an S corporation, no tax was imposed under section 1374 if the 
S corporation election was in effect for five years preceding 
the taxable year beginning in 2011.
---------------------------------------------------------------------------
    \244\Sec. 1374(d)(7)(C).
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Special rules for 2012, 2013 and 2014

    For taxable years beginning in 2012, 2013, and 2014, the 
term ``recognition period'' in section 1374, for purposes of 
determining the net recognized built-in gain, is applied by 
substituting a five-year period for the otherwise applicable 
10-year period. Thus, for such taxable years, the recognition 
period is the five-year period beginning with the first day of 
the first taxable year for which the corporation was an S 
corporation (or beginning with the date of acquisition of 
assets if the rules applicable to assets acquired from a C 
corporation apply). If an S corporation with assets subject to 
section 1374 disposes of such assets in a taxable year 
beginning in 2012, 2013, or 2014 and the disposition occurs 
more than five years after the first day of the relevant 
recognition period, gain or loss on the disposition will not be 
taken into account in determining the net recognized built-in 
gain.
    The rule requiring the excess of net recognized built-in 
gain over taxable income for a taxable year to be carried over 
and treated as recognized built-in gain in the succeeding 
taxable year applies only to gain recognized within the 
recognition period.
    If an S corporation subject to section 1374 sells a built-
in gain asset and reports the income from the sale using the 
installment method under section 453, the treatment of all 
payments received will be governed by the provisions of section 
1374(d)(7) applicable to the taxable year in which the sale was 
made.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 5-
year recognition period provision for two years, to promote 
business certainty.

                        EXPLANATION OF PROVISION

    The provision extends for two years, to taxable years 
beginning in 2015 and 2016, the special rules that applied to 
taxable years beginning in 2012, 2013, and 2014.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2014.

29. Extension and modification of empowerment zone tax incentives (sec. 
          139 of the bill and secs. 1391 and 1394 of the Code)


                              PRESENT LAW

    The Omnibus Budget Reconciliation Act of 1993 (``OBRA 
93'')\245\ authorized the designation of nine empowerment zones 
(``Round I empowerment zones'') to provide tax incentives for 
businesses to locate within certain targeted areas\246\ 
designated by the Secretaries of the Department of Housing and 
Urban Development (``HUD'') and the U.S. Department of 
Agriculture (``USDA''). The first empowerment zones were 
established in large rural areas and large cities. OBRA 93 also 
authorized the designation of 95 enterprise communities, which 
were located in smaller rural areas and cities. For tax 
purposes, the areas designated as enterprise communities 
continued as such for the ten-year period starting in the 
beginning of 1995 and ending at the end of 2004.
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    \245\Pub. L. No. 103-66.
    \246\The targeted areas are those that have pervasive poverty, high 
unemployment, and general economic distress, and that satisfy certain 
eligibility criteria, including specified poverty rates and population 
and geographic size limitations.
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    The Taxpayer Relief Act of 1997\247\ authorized the 
designation of two additional Round I urban empowerment zones, 
and 20 additional empowerment zones (``Round II empowerment 
zones''). The Community Renewal Tax Relief Act of 2000 (``2000 
Community Renewal Act'')\248\ authorized a total of 10 new 
empowerment zones (``Round III empowerment zones''), bringing 
the total number of authorized empowerment zones to 40.\249\ In 
addition, the 2000 Community Renewal Act conformed the tax 
incentives that are available to businesses in the Round I, 
Round II, and Round III empowerment zones, and extended the 
empowerment zone incentives through December 31, 2009.\250\ The 
Tax Relief, Unemployment Insurance Reauthorization and Job 
Creation Act of 2010 (``TRUIRJCA'') extended for two years, 
through December 31, 2011, the period for which the designation 
of an empowerment zone was in effect, thus extending for two 
years the empowerment zone tax incentives discussed below.\251\ 
The American Taxpayer Relief Act of 2012 (``ATRA'') extended 
the designation period and tax incentives for two additional 
years, through December 31, 2013.\252\ The Tax Increase 
Prevention Act of 2014 extended the designation period and tax 
incentives for one year, through December 31, 2014.\253\
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    \247\Pub. L. No. 105-34.
    \248\Pub. L. No. 106-554.
    \249\The urban part of the program is administered by HUD and the 
rural part of the program is administered by the USDA. The eight Round 
I urban empowerment zones are Atlanta, GA; Baltimore, MD; Chicago, IL; 
Cleveland, OH; Detroit, MI; Los Angeles, CA; New York, NY; and 
Philadelphia, PA/Camden, NJ. Atlanta relinquished its empowerment zone 
designation in Round III. The three Round I rural empowerment zones are 
Kentucky Highlands, KY; Mid-Delta, MI; and Rio Grande Valley, TX. The 
15 Round II urban empowerment zones are Boston, MA; Cincinnati, OH; 
Columbia, SC; Columbus, OH; Cumberland County, NJ; El Paso, TX; Gary/
Hammond/East Chicago, IN; Ironton, OH/Huntington, WV; Knoxville, TN; 
Miami/Dade County, FL; Minneapolis, MN; New Haven, CT; Norfolk/
Portsmouth, VA; Santa Ana, CA; and St. Louis, Missouri/East St. Louis, 
IL. The five Round II rural empowerment zones are Desert Communities, 
CA; Griggs-Steele, ND; Oglala Sioux Tribe, SD; Southernmost Illinois 
Delta, IL; and Southwest Georgia United, GA. The eight Round III urban 
empowerment zones are Fresno, CA; Jacksonville, FL; Oklahoma City, OK; 
Pulaski County, AR; San Antonio, TX; Syracuse, NY; Tucson, AZ; and 
Yonkers, NY. The two Round III rural empowerment zones are Aroostook 
County, ME; and Futuro, TX.
    \250\If an empowerment zone designation were terminated prior to 
December 31, 2009, the tax incentives would cease to be available as of 
the termination date.
    \251\Pub. L. No. 111-312, sec. 753 (2010). In the case of a 
designation of an empowerment zone the nomination for which included a 
termination date which is December 31, 2009, termination shall not 
apply with respect to such designation if the entity which made such 
nomination amends the nomination to provide for a new termination date 
in such manner as the Secretary may provide.
    \252\Pub. L. No. 112-240, sec. 327 (2013).
    \253\Pub. L. No. 113-295, sec. 139 (2014).
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    The tax incentives available within the designated 
empowerment zones include a Federal income tax credit for 
employers who hire qualifying employees (the ``wage credit''), 
increased expensing of qualifying depreciable property, tax-
exempt bond financing, deferral of capital gains tax on the 
sale of qualified assets sold and replaced, and partial 
exclusion of capital gains tax on certain sales of qualified 
small business stock.
    The following is a description of the tax incentives.

Wage credit

    A 20-percent wage credit is available to employers for the 
first $15,000 of qualified wages paid to each employee (i.e., a 
maximum credit of $3,000 with respect to each qualified 
employee) who (1) is a resident of the empowerment zone, and 
(2) performs substantially all employment services within the 
empowerment zone in a trade or business of the employer.\254\
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    \254\Sec. 1396. The $15,000 limit is annual, not cumulative such 
that the limit is the first $15,000 of wages paid in a calendar year 
which ends with or within the taxable year.
---------------------------------------------------------------------------
    The wage credit rate applies to qualifying wages paid 
before January 1, 2015. Wages paid to a qualified employee who 
earns more than $15,000 are eligible for the wage credit 
(although only the first $15,000 of wages is eligible for the 
credit). The wage credit is available with respect to a 
qualified full-time or part-time employee (employed for at 
least 90 days), regardless of the number of other employees who 
work for the employer. In general, any taxable business 
carrying out activities in the empowerment zone may claim the 
wage credit, regardless of whether the employer meets the 
definition of an ``enterprise zone business.''\255\
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    \255\Secs. 1397C(b) and 1397C(c). However, under section 1396, the 
wage credit is not available for wages paid in connection with certain 
business activities described in section 144(c)(6)(B), including a golf 
course, country club, massage parlor, hot tub facility, suntan 
facility, racetrack or other facility used for gambling, or liquor 
store. In addition, wages are not eligible for the wage credit if paid 
to: (1) employees of farms whose assets exceed $500,000, (2) certain 
temporary employees (employed for less than 90 days), (3) a person who 
owns more than five percent of the stock (or capital or profits 
interests) of the employer, (4) certain relatives of the employer, or 
(5) if the employer is a corporation or partnership, certain relatives 
of a person who owns more than 50 percent of the business.
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    An employer's deduction otherwise allowed for wages paid is 
reduced by the amount of wage credit claimed for that taxable 
year.\256\ Wages are not to be taken into account for purposes 
of the wage credit if taken into account in determining the 
employer's work opportunity tax credit under section 51 or the 
welfare-to-work credit under section 51A.\257\ In addition, the 
$15,000 cap is reduced by any wages taken into account in 
computing the work opportunity tax credit or the welfare-to-
work credit.\258\ The wage credit may be used to offset up to 
25 percent of alternative minimum tax liability.\259\
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    \256\Sec. 280C(a).
    \257\Secs. 1396(c)(3)(A) and 51A(d)(2).
    \258\Secs. 1396(c)(3)(B) and 51A(d)(2).
    \259\Sec. 38(c)(2).
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Increased section 179 expensing limitation

    An enterprise zone business is allowed up to an additional 
$35,000 of section 179 expensing (for a total of up to $535,000 
in 2014) for qualified zone property placed in service before 
January 1, 2015.\260\ For taxable years beginning after 2009 
and before 2015, the section 179 expensing allowed to a 
taxpayer is phased out by the amount by which the cost of 
qualifying property placed in service during the taxable year 
exceeds $2,000,000. However, only 50 percent of the cost of 
qualified zone property placed in service during the year by 
the taxpayer is taken into account in determining the 
limitation amount.\261\ The term ``qualified zone property'' is 
defined as depreciable tangible property (including buildings) 
provided that (i) the property is acquired by the taxpayer 
(from an unrelated party) after the designation took effect, 
(ii) the original use of the property in an empowerment zone 
commences with the taxpayer, and (iii) substantially all of the 
use of the property is in an empowerment zone in the active 
conduct of a trade or business by the taxpayer.\262\ Special 
rules are provided in the case of property that is 
substantially renovated by the taxpayer.
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    \260\Secs. 1397A, 1397D, and 179(b)(1)(B). The additional section 
179 expensing equals the lesser of $35,000 or the cost of section 179 
property that is qualified zone property placed in service during the 
taxable year.
    \261\Secs. 1397A(a)(2) and 179(b)(2). For taxable years beginning 
after 2014, the limit is $200,000.
    \262\Sec. 1397D. Note, however, only depreciable tangible personal 
property is generally eligible for section 179 expensing. For taxable 
years beginning before 2015, property qualifying for section 179 
expensing also includes off-the-shelf computer software and qualified 
real property (i.e., qualified leasehold improvement property, 
qualified restaurant property, and qualified retail improvement 
property). Sec. 179(d)(1)(A)(ii) and (f).
---------------------------------------------------------------------------
    An enterprise zone business means any qualified business 
entity and any qualified proprietorship. A qualified business 
entity means any corporation or partnership if for such year: 
(1) every trade or business of such entity is the active 
conduct of a qualified business within an empowerment zone; (2) 
at least 50 percent of the total gross income of such entity is 
derived from the active conduct of such business; (3) a 
substantial portion of the use of the tangible property of such 
entity (whether owned or leased) is within an empowerment zone; 
(4) a substantial portion of the intangible property of such 
entity is used in the active conduct of any such business; (5) 
a substantial portion of the services performed for such entity 
by its employees are performed in an empowerment zone; (6) at 
least 35 percent of its employees are residents of an 
empowerment zone; (7) less than five percent of the average of 
the aggregate unadjusted bases of the property of such entity 
is attributable to collectibles other than collectibles that 
are held primarily for sale to customers in the ordinary course 
of such business; and (8) less than five percent of the average 
of the aggregate unadjusted bases of the property of such 
entity is attributable to nonqualified financial property.\263\
---------------------------------------------------------------------------
    \263\Sec. 1397C(b).
---------------------------------------------------------------------------
    A qualified proprietorship is any qualified business 
carried on by an individual as a proprietorship if for such 
year: (1) at least 50 percent of the total gross income of such 
individual from such business is derived from the active 
conduct of such business in an empowerment zone; (2) a 
substantial portion of the use of the tangible property of such 
individual in such business (whether owned or leased) is within 
an empowerment zone; (3) a substantial portion of the 
intangible property of such business is used in the active 
conduct of such business; (4) a substantial portion of the 
services performed for such individual in such business by 
employees of such business are performed in an empowerment 
zone; (5) at least 35 percent of such employees are residents 
of an empowerment zone; (6) less than five percent of the 
average of the aggregate unadjusted bases of the property of 
such individual which is used in such business is attributable 
to collectibles other than collectibles that are held primarily 
for sale to customers in the ordinary course of such business; 
and (7) less than five percent of the average of the aggregate 
unadjusted bases of the property of such individual which is 
used in such business is attributable to nonqualified financial 
property.\264\
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    \264\Sec. 1397C(c).
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    A qualified business is defined as any trade or business 
other than a trade or business that consists predominantly of 
the development or holding of intangibles for sale or license 
or any business prohibited in connection with the employment 
credit.\265\ In addition, the leasing of real property that is 
located within the empowerment zone is treated as a qualified 
business only if (1) the leased property is not residential 
property, and (2) at least 50 percent of the gross rental 
income from the real property is from enterprise zone 
businesses. The rental of tangible personal property is not a 
qualified business unless at least 50 percent of the rental of 
such property is by enterprise zone businesses or by residents 
of an empowerment zone.
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    \265\Sec. 1397C(d). Excluded businesses include a farm with assets 
exceeding $500,000, any private or commercial golf course, country 
club, massage parlor, hot tub facility, sun tan facility, racetrack or 
other facility used for gambling, or any store the principal business 
of which is the sale of alcoholic beverages for off-premises 
consumption. Secs. 1397C(d)(5) and 144(c)(6)(B).
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Expanded tax-exempt financing for certain zone facilities

    States or local governments can issue enterprise zone 
facility bonds to raise funds to provide an enterprise zone 
business with qualified zone property.\266\ These bonds can be 
used in areas designated enterprise communities as well as 
areas designated empowerment zones. To qualify, 95 percent (or 
more) of the net proceeds from the bond issue must be used to 
finance: (1) qualified zone property whose principal user is an 
enterprise zone business, and (2) certain land functionally 
related and subordinate to such property.
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    \266\Sec. 1394.
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    The term enterprise zone business is the same as that used 
for purposes of the increased section 179 deduction limitation 
(discussed above) with certain modifications for start-up 
businesses. First, a business will be treated as an enterprise 
zone business during a start-up period if (1) at the beginning 
of the period, it is reasonable to expect the business to be an 
enterprise zone business by the end of the start-up period, and 
(2) the business makes bona fide efforts to be an enterprise 
zone business. The start-up period is the period that ends with 
the start of the first tax year beginning more than two years 
after the later of (1) the issue date of the bond issue 
financing the qualified zone property, and (2) the date this 
property is first placed in service (or, if earlier, the date 
that is three years after the issue date).\267\
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    \267\Sec. 1394(b)(3).
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    Second, a business that qualifies as an enterprise zone 
business at the end of the start-up period must continue to 
qualify during a testing period that ends three tax years after 
the start-up period ends. After the three-year testing period, 
a business will continue to be treated as an enterprise zone 
business as long as 35 percent of its employees are residents 
of an empowerment zone or enterprise community.
    The face amount of the bonds may not exceed $60 million for 
an empowerment zone in a rural area, $130 million for an 
empowerment zone in an urban area with zone population of less 
than 100,000, and $230 million for an empowerment zone in an 
urban area with zone population of at least 100,000.

Elective rollover of capital gain from the sale or exchange of any 
        qualified empowerment zone asset

    Taxpayers can elect to defer recognition of gain on the 
sale of a qualified empowerment zone asset\268\ held for more 
than one year and replaced within 60 days by another qualified 
empowerment zone asset in the same zone.\269\ The deferral is 
accomplished by reducing the basis of the replacement asset by 
the amount of the gain recognized on the sale of the asset.
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    \268\The term ``qualified empowerment zone asset'' means any 
property which would be a qualified community asset (as defined in 
section 1400F, relating to certain tax benefits for renewal 
communities) if in section 1400F: (i) references to empowerment zones 
were substituted for references to renewal communities, (ii) references 
to enterprise zone businesses (as defined in section 1397C) were 
substituted for references to renewal community businesses, and (iii) 
the date of the enactment of this paragraph were substituted for 
``December 31, 2001'' each place it appears. Sec. 1397B(b)(1)(A).
    A ``qualified community asset'' includes: (1) qualified community 
stock (meaning original-issue stock purchased for cash in an enterprise 
zone business), (2) a qualified community partnership interest (meaning 
a partnership interest acquired for cash in an enterprise zone 
business), and (3) qualified community business property (meaning 
tangible property originally used in a enterprise zone business by the 
taxpayer) that is purchased or substantially improved after the date of 
the enactment of this paragraph.
    \269\Sec. 1397B.
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Partial exclusion of capital gains on certain small business stock

    Generally, individuals may exclude a percentage of gain 
from the sale of certain small business stock acquired at 
original issue and held at least five years.\270\ For stock 
acquired prior to February 18, 2009, or after December 31, 
2014, the percentage is generally 50 percent, except that for 
empowerment zone stock the percentage is 60 percent for gain 
attributable to periods before January 1, 2019. For stock 
acquired after February 17, 2009, and before January 1, 2015, a 
higher percentage (either 75-percent or 100-percent) applies to 
all small business stock with no additional percentage for 
empowerment zone stock.\271\
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    \270\Sec. 1202.
    \271\As discussed above, section 136 of the Tax Relief Extension 
Act of 2015 extends the 100-percent exclusion to small business stock 
acquired during 2015 and 2016.
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Other tax incentives

    Other incentives not specific to empowerment zones but 
beneficial to these areas include the work opportunity tax 
credit for employers based on the first year of employment of 
certain targeted groups, including empowerment zone residents 
(up to $2,400 per employee), and qualified zone academy bonds 
for certain public schools located in an empowerment zone or 
expected (as of the date of bond issuance) to have at least 35 
percent of its students receiving free or reduced lunches.

                           REASONS FOR CHANGE

    The Committee believes that it continues to be important to 
provide tax incentives to individuals and businesses in 
empowerment zones and that it is appropriate to extend such 
incentives for an additional two years. In addition, the 
Committee believes that for purposes of the tax-exempt 
enterprise zone facility bonds, expanding the requirements to 
allow businesses to hire employees from distressed Census 
tracts within the city in which the empowerment zone is located 
will encourage growth because more taxpayers will use these 
bonds to invest in the country's hardest-hit cities.

                        EXPLANATION OF PROVISION

Extension

    The provision extends for two years, through December 31, 
2016, the period for which the designation of an empowerment 
zone is in effect, thus extending for two years the empowerment 
zone tax incentives, including the wage credit, increased 
section 179 expensing for qualifying property, tax-exempt bond 
financing, and deferral of capital gains tax on sale of 
qualified assets replaced with other qualified assets. In the 
case of a designation of an empowerment zone the nomination for 
which included a termination date which is December 31, 2014, 
termination shall not apply with respect to such designation if 
the entity which made such nomination amends the nomination to 
provide for a new termination date in such manner as the 
Secretary may provide.

Modification of enterprise zone facility bond employment requirement

    The provision also amends the requirements for tax-exempt 
enterprise zone facility bonds to treat an employee as a 
resident of an empowerment zone for purposes of the 35 percent 
in-zone employment requirement if they are a resident of an 
empowerment zone, an enterprise community, or a qualified low-
income community within an applicable nominating jurisdiction. 
The applicable nominating jurisdiction means, with respect to 
any empowerment zone or enterprise community, any local 
government that nominated such community for designation under 
section 1391. The definition of a qualified low-income 
community is similar to the definition of a low-income 
community provided in section 45D(e) (concerning eligibility 
for the new markets tax credit). A ``qualified low-income 
community'' is a population census tract with either (1) a 
poverty rate of at least 20 percent, or (2) median family 
income which does not exceed 80 percent of the greater of 
metropolitan area median family income or statewide median 
family income (for a non-metropolitan census tract, does not 
exceed 80 percent of statewide median family income). In the 
case of a population census tract located within a high 
migration rural county, low-income is defined by reference to 
85 percent (as opposed to 80 percent) of statewide median 
family income. For this purpose, a high migration rural county 
is any county that, during the 20-year period ending with the 
year in which the most recent census was conducted, has a net 
out-migration of inhabitants from the county of at least 10 
percent of the population of the county at the beginning of 
such period.
    The Secretary is authorized to designate ``targeted 
populations'' as qualified low-income communities. For this 
purpose, a ``targeted population'' is defined by reference to 
section 103(20) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (the ``Act'') to mean 
individuals, or an identifiable group of individuals, including 
an Indian tribe, who are low-income persons or otherwise lack 
adequate access to loans or equity investments. Section 103(17) 
of the Act provides that ``low-income'' means (1) for a 
targeted population within a metropolitan area, less than 80 
percent of the area median family income; and (2) for a 
targeted population within a non-metropolitan area, less than 
the greater of (a) 80 percent of the area median family income, 
or (b) 80 percent of the statewide non-metropolitan area median 
family income.

                             EFFECTIVE DATE

    The provision generally applies to periods after December 
31, 2014. The provision regarding the special rule for the 
employee residence test in the context of tax-exempt enterprise 
zone facility bonds applies to bonds issued before, on, or 
after the date of enactment and not redeemed before the date of 
enactment.

   30. Extension of temporary increase in limit on cover over of rum 
  excise taxes to Puerto Rico and the Virgin Islands (sec. 140 of the 
                   bill and sec. 7652(f) of the Code)


                              PRESENT LAW

    A $13.50 per proof gallon\272\ excise tax is imposed on 
distilled spirits produced in or imported into the United 
States.\273\ The excise tax does not apply to distilled spirits 
that are exported from the United States, including exports to 
U.S. possessions (e.g., Puerto Rico and the Virgin 
Islands).\274\
---------------------------------------------------------------------------
    \272\A proof gallon is a liquid gallon consisting of 50 percent 
alcohol. See sec. 5002(a)(10) and (11).
    \273\Sec. 5001(a)(1).
    \274\Secs. 5214(a)(1)(A), 5002(a)(15), 7653(b) and (c).
---------------------------------------------------------------------------
    The Code provides for cover over (payment) to Puerto Rico 
and the Virgin Islands of the excise tax imposed on rum 
imported (or brought) into the United States, without regard to 
the country of origin.\275\ The amount of the cover over is 
limited under Code section 7652(f) to $10.50 per proof gallon 
($13.25 per proof gallon before January 1, 2015).
---------------------------------------------------------------------------
    \275\Secs. 7652(a)(3), (b)(3), and (e)(1). One percent of the 
amount of excise tax collected from imports into the United States of 
articles produced in the Virgin Islands is retained by the United 
States under section 7652(b)(3).
---------------------------------------------------------------------------
    Tax amounts attributable to shipments to the United States 
of rum produced in Puerto Rico are covered over to Puerto Rico. 
Tax amounts attributable to shipments to the United States of 
rum produced in the Virgin Islands are covered over to the 
Virgin Islands. Tax amounts attributable to shipments to the 
United States of rum produced in neither Puerto Rico nor the 
Virgin Islands are divided and covered over to the two 
possessions under a formula.\276\Amounts covered over to Puerto 
Rico and the Virgin Islands are deposited into the treasuries 
of the two possessions for use as those possessions 
determine.\277\ All of the amounts covered over are subject to 
the limitation.
---------------------------------------------------------------------------
    \276\Sec. 7652(e)(2).
    \277\Secs. 7652(a)(3), (b)(3), and (e)(1).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the needs of Puerto Rico and 
the Virgin islands justify the extension of the cover over 
amount of $13.25 per gallon.

                        EXPLANATION OF PROVISION

    The provision suspends for two years the $10.50 per proof 
gallon limitation on the amount of excise taxes on rum covered 
over to Puerto Rico and the Virgin Islands. Under the 
provision, the cover over limitation of $13.25 per proof gallon 
is extended for rum brought into the United States after 
December 31, 2014 and before January 1, 2017. After December 
31, 2016, the cover over amount reverts to $10.50 per proof 
gallon.

                             EFFECTIVE DATE

    The provision is effective for articles brought into the 
United States after December 31, 2014.

 31. Extension of American Samoa Economic Development Credit (sec. 141 
            of the bill and sec. 119 of Pub. L. No. 109-432)


                              PRESENT LAW

    A domestic corporation that was an existing credit claimant 
with respect to American Samoa and that elected the application 
of section 936 for its last taxable year beginning before 
January 1, 2006 is allowed a credit based on the corporation's 
economic activity-based limitation with respect to American 
Samoa. The credit is not part of the Code but is computed based 
on the rules of sections 30A and 936. The credit is allowed for 
the first nine taxable years of a corporation that begin after 
December 31, 2005, and before January 1, 2015.
    A corporation was an existing credit claimant with respect 
to a American Samoa if (1) the corporation was engaged in the 
active conduct of a trade or business within American Samoa on 
October 13, 1995, and (2) the corporation elected the benefits 
of the possession tax credit\278\ in an election in effect for 
its taxable year that included October 13, 1995.\279\ A 
corporation that added a substantial new line of business 
(other than in a qualifying acquisition of all the assets of a 
trade or business of an existing credit claimant) ceased to be 
an existing credit claimant as of the close of the taxable year 
ending before the date on which that new line of business was 
added.
---------------------------------------------------------------------------
    \278\For taxable years beginning before January 1, 2006, certain 
domestic corporations with business operations in the U.S. possessions 
were eligible for the possession tax credit. Secs. 27(b), 936. This 
credit offset the U.S. tax imposed on certain income related to 
operations in the U.S. possessions. Subject to certain limitations, the 
amount of the possession tax credit allowed to any domestic corporation 
equaled the portion of that corporation's U.S. tax that was 
attributable to the corporation's non-U.S. source taxable income from 
(1) the active conduct of a trade or business within a U.S. possession, 
(2) the sale or exchange of substantially all of the assets that were 
used in such a trade or business, or (3) certain possessions 
investment. No deduction or foreign tax credit was allowed for any 
possessions or foreign tax paid or accrued with respect to taxable 
income that was taken into account in computing the credit under 
section 936. Under the economic activity-based limit, the amount of the 
credit could not exceed an amount equal to the sum of (1) 60 percent of 
the taxpayer's qualified possession wages and allocable employee fringe 
benefit expenses, (2) 15 percent of depreciation allowances with 
respect to short-life qualified tangible property, plus 40 percent of 
depreciation allowances with respect to medium-life qualified tangible 
property, plus 65 percent of depreciation allowances with respect to 
long-life qualified tangible property, and (3) in certain cases, a 
portion of the taxpayer's possession income taxes. A taxpayer could 
elect, instead of the economic activity-based limit, a limit equal to 
the applicable percentage of the credit that otherwise would have been 
allowable with respect to possession business income, beginning in 
1998, the applicable percentage was 40 percent.
    To qualify for the possession tax credit for a taxable year, a 
domestic corporation was required to satisfy two conditions. First, the 
corporation was required to derive at least 80 percent of its gross 
income for the three-year period immediately preceding the close of the 
taxable year from sources within a possession. Second, the corporation 
was required to derive at least 75 percent of its gross income for that 
same period from the active conduct of a possession business. Sec. 
936(a)(2). The section 936 credit generally expired for taxable years 
beginning after December 31, 2005.
    \279\A corporation will qualify as an existing credit claimant if 
it acquired all the assets of a trade or business of a corporation that 
(1) actively conducted that trade or business in a possession on 
October 13, 1995, and (2) had elected the benefits of the possession 
tax credit in an election in effect for the taxable year that included 
October 13, 1995.
---------------------------------------------------------------------------
    The amount of the credit allowed to a qualifying domestic 
corporation under the provision is equal to the sum of the 
amounts used in computing the corporation's economic activity-
based limitation with respect to American Samoa, except that no 
credit is allowed for the amount of any American Samoa income 
taxes. Thus, for any qualifying corporation the amount of the 
credit equals the sum of (1) 60 percent of the corporation's 
qualified American Samoa wages and allocable employee fringe 
benefit expenses and (2) 15 percent of the corporation's 
depreciation allowances with respect to short-life qualified 
American Samoa tangible property, plus 40 percent of the 
corporation's depreciation allowances with respect to medium-
life qualified American Samoa tangible property, plus 65 
percent of the corporation's depreciation allowances with 
respect to long-life qualified American Samoa tangible 
property.
    The section 936(c) rule denying a credit or deduction for 
any possessions or foreign tax paid with respect to taxable 
income taken into account in computing the credit under section 
936 does not apply with respect to the credit allowed by the 
provision.
    For taxable years beginning after December 31, 2011 the 
credit rules are modified in two ways. First, domestic 
corporations with operations in American Samoa are allowed the 
credit even if those corporations are not existing credit 
claimants. Second, the credit is available to a domestic 
corporation (either an existing credit claimant or a new credit 
claimant) only if, in addition to satisfying all the present 
law requirements for claiming the credit, the corporation also 
has qualified production activities income (as defined in 
section 199(c) by substituting ``American Samoa'' for ``the 
United States'' in each place that latter term appears).
    In the case of a corporation that is an existing credit 
claimant with respect to American Samoa and that elected the 
application of section 936 for its last taxable year beginning 
before January 1, 2006, the credit applies to the first nine 
taxable years of the corporation which begin after December 31, 
2005, and before January 1, 2015. For any other corporation, 
the credit applies to the first three taxable years of that 
corporation which begin after December 31, 2011 and before 
January 1, 2015.

                           REASONS FOR CHANGE

    The Committee believes that, notwithstanding expiration of 
the possession tax credit for taxable years beginning after 
2005, the U.S. Federal tax law should encourage economic 
activity in American Samoa. Consequently, the Committee 
believes it is appropriate to extend the American Samoa 
economic development credit.

                        DESCRIPTION OF PROVISION

    The provision extends the credit for two years to apply (a) 
in the case of a corporation that is an existing credit 
claimant with respect to American Samoa and that elected the 
application of section 936 for its last taxable year beginning 
before January 1, 2006, to the first eleven taxable years of 
the corporation which begin after December 31, 2005, and before 
January 1, 2017, and (b) in the case of any other corporation, 
to the first five taxable years of the corporation which begin 
after December 31, 2011 and before January 1, 2017.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2014.

                        C. Energy Tax Extenders


1. Extension and modification of credit for nonbusiness energy property 
             (sec.151 of the bill and sec. 25C of the Code)


                              PRESENT LAW

    Present law provides a 10-percent credit for the purchase 
of qualified energy efficiency improvements to existing 
homes.\280\ A qualified energy efficiency improvement is any 
energy efficiency building envelope component (1) that meets or 
exceeds the prescriptive criteria for such a component 
established by the 2009 International Energy Conservation Code 
as such Code (including supplements) is in effect on the date 
of the enactment of the American Recovery and Reinvestment Tax 
Act of 2009\281\ (or, in the case of windows, skylights and 
doors, and metal roofs with appropriate pigmented coatings or 
asphalt roofs with appropriate cooling granules, meets the 
Energy Star program requirements); (2) that is installed in or 
on a dwelling located in the United States and owned and used 
by the taxpayer as the taxpayer's principal residence; (3) the 
original use of which commences with the taxpayer; and (4) that 
reasonably can be expected to remain in use for at least five 
years. The credit is nonrefundable.
---------------------------------------------------------------------------
    \280\Sec. 25C.
    \281\Pub. L. No. 111-5, February 17, 2009.
---------------------------------------------------------------------------
    Building envelope components are: (1) insulation materials 
or systems which are specifically and primarily designed to 
reduce the heat loss or gain for a dwelling and which meet the 
prescriptive criteria for such material or system established 
by the 2009 International Energy Conservation Code, as such 
Code (including supplements) is in effect on the date of the 
enactment of the American Recovery and Reinvestment Tax Act of 
2009;\282\ (2) exterior windows (including skylights) and 
doors; and (3) metal or asphalt roofs with appropriate 
pigmented coatings or cooling granules that are specifically 
and primarily designed to reduce the heat gain for a dwelling.
---------------------------------------------------------------------------
    \282\Ibid.
---------------------------------------------------------------------------
    Additionally, present law provides specified credits for 
the purchase of specific energy efficient property originally 
placed in service by the taxpayer during the taxable year. The 
allowable credit for the purchase of certain property is (1) 
$50 for each advanced main air circulating fan, (2) $150 for 
each qualified natural gas, propane, or oil furnace or hot 
water boiler, and (3) $300 for each item of energy efficient 
building property.
    An advanced main air circulating fan is a fan used in a 
natural gas, propane, or oil furnace and which has an annual 
electricity use of no more than two percent of the total annual 
energy use of the furnace (as determined in the standard 
Department of Energy test procedures).
    A qualified natural gas, propane, or oil furnace or hot 
water boiler is a natural gas, propane, or oil furnace or hot 
water boiler with an annual fuel utilization efficiency rate of 
at least 95.
    Energy-efficient building property is: (1) an electric heat 
pump water heater which yields an energy factor of at least 2.0 
in the standard Department of Energy test procedure, (2) an 
electric heat pump which achieves the highest efficiency tier 
established by the Consortium for Energy Efficiency, as in 
effect on January 1, 2009,\283\ (3) a central air conditioner 
which achieves the highest efficiency tier established by the 
Consortium for Energy Efficiency as in effect on January 1, 
2009,\284\ (4) a natural gas, propane, or oil water heater 
which has an energy factor of at least 0.82 or thermal 
efficiency of at least 90 percent, and (5) biomass fuel 
property.
---------------------------------------------------------------------------
    \283\These standards are a seasonal energy efficiency ratio 
(``SEER'') greater than or equal to 15, an energy efficiency ratio 
(``EER'') greater than or equal to 12.5, and heating seasonal 
performance factor (``HSPF'') greater than or equal to 8.5 for split 
heat pumps, and SEER greater than or equal to 14, EER greater than or 
equal to 12, and HSPF greater than or equal to 8.0 for packaged heat 
pumps.
    \284\These standards are a SEER greater than or equal to 16 and EER 
greater than or equal to 13 for split systems, and SEER greater than or 
equal to 14 and EER greater than or equal to 12 for packaged systems.
---------------------------------------------------------------------------
    Biomass fuel property is a stove that burns biomass fuel to 
heat a dwelling unit located in the United States and used as a 
principal residence by the taxpayer, or to heat water for such 
dwelling unit, and that has a thermal efficiency rating of at 
least 75 percent. Biomass fuel is any plant-derived fuel 
available on a renewable or recurring basis, including 
agricultural crops and trees, wood and wood waste and residues 
(including wood pellets), plants (including aquatic plants), 
grasses, residues, and fibers.
    The credit is available for property placed in service 
prior to January 1, 2015. The maximum credit for a taxpayer for 
all taxable years is $500, and no more than $200 of such credit 
may be attributable to expenditures on windows.
    The taxpayer's basis in the property is reduced by the 
amount of the credit. Special proration rules apply in the case 
of jointly owned property, condominiums, and tenant-
stockholders in cooperative housing corporations. If less than 
80 percent of the property is used for nonbusiness purposes, 
only that portion of expenditures that is used for nonbusiness 
purposes is taken into account.
    For purposes of determining the amount of expenditures made 
by any individual with respect to any dwelling unit, 
expenditures which are made from subsidized energy financing 
are not taken into account. The term ``subsidized energy 
financing'' means financing provided under a Federal, State, or 
local program a principal purpose of which is to provide 
subsidized financing for projects designed to conserve or 
produce energy.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use for 
heating and cooling represents a large share of national energy 
consumption, and accordingly believes that measures to reduce 
heating and cooling energy demands have the potential to 
substantially reduce national energy consumption. The Committee 
further recognizes that many existing homes continue to be 
inadequately insulated and have inefficient heating, 
ventilation, and cooling equipment.
    Therefore, the Committee believes that a two year extension 
of the nonbusiness energy efficient property credit is an 
appropriate measure to continue to encourage upgrades to the 
energy efficiency of existing housing stock. The Committee 
further believes that adjustments of certain efficiency 
standards for qualifying property are necessary to ensure that 
the efficiency goals are achievable, but that significant 
energy savings above the norm are necessary in order to qualify 
for any credit.

                        EXPLANATION OF PROVISION

    The provision extends the credit for two years, through 
December 31, 2016.
    The provision expands qualifying property to include all 
roof and roof products that meet Energy Star program 
guidelines. The provision modifies certain efficiency standards 
for qualifying property, as follows:
    (1) Windows, skylights, and doors must meet Energy Star 
version 6.0 standards.
    (2) Natural gas, propane, or oil tankless water heaters 
must have an energy factor of at least 0.9 or a thermal 
efficiency of at least 90 percent. Natural gas, propane, or oil 
storage water heaters must have an energy factor of at least 
0.8 or a thermal efficiency of at least 90 percent. Storage 
water heaters must have storage capacity of greater than 20 
gallons but less than or equal to 55 gallons to claim the 
credit.
    (3) Biomass fuel stoves must have thermal efficiency of 75 
percent evaluated at the higher heating value and tested in 
accordance with Canadian Standards Administration B415.1 test 
protocol.
    (4) Oil hot water boilers must have an annual fuel 
utilization efficiency not less than 90.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014.

 2. Extension of credit for fuel cell motor vehicles (sec. 152 of the 
                     bill and sec. 30B of the Code)


                              PRESENT LAW

    A credit is available through 2014 for vehicles propelled 
by chemically combining oxygen with hydrogen and creating 
electricity. The base credit is $4,000 for vehicles weighing 
8,500 pounds or less. Heavier vehicles can get up to a $40,000 
credit, depending on their weight. An additional $1,000 to 
$4,000 credit is available to cars and light trucks to the 
extent their fuel economy exceeds the 2002 base fuel economy 
set forth in the Code.

                           REASONS FOR CHANGE

    The Committee believes that further investments in advanced 
technology vehicles are necessary to transform automotive 
transportation in the United States to be cleaner, more fuel 
efficient, and less reliant on petroleum fuels. For this 
reason, the Committee believes the credit for fuel cell 
vehicles should be extended.

                        EXPLANATION OF PROVISION

    The provision extends the fuel cell vehicle credit for two 
years, through December 31, 2016.

                             EFFECTIVE DATE

    The provision is effective for vehicles placed in service 
after December 31, 2014.

3. Extension of credit for alternative fuel vehicle refueling property 
           (sec. 153 of the bill and section 30C of the Code)


                              PRESENT LAW

    Taxpayers may claim a 30-percent credit for the cost of 
installing qualified clean-fuel vehicle refueling property to 
be used in a trade or business of the taxpayer or installed at 
the principal residence of the taxpayer.\285\ The credit may 
not exceed $30,000 per taxable year per location, in the case 
of qualified refueling property used in a trade or business and 
$1,000 per taxable year per location, in the case of qualified 
refueling property installed on property which is used as a 
principal residence.
---------------------------------------------------------------------------
    \285\Sec. 30C.
---------------------------------------------------------------------------
    Qualified refueling property is property (not including a 
building or its structural components) for the storage or 
dispensing of a clean-burning fuel or electricity into the fuel 
tank or battery of a motor vehicle propelled by such fuel or 
electricity, but only if the storage or dispensing of the fuel 
or electricity is at the point of delivery into the fuel tank 
or battery of the motor vehicle. The original use of such 
property must begin with the taxpayer.
    Clean-burning fuels are any fuel at least 85 percent of the 
volume of which consists of ethanol, natural gas, compressed 
natural gas, liquefied natural gas, liquefied petroleum gas, or 
hydrogen. In addition, any mixture of biodiesel and diesel 
fuel, determined without regard to any use of kerosene and 
containing at least 20 percent biodiesel, qualifies as a clean 
fuel.
    Credits for qualified refueling property used in a trade or 
business are part of the general business credit and may be 
carried back for one year and forward for 20 years. Credits for 
residential qualified refueling property cannot exceed for any 
taxable year the difference between the taxpayer's regular tax 
(reduced by certain other credits) and the taxpayer's tentative 
minimum tax. Generally, in the case of qualified refueling 
property sold to a tax-exempt entity, the taxpayer selling the 
property may claim the credit.
    A taxpayer's basis in qualified refueling property is 
reduced by the amount of the credit. In addition, no credit is 
available for property used outside the United States or for 
which an election to expense has been made under section 179.
    The credit is available for property placed in service 
before January 1, 2015.

                           REASONS FOR CHANGE

    The Committee believes that further investments in advanced 
technology vehicles and related infrastructure are necessary to 
transform automotive transportation in the United States to be 
cleaner, more fuel efficient, and less reliant on petroleum 
fuels. For this reason, the Committee believes the credit for 
alternative fuel refueling property should be extended.

                        EXPLANATION OF PROVISION

    The provision extends for two years the 30-percent credit 
for alternative fuel refueling property, through December 31, 
2016.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2014.

4. Extension of second generation biofuel producer credit (sec. 154 of 
                   the bill and sec. 40 of the Code)


                              PRESENT LAW

    The second generation biofuel producer credit is a 
nonrefundable income tax credit for each gallon of qualified 
second generation biofuel fuel production of the producer for 
the taxable year. The amount of the credit per gallon is $1.01. 
The provision does not apply to qualified second generation 
biofuel production after December 31, 2014.
    ``Qualified second generation biofuel production'' is any 
second generation biofuel which is produced by the taxpayer and 
which, during the taxable year, is: (1) sold by the taxpayer to 
another person (a) for use by such other person in the 
production of a qualified second generation biofuel mixture in 
such person's trade or business (other than casual off-farm 
production), (b) for use by such other person as a fuel in a 
trade or business, or (c) who sells such second generation 
biofuel at retail to another person and places such cellulosic 
biofuel in the fuel tank of such other person; or (2) used by 
the producer for any purpose described in (1)(a), (b), or 
(c).\286\ Special rules apply for fuel derived from algae.
---------------------------------------------------------------------------
    \286\In addition, for fuels derived from algae, cyanobacterial or 
lemna, a special rule provides that qualified second generation biofuel 
includes fuel that is sold by the taxpayer to another person for 
refining by such other person into a fuel that meets the registration 
requirements for fuels and fuel additives under section 211 of the 
Clean Air Act. '
---------------------------------------------------------------------------
    ``Second generation biofuel'' means any liquid fuel that 
(1) is produced in the United States and used as fuel in the 
United States, (2) is derived by or from qualified feedstocks 
and (3) meets the registration requirements for fuels and fuel 
additives established by the Environmental Protection Agency 
(``EPA'') under section 211 of the Clean Air Act. ``Qualified 
feedstock'' means any lignocellulosic or hemicellulosic matter 
that is available on a renewable or recurring basis, and any 
cultivated algae, cyanobacteria or lemna. Second generation 
biofuel does not include fuels that (1) are more than four 
percent (determined by weight) water and sediment in any 
combination, (2) have an ash content of more than one percent 
(determined by weight), or (3) have an acid number greater than 
25 (``unprocessed or excluded fuels''). It also does not 
include any alcohol with a proof of less than 150.
    The second generation biofuel producer credit cannot be 
claimed unless the taxpayer is registered by the Internal 
Revenue Service (``IRS'') as a producer of second generation 
biofuel. Second generation biofuel eligible for the section 40 
credit is precluded from qualifying as biodiesel, renewable 
diesel, or alternative fuel for purposes of the applicable 
income tax credit, excise tax credit, or payment provisions 
relating to those fuels.
    Because it is a credit under section 40(a), the second 
generation biofuel producer credit is part of the general 
business credits in section 38. However, the credit can only be 
carried forward three taxable years after the termination of 
the credit. The credit is also allowable against the 
alternative minimum tax. Under section 87, the credit is 
included in gross income.

                           REASONS FOR CHANGE

    The Committee believes that extending this production 
credit will encourage the industry to continue development of 
these fuels and allow time for business planning.

                        EXPLANATION OF PROVISION

    The provision extends the credit two years, through 
December 31, 2016.

                             EFFECTIVE DATE

    The provision is effective for qualified second generation 
biofuel production after December 31, 2014.

5. Extension and modification of incentives for biodiesel and renewable 
  diesel (sec. 155 of the bill and sec. 40A, 6426 and 6427(e) of the 
                                 Code)


                              PRESENT LAW

Biodiesel

    Present law provides an income tax credit for biodiesel 
fuels (the ``biodiesel fuels credit'').\287\ The biodiesel 
fuels credit is the sum of three credits: (1) the biodiesel 
mixture credit, (2) the biodiesel credit, and (3) the small 
agri-biodiesel producer credit. The biodiesel fuels credit is 
treated as a general business credit. The amount of the 
biodiesel fuels credit is includible in gross income. The 
biodiesel fuels credit is coordinated to take into account 
benefits from the biodiesel excise tax credit and payment 
provisions discussed below. The credit does not apply to fuel 
sold or used after December 31, 2014.
---------------------------------------------------------------------------
    \287\Sec. 40A.
---------------------------------------------------------------------------
    Biodiesel is monoalkyl esters of long chain fatty acids 
derived from plant or animal matter that meet (1) the 
registration requirements established by the EPA under section 
211 of the Clean Air Act (42 U.S.C. sec. 7545) and (2) the 
requirements of the American Society of Testing and Materials 
(``ASTM'') D6751. Agri-biodiesel is biodiesel derived solely 
from virgin oils including oils from corn, soybeans, sunflower 
seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, 
flaxseeds, rice bran, mustard seeds, camelina, or animal fats.
    Biodiesel may be taken into account for purposes of the 
credit only if the taxpayer obtains a certification (in such 
form and manner as prescribed by the Secretary) from the 
producer or importer of the biodiesel that identifies the 
product produced and the percentage of biodiesel and agri-
biodiesel in the product.
            Biodiesel mixture credit
    The biodiesel mixture credit is $1.00 for each gallon of 
biodiesel (including agri-biodiesel) used by the taxpayer in 
the production of a qualified biodiesel mixture. A qualified 
biodiesel mixture is a mixture of biodiesel and diesel fuel 
that is (1) sold by the taxpayer producing such mixture to any 
person for use as a fuel, or (2) used as a fuel by the taxpayer 
producing such mixture. The sale or use must be in the trade or 
business of the taxpayer and is to be taken into account for 
the taxable year in which such sale or use occurs. No credit is 
allowed with respect to any casual off-farm production of a 
qualified biodiesel mixture.
    Per IRS guidance a mixture need only contain 1/10th of one 
percent of diesel fuel to be a qualified mixture.\288\ Thus, a 
qualified biodiesel mixture can contain 99.9 percent biodiesel 
and 0.1 percent diesel fuel.
---------------------------------------------------------------------------
    \288\Notice 2005-62, I.R.B. 2005-35, 443 (2005). ``A biodiesel 
mixture is a mixture of biodiesel and diesel fuel containing at least 
0.1 percent (by volume) of diesel fuel. Thus, for example, a mixture of 
999 gallons of biodiesel and 1 gallon of diesel fuel is a biodiesel 
mixture.'
---------------------------------------------------------------------------
            Biodiesel credit (B-100)
    The biodiesel credit is $1.00 for each gallon of biodiesel 
that is not in a mixture with diesel fuel (100 percent 
biodiesel or B-100) and which during the taxable year is (1) 
used by the taxpayer as a fuel in a trade or business or (2) 
sold by the taxpayer at retail to a person and placed in the 
fuel tank of such person's vehicle.
            Small agri-biodiesel producer credit
    The Code provides a small agri-biodiesel producer income 
tax credit, in addition to the biodiesel and biodiesel mixture 
credits. The credit is 10 cents per gallon for up to 15 million 
gallons of agri-biodiesel produced by small producers, defined 
generally as persons whose agri-biodiesel production capacity 
does not exceed 60 million gallons per year. The agri-biodiesel 
must (1) be sold by such producer to another person (a) for use 
by such other person in the production of a qualified biodiesel 
mixture in such person's trade or business (other than casual 
off-farm production), (b) for use by such other person as a 
fuel in a trade or business, or, (c) who sells such agri-
biodiesel at retail to another person and places such agri-
biodiesel in the fuel tank of such other person; or (2) used by 
the producer for any purpose described in (a), (b), or (c).
            Biodiesel mixture excise tax credit
    The Code also provides an excise tax credit for biodiesel 
mixtures.\289\ The credit is $1.00 for each gallon of biodiesel 
used by the taxpayer in producing a biodiesel mixture for sale 
or use in a trade or business of the taxpayer. A biodiesel 
mixture is a mixture of biodiesel and diesel fuel that (1) is 
sold by the taxpayer producing such mixture to any person for 
use as a fuel or (2) is used as a fuel by the taxpayer 
producing such mixture. No credit is allowed unless the 
taxpayer obtains a certification (in such form and manner as 
prescribed by the Secretary) from the producer of the biodiesel 
that identifies the product produced and the percentage of 
biodiesel and agri-biodiesel in the product.\290\
---------------------------------------------------------------------------
    \289\Sec. 6426(c).
    \290\Sec. 6426(c)(4).
---------------------------------------------------------------------------
    The credit is not available for any sale or use for any 
period after December 31, 2014. This excise tax credit is 
coordinated with the income tax credit for biodiesel such that 
credit for the same biodiesel cannot be claimed for both income 
and excise tax purposes.
            Payments with respect to biodiesel fuel mixtures
    If any person produces a biodiesel fuel mixture in such 
person's trade or business, the Secretary is to pay such person 
an amount equal to the biodiesel mixture credit.\291\ The 
biodiesel fuel mixture credit must first be taken against tax 
liability for taxable fuels. To the extent the biodiesel fuel 
mixture credit exceeds such tax liability, the excess may be 
received as a payment. Thus, if the person has no section 4081 
liability, the credit is refundable. The Secretary is not 
required to make payments with respect to biodiesel fuel 
mixtures sold or used after December 31, 2014.
---------------------------------------------------------------------------
    \291\Sec. 6427(e).
---------------------------------------------------------------------------

Renewable diesel

    ``Renewable diesel'' is liquid fuel that (1) is derived 
from biomass (as defined in section 45K(c)(3)), (2) meets the 
registration requirements for fuels and fuel additives 
established by the EPA under section 211 of the Clean Air Act, 
and (3) meets the requirements of the ASTM D975 or D396, or 
equivalent standard established by the Secretary. ASTM D975 
provides standards for diesel fuel suitable for use in diesel 
engines. ASTM D396 provides standards for fuel oil intended for 
use in fuel-oil burning equipment, such as furnaces. Renewable 
diesel also includes fuel derived from biomass that meets the 
requirements of a Department of Defense specification for 
military jet fuel or an ASTM specification for aviation turbine 
fuel.
    For purposes of the Code, renewable diesel is generally 
treated the same as biodiesel. In the case of renewable diesel 
that is aviation fuel, kerosene is treated as though it were 
diesel fuel for purposes of a qualified renewable diesel 
mixture. Like biodiesel, the incentive may be taken as an 
income tax credit, an excise tax credit, or as a payment from 
the Secretary.\292\ The incentive for renewable diesel is $1.00 
per gallon. There is no small producer credit for renewable 
diesel. The incentives for renewable diesel expired after 
December 31, 2014.
---------------------------------------------------------------------------
    \292\Secs. 40A(f), 6426(c), and 6427(e).
---------------------------------------------------------------------------

Excise tax treatment of biodiesel

    Section 4081(a)(1) imposes tax on certain removals, 
entries, and sales of taxable fuel. Section 4083 defines 
taxable fuel as diesel fuel, gasoline, and kerosene. The Code 
imposes tax on gasoline, diesel fuel, and kerosene upon removal 
from a refinery or on importation, unless the fuel is 
transferred in bulk by registered pipeline or barge to a 
registered terminal facility.\293\ Treasury regulations define 
diesel fuel as any liquid that, without further processing or 
blending, is suitable for use as a fuel in a diesel-powered 
highway vehicle or diesel-powered train, however diesel fuel 
does not include ``excluded liquid.''\294\ The definition of 
excluded liquid includes any liquid that contains less than 
four percent normal paraffins. Biodiesel, although suitable for 
use as a fuel in a diesel-powered highway vehicle or diesel-
powered train, contains less than four percent normal paraffins 
and, therefore, is excluded liquid for purposes of the 
definition of diesel fuel.
---------------------------------------------------------------------------
    \293\Sec. 4081(a)(1).
    \294\Treas. Reg. section 48.4081-1(c)(2)(i) and 48.4081-
1(c)(2)(ii).
---------------------------------------------------------------------------
    Section 4081(b)(1) imposes tax on taxable fuel removed or 
sold by the blender thereof. Section 4082 provides exemptions 
from this tax. Blended taxable fuel generally means any taxable 
fuel that is produced outside the bulk transfer/terminal system 
by mixing taxable fuel with respect to which tax has been 
imposed under section 4081(a) and any other liquid on which tax 
has not been imposed under section 4081. If biodiesel is used 
in the production of blended taxable fuel, tax is imposed by 
section 4081(b)(1) on the removal or sale of the blended 
taxable fuel.
    Section 4041(a)(1) imposes tax on any liquid other than 
gasoline sold for use or used as a fuel in a diesel-powered 
highway vehicle or diesel-powered train unless tax was imposed 
on the liquid by section 4081 and not credited or refunded. If 
biodiesel is sold for use or used as a fuel in a diesel-powered 
highway vehicle or a diesel-powered train, tax is imposed by 
section 4041(a)(1).

                           REASONS FOR CHANGE

    The Committee believes it is important to encourage the 
creation of American jobs by encouraging the domestic 
production of biodiesel fuel. The Committee believes that 
changing the credit to a producer credit and having that same 
person be responsible for the excise tax on the fuel will 
improve tax administration and compliance.

                        EXPLANATION OF PROVISION

Extension of present law and special rule for claim submission for 2015

    The provision extends the present law income tax credit, 
excise tax credit and payment provisions for biodiesel and 
renewable diesel through December 31, 2015. As it relates to 
fuel sold or used in 2015, the provision creates a special rule 
to address claims regarding excise credits and claims for 
payment associated with periods occurring during 2015. In 
particular the provision directs the Secretary to issue 
guidance within 30 days of the date of enactment. Such guidance 
is to provide for a one-time submission of claims covering 
periods occurring during 2015. The guidance is to provide for a 
180-day period for the submission of such claims (in such 
manner as prescribed by the Secretary) to begin no later than 
30 days after such guidance is issued.\295\ Such claims shall 
be paid by the Secretary of the Treasury not later than 60 days 
after receipt. If the claim is not paid within 60 days of the 
date of the filing, the claim shall be paid with interest from 
such date determined by using the overpayment rate and method 
under section 6621 of the Code.
---------------------------------------------------------------------------
    \295\This guidance is provided by Notice 2015-3, 2015-6 I.R.B 583.
---------------------------------------------------------------------------

Conversion of incentives to a producer incentive for 2016

    The provision coverts the incentives for biodiesel and 
renewable diesel into an incentive for producers of such fuel 
in the United States. Under the provision, a limited class of 
blenders of biodiesel and diesel fuel (those who blended at 
least 10 million gallons of biodiesel in the previous year) 
would be treated as producers. The general delivery mechanism 
and coordination of the incentives (income tax credit, excise 
tax credit and payment) remain.
            Income tax credit
    For eligible taxpayers, the provision provides an a credit 
of $1 per gallon of biodiesel (1) sold by the producer of the 
biodiesel (A) to another person for use by such other person's 
trade or business as a fuel or in the production of a biodiesel 
mixture (other than casual off-farm production); or (B) to 
another person who sells such biodiesel at retail to another 
person and places such biodiesel in the fuel tank of such other 
person; or (2) used by the producer of such biodiesel for any 
of the purposes previously described.
    There is an additional 10 cents per gallon for eligible 
small producers for the first 15 million gallons of biodiesel 
produced during the taxable year. The small producer credit is 
not available for producers of renewable diesel.
    An ``eligible taxpayer'' with respect to any gallon of 
biodiesel is the producer of such gallon if such producer has 
paid the tax imposed by section 4081 on such biodiesel 
(discussed below). An eligible discretionary blender is any 
person registered with the IRS as a blender of qualified 
biodiesel mixtures and has used 10 million gallons or more of 
biodiesel in the production of qualified biodiesel mixtures in 
the preceding taxable year. For this purpose an eligible 
discretionary blender is treated as producing a gallon of 
biodiesel in the taxable year in which the sale or use of the 
qualified biodiesel mixture occurs. A ``qualified biodiesel 
mixture `` is a mixture of biodiesel and diesel fuel 
(determined without regard to any use of kerosene) which is 
sold by the eligible discretionary blender producing such 
mixture to any person for use as a fuel, or is used as a fuel 
by the eligible discretionary blender. All sales or uses will 
only be taken into account if in the trade or business of the 
taxpayer.
    An ``eligible discretionary blender'' will be treated as 
the producer of a gallon of biodiesel for purposes of claiming 
the credit if the producer of such biodiesel (determined 
without regard to eligible discretionary blender rule) did not 
pay the tax imposed by section 4081 with respect to such 
gallon, and assigns the credit to the discretionary blender (in 
such form and manner as provided by the Secretary) and the 
eligible discretionary blender pays the tax imposed under 
section 4081 with respect to such gallon. Eligible 
discretionary blenders are required to register with the IRS as 
such.
            Excise tax credits and payments
    The provisions affords a $1-per-gallon excise tax credit to 
producers of biodiesel to be used against section 4081 
liability under rules similar to the income tax credit, except 
there is no additional 10 cents per gallon for small producers. 
The excise tax credit may be taken as a payment to the extent 
it exceeds tax liability.

Treatment of biodiesel as a taxable fuel

    The provision treats biodiesel as a taxable fuel. For this 
purpose, facilities used to produce biodiesel and biodiesel 
blending facilities are treated as refineries for purposes of 
the imposition of tax. A biodiesel blending facility is any 
facility operated by an eligible discretionary blender. Thus, 
the removal of biodiesel from a biodiesel production or 
blending facility will be subject to a tax of 24.4 cents per 
gallon. An exception is provided for transfers from such 
facilities to registered terminals. For biodiesel, the bulk 
transfer between registered facilities does not have to be by 
registered pipeline or barge. However, the transfer of 
biodiesel to an unregistered person (other than as part of the 
direct bulk transfer of the biodiesel to a registered facility) 
will result in the imposition of tax on the biodiesel. The same 
exemptions for nontaxable use are applicable to biodiesel (e.g. 
if indelibly dyed and other requirements are met).

                             EFFECTIVE DATE

    The extension of present law is effective for fuel sold or 
used after December 31, 2014. The conversion of the incentives 
into producer-level credits and payments, and the treatment of 
biodiesel as a taxable fuel, is effective for fuel sold or used 
after December 31, 2015.

  6. Extension of credit for the production of Indian coal facilities 
placed in service before 2009 (sec. 156 of the bill and sec. 45 of the 
                                 Code)


                              PRESENT LAW

    A credit is available for the production of Indian coal 
sold to an unrelated third party from a qualified facility for 
a nine-year period beginning January 1, 2006, and ending 
December 31, 2014. The amount of the credit is $2.00 per ton 
(adjusted for inflation; $2.317 for 2014). A qualified Indian 
coal facility is a facility placed in service before January 1, 
2009, that produces coal from reserves that on June 14, 2005, 
were owned by a Federally recognized tribe of Indians or were 
held in trust by the United States for a tribe or its members.
    The credit is a component of the general business 
credit,\296\ allowing excess credits to be carried back one 
year and forward up to 20 years. The credit is not permitted 
against the alternative minimum tax.
---------------------------------------------------------------------------
    \296\Sec. 38(b)(8).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that supporting the development of 
energy resources on Indian lands encourages both national 
energy independence and economic growth in traditionally 
disadvantaged areas. For this reason the Committee believes the 
credit for Indian coal should be extended.

                        EXPLANATION OF PROVISION

    The provision extends the credit for the production of 
Indian coal for two years (through December 31, 2016).

                             EFFECTIVE DATE

    The provision is effective for Indian coal produced after 
December 31, 2014.

  7. Extension of credits with respect to facilities producing energy 
 from certain renewable resources (sec. 157 of the bill and sec. 45 of 
                               the Code)


                              PRESENT LAW

Renewable electricity production credit

    An income tax credit is allowed for the production of 
electricity from qualified energy resources at qualified 
facilities (the ``renewable electricity production 
credit'').\297\ Qualified energy resources comprise wind, 
closed-loop biomass, open-loop biomass, geothermal energy, 
solar energy, small irrigation power, municipal solid waste, 
qualified hydropower production, and marine and hydrokinetic 
renewable energy. Qualified facilities are, generally, 
facilities that generate electricity using qualified energy 
resources. To be eligible for the credit, electricity produced 
from qualified energy resources at qualified facilities must be 
sold by the taxpayer to an unrelated person.
---------------------------------------------------------------------------
    \297\Sec. 45. In addition to the renewable electricity production 
credit, section 45 also provides income tax credits for the production 
of Indian coal and refined coal at qualified facilities.

    Summary of Credit for Electricity Produced from Certain Renewable
                                Resources
------------------------------------------------------------------------
 Eligible electricity     Credit amount for
  production activity     2015\1\ (cents per         Expiration\2\
       (sec. 45)            kilowatt-hour)
------------------------------------------------------------------------
Wind                                     2.3   December 31, 2014
Closed-loop biomass                      2.3   December 31, 2014
Open-loop biomass                        1.2   December 31, 2014
 (including
 agricultural
 livestock waste
 nutrient facilities)
Geothermal                               2.3   December 31, 2014
Small irrigation power                   1.2   December 31, 2014
Municipal solid waste                    1.2   December 31, 2014
 (including landfill
 gas facilities and
 trash combustion
 facilities)
Qualified hydropower                     1.2   December 31, 2014
Marine and                               1.1   December 31, 2014
 hydrokinetic
------------------------------------------------------------------------
\1\In general, the credit is available for electricity produced during
  the first 10 years after a facility has been placed in service.
\2\Expires for property the construction of which begins after this
  date.

Election to claim energy credit in lieu of renewable electricity 
        production credit

    A taxpayer may make an irrevocable election to have certain 
property which is part of a qualified renewable electricity 
production facility be treated as energy property eligible for 
a 30 percent investment credit under section 48. For this 
purpose, qualified facilities are facilities otherwise eligible 
for the renewable electricity production credit with respect to 
which no credit under section 45 has been allowed. A taxpayer 
electing to treat a facility as energy property may not claim 
the renewable electricity production credit. The eligible basis 
for the investment credit for taxpayers making this election is 
the basis of the depreciable (or amortizable) property that is 
part of a facility capable of generating electricity eligible 
for the renewable electricity production credit.

                           REASONS FOR CHANGE

    The Committee believes that additional incentives for the 
production of electricity from renewable resources will help 
limit the environmental consequences of continued reliance on 
power generated using fossil fuels.

                        EXPLANATION OF PROVISION

    The provision extends for two years the renewable 
electricity production credit and the election to claim the 
energy credit in lieu of the electricity production credit, 
through December 31, 2016.

                             EFFECTIVE DATE

    The provision is effective for facilities the construction 
of which begins after December 31, 2014.

8. Extension of credit for energy-efficient new homes (sec. 158 of the 
                     bill and sec. 45L of the Code)


                              PRESENT LAW

    Present law provides a credit to an eligible contractor for 
each qualified new energy-efficient home that is constructed by 
the eligible contractor and acquired by a person from such 
eligible contractor for use as a residence during the taxable 
year. To qualify as a new energy-efficient home, the home must 
be: (1) a dwelling located in the United States, (2) 
substantially completed after August 8, 2005, and (3) certified 
in accordance with guidance prescribed by the Secretary to have 
a projected level of annual heating and cooling energy 
consumption that meets the standards for either a 30-percent or 
50-percent reduction in energy usage, compared to a comparable 
dwelling constructed in accordance with the standards of 
chapter 4 of the 2006 International Energy Conservation Code as 
in effect (including supplements) on January 1, 2006, and any 
applicable Federal minimum efficiency standards for equipment. 
With respect to homes that meet the 30-percent standard, one-
third of such 30-percent savings must come from the building 
envelope, and with respect to homes that meet the 50-percent 
standard, one-fifth of such 50-percent savings must come from 
the building envelope.
    Manufactured homes that conform to Federal manufactured 
home construction and safety standards are eligible for the 
credit provided all the criteria for the credit are met. The 
eligible contractor is the person who constructed the home, or 
in the case of a manufactured home, the producer of such home.
    The credit equals $1,000 in the case of a new home that 
meets the 30-percent standard and $2,000 in the case of a new 
home that meets the 50-percent standard. Only manufactured 
homes are eligible for the $1,000 credit.
    In lieu of meeting the standards of chapter 4 of the 2006 
International Energy Conservation Code, manufactured homes 
certified by a method prescribed by the Administrator of the 
Environmental Protection Agency under the Energy Star Labeled 
Homes program are eligible for the $1,000 credit provided 
criteria (1) and (2), above, are met.
    The credit applies to homes that are purchased prior to 
January 1, 2015. The credit is part of the general business 
credit.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use for 
heating and cooling represents a large share of national energy 
consumption, and accordingly believes that measures to reduce 
heating and cooling energy requirements have the potential to 
substantially reduce national energy consumption. The Committee 
further recognizes that the most cost-effective time to achieve 
home energy efficiency is when the home is under construction. 
Accordingly, the Committee believes that a two year extension 
of the energy efficient new homes credit is a cost effective 
incentive to reduce national energy consumption.

                        EXPLANATION OF PROVISION

    The provision extends the credit to homes that are acquired 
prior to January 1, 2017.

                             EFFECTIVE DATE

    The provision is effective for homes acquired after 
December 31, 2014.

 9. Extension of special allowance for second generation biofuel plant 
      property (sec. 159 of the bill and sec. 168(l) of the Code)


                              PRESENT LAW

    Present law\298\ allows an additional first-year 
depreciation deduction equal to 50 percent of the adjusted 
basis of qualified second generation biofuel plant property. In 
order to qualify, the property generally must be placed in 
service before January 1, 2015.\299\
---------------------------------------------------------------------------
    \298\Sec. 168(l).
    \299\Sec. 168(l)(2)(D).
---------------------------------------------------------------------------
    Qualified second generation biofuel plant property means 
depreciable property used in the U.S. solely to produce any 
liquid fuel that (1) is derived from qualified feedstocks, and 
(2) meets the registration requirements for fuels and fuel 
additives established by the Environmental Protection Agency 
(``EPA'') under section 211 of the Clean Air Act.\300\ 
Qualified feedstocks means any lignocellulosic or 
hemicellulosic matter that is available on a renewable or 
recurring basis\301\ and any cultivated algae, cyanobacteria, 
or lemna.\302\ Second generation biofuel does not include any 
alcohol with a proof of less than 150 or certain unprocessed 
fuel.\303\ Unprocessed fuels are fuels that (1) are more than 
four percent (determined by weight) water and sediment in any 
combination, (2) have an ash content of more than one percent 
(determined by weight), or (3) have an acid number greater than 
25.\304\
---------------------------------------------------------------------------
    \300\Secs. 168(l)(2)(A) and 40(b)(6)(E).
    \301\For example, lignocellulosic or hemicellulosic matter that is 
available on a renewable or recurring basis includes bagasse (from 
sugar cane), corn stalks, and switchgrass.
    \302\Sec. 40(b)(6)(F).
    \303\Sec. 40(b)(6)(E)(ii) and (iii).
    \304\Sec. 40(b)(6)(E)(iii).
---------------------------------------------------------------------------
    The additional first-year depreciation deduction is allowed 
for both regular tax and alternative minimum tax purposes for 
the taxable year in which the property is placed in 
service.\305\ The additional first-year depreciation deduction 
is subject to the general rules regarding whether an item is 
subject to capitalization under section 263A. The basis of the 
property and the depreciation allowances in the year of 
purchase and later years are appropriately adjusted to reflect 
the additional first-year depreciation deduction.\306\ In 
addition, there is no adjustment to the allowable amount of 
depreciation for purposes of computing a taxpayer's alternative 
minimum taxable income with respect to property to which the 
provision applies.\307\ A taxpayer is allowed to elect out of 
the additional first-year depreciation for any class of 
property for any taxable year.\308\
---------------------------------------------------------------------------
    \305\Sec. 168(l)(5).
    \306\Sec. 168(l)(1)(B).
    \307\Sec. 168(l)(5) and (k)(2)(G).
    \308\Sec. 168(l)(3)(D).
---------------------------------------------------------------------------
    In order for property to qualify for the additional first-
year depreciation deduction, it must meet the following 
requirements: (1) the original use of the property must 
commence with the taxpayer; and (2) the property must be (i) 
acquired by purchase (as defined under section 179(d)) by the 
taxpayer, and (ii) placed in service before January 1, 
2015.\309\ Property that is manufactured, constructed, or 
produced by the taxpayer for use by the taxpayer qualifies if 
the taxpayer begins the manufacture, construction, or 
production of the property before January 1, 2015 (and all 
other requirements are met).\310\ Property that is 
manufactured, constructed, or produced for the taxpayer by 
another person under a contract that is entered into prior to 
the manufacture, construction, or production of the property is 
considered to be manufactured, constructed, or produced by the 
taxpayer.
---------------------------------------------------------------------------
    \309\Sec. 168(l)(2). Requirements relating to actions taken before 
2007 are not described herein since they have little (if any) remaining 
effect.
    \310\Sec. 168(l)(4) and (k)(2)(E).
---------------------------------------------------------------------------
    Property any portion of which is financed with the proceeds 
of a tax-exempt obligation under section 103 is not eligible 
for the additional first-year depreciation deduction.\311\ 
Recapture rules apply if the property ceases to be qualified 
second generation biofuel plant property.\312\
---------------------------------------------------------------------------
    \311\Sec. 168(l)(3)(C).
    \312\Sec. 168(l)(6).
---------------------------------------------------------------------------
    Property with respect to which the taxpayer has elected 50 
percent expensing under section 179C is not eligible for the 
additional first-year depreciation deduction.\313\
---------------------------------------------------------------------------
    \313\Sec. 168(l)(7).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee acknowledges that encouraging the 
manufacturing of biofuels (including algae-based fuels) in the 
United States is important for fostering innovative new 
technology, encouraging energy independence, supporting the 
commercial production of these fuels, and creating 
manufacturing jobs in the United States. The Committee also 
believes that this provision helps to spur new investment in 
the production of chemicals using biomass as a feedstock, 
thereby reducing the use of petroleum in chemical production.

                        EXPLANATION OF PROVISION

    The provision extends the present law special depreciation 
allowance for two years, to qualified second generation biofuel 
plant property placed in service prior to January 1, 2017.

                             EFFECTIVE DATE

    The provision applies to property placed in service after 
December 31, 2014.

10. Extension and modification of energy efficient commercial buildings 
       deduction (sec. 160 of the bill and sec. 179D of the Code)


                              PRESENT LAW

In general

    Code section 179D provides an election under which a 
taxpayer may take an immediate deduction equal to energy-
efficient commercial building property expenditures made by the 
taxpayer. Energy-efficient commercial building property is 
defined as property (1) which is installed on or in any 
building located in the United States that is within the scope 
of Standard 90.1-2001 of the American Society of Heating, 
Refrigerating, and Air Conditioning Engineers and the 
Illuminating Engineering Society of North America (``ASHRAE/
IESNA''), (2) which is installed as part of (i) the interior 
lighting systems, (ii) the heating, cooling, ventilation, and 
hot water systems, or (iii) the building envelope, and (3) 
which is certified as being installed as part of a plan 
designed to reduce the total annual energy and power costs with 
respect to the interior lighting systems, heating, cooling, 
ventilation, and hot water systems of the building by 50 
percent or more in comparison to a reference building which 
meets the minimum requirements of Standard 90.1-2001 (as in 
effect on April 2, 2003). The deduction is limited to an amount 
equal to $1.80 per square foot of the property for which such 
expenditures are made. The deduction is allowed in the year in 
which the property is placed in service.
    Certain certification requirements must be met in order to 
qualify for the deduction. The Secretary, in consultation with 
the Secretary of Energy, will promulgate regulations that 
describe methods of calculating and verifying energy and power 
costs using qualified computer software based on the provisions 
of the 2005 California Nonresidential Alternative Calculation 
Method Approval Manual or, in the case of residential property, 
the 2005 California Residential Alternative Calculation Method 
Approval Manual.
    The Secretary is granted authority to prescribe procedures 
for the inspection and testing for compliance of buildings that 
are comparable, given the difference between commercial and 
residential buildings, to the requirements in the Mortgage 
Industry National Accreditation Procedures for Home Energy 
Rating Systems.\314\ Individuals qualified to determine 
compliance shall only be those recognized by one or more 
organizations certified by the Secretary for such purposes.
---------------------------------------------------------------------------
    \314\See IRS Notice 2006-52, 2006-1 C.B. 1175, June 2, 2006; IRS 
2008-40, 2008-14 I.R.B. 725 March 11, 2008.
---------------------------------------------------------------------------
    For energy-efficient commercial building property 
expenditures made by a public entity, such as public schools, 
the deduction may be allocated to the person primarily 
responsible for designing the property in lieu of the public 
entity.
    If a deduction is allowed under this section, the basis of 
the property is reduced by the amount of the deduction.
    The deduction is effective for property placed in service 
prior to January 1, 2015.

Partial allowance of deduction

            System-specific deductions
    In the case of a building that does not meet the overall 
building requirement of 50-percent energy savings, a partial 
deduction is allowed with respect to each separate building 
system that comprises energy efficient property and which is 
certified by a qualified professional as meeting or exceeding 
the applicable system-specific savings targets established by 
the Secretary. The applicable system-specific savings targets 
to be established by the Secretary are those that would result 
in a total annual energy savings with respect to the whole 
building of 50 percent, if each of the separate systems met the 
system specific target. The separate building systems are (1) 
the interior lighting system, (2) the heating, cooling, 
ventilation and hot water systems, and (3) the building 
envelope. The maximum allowable deduction is $0.60 per square 
foot for each separate system.
            Interim rules for lighting systems
    In general, in the case of system-specific partial 
deductions, no deduction is allowed until the Secretary 
establishes system-specific targets.\315\ However, in the case 
of lighting system retrofits, until such time as the Secretary 
issues final regulations, the system-specific energy savings 
target for the lighting system is deemed to be met by a 
reduction in lighting power density of 40 percent (50 percent 
in the case of a warehouse) of the minimum requirements in 
Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-
2001. Also, in the case of a lighting system that reduces 
lighting power density by 25 percent, a partial deduction of 30 
cents per square foot is allowed. A pro-rated partial deduction 
is allowed in the case of a lighting system that reduces 
lighting power density between 25 percent and 40 percent. 
Certain lighting level and lighting control requirements must 
also be met in order to qualify for the partial lighting 
deductions under the interim rule.
---------------------------------------------------------------------------
    \315\IRS Notice 2008-40, Supra, set a target of a 10-percent 
reduction in total energy and power costs with respect to the building 
envelope, and 20 percent each with respect to the interior lighting 
system and the heating, cooling, ventilation and hot water systems. IRS 
Notice 2012-26 (2012-17 I.R.B. 847 April 23, 2012) established new 
targets of 10-percent reduction in total energy and power costs with 
respect to the building envelope, 25 percent with respect to the 
interior lighting system and 15 percent with respect to the heating, 
cooling, ventilation and hot water systems, effective beginning March 
12, 2012. The targets from Notice 2008-40 may be used until December 
31, 2013, but the targets of Notice 2012-26 apply thereafter.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that commercial buildings consume 
a significant amount of energy resources and that reductions in 
commercial energy use have the potential to significantly 
reduce national energy consumption. The Committee believes that 
a two year extension of this provision will continue to 
encourage construction of buildings that are significantly more 
energy efficient than the norm, thereby contributing to 
decreased energy consumption. For the purpose of achieving 
parity with other government entities, the Committee believes 
that tribal governments should be allowed to allocate the 
deduction to the person primarily responsible for designing the 
property, in the same manner as is currently allowed for other 
public property. In order to extend the reach of this provision 
and further reduce energy consumption, the Committee also 
believes that it is appropriate to allow non-profits (as 
defined in section 501(c)(3)) to allocate the deduction in this 
manner. Finally, given that nine years have passed since the 
adoption of the energy efficient commercial building deduction, 
the Committee believes it is necessary to update the efficiency 
standards that must be met in order to qualify for the 
deduction.

                        EXPLANATION OF PROVISION

    The provision extends the deduction for two years, through 
December 31, 2016. Additionally, the provision permits tribal 
governments and non-profits (as defined in section 501(c)(3)) 
to allocate the deduction to the person primarily responsible 
for designing the property, in the same manner as is allowed 
for public property. Finally, the provision increases the 
efficiency standards for property placed in service after 
December 31, 2015, such that qualifying buildings are 
determined relative to the ASHRAE/IESNA 90.1-2007 standards.

                             EFFECTIVE DATE

    The provision applies to property placed in service after 
December 31, 2014.

 11. Extension of special rule for sales or dispositions to implement 
  FERC or State electric restructuring policy for qualified electric 
      utilities (sec. 161 of the bill and sec. 451(i) of the Code)


                              PRESENT LAW

    A taxpayer selling property generally realizes gain to the 
extent the sales price (and any other consideration received) 
exceeds the taxpayer's basis in the property.\316\ The realized 
gain is subject to current income tax\317\ unless the 
recognition of the gain is deferred or excluded from income 
under a special tax provision.\318\
---------------------------------------------------------------------------
    \316\See sec. 1001.
    \317\See secs. 61 and 451.
    \318\See, e.g., secs. 453, 1031 and 1033.
---------------------------------------------------------------------------
    One such special tax provision permits taxpayers to elect 
to recognize gain from qualifying electric transmission 
transactions ratably over an eight-year period beginning in the 
year of sale if the amount realized from such sale is used to 
purchase exempt utility property within the applicable 
period\319\ (the ``reinvestment property'').\320\ If the amount 
realized exceeds the amount used to purchase reinvestment 
property, any realized gain is recognized to the extent of such 
excess in the year of the qualifying electric transmission 
transaction.
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    \319\The applicable period for a taxpayer to reinvest the proceeds 
is four years after the close of the taxable year in which the 
qualifying electric transmission transaction occurs.
    \320\Sec. 451(i).
---------------------------------------------------------------------------
    A qualifying electric transmission transaction is the sale 
or other disposition of property used by a qualified electric 
utility to an independent transmission company prior to January 
1, 2015.\321\ A qualified electric utility is defined as an 
electric utility, which as of the date of the qualifying 
electric transmission transaction, is vertically integrated in 
that it is both (1) a transmitting utility (as defined in the 
Federal Power Act\322\) with respect to the transmission 
facilities to which the election applies, and (2) an electric 
utility (as defined in the Federal Power Act\323\).\324\
---------------------------------------------------------------------------
    \321\Sec. 451(i)(3).
    \322\Sec. 3(23), 16 U.S.C. sec. 796, defines ``transmitting 
utility'' as any electric utility, qualifying cogeneration facility, 
qualifying small power production facility, or Federal power marketing 
agency that owns or operates electric power transmission facilities 
that are used for the sale of electric energy at wholesale.
    \323\Sec. 3(22), 16 U.S.C. sec. 796, defines ``electric utility'' 
as any person or State agency (including any municipality) that sells 
electric energy; such term includes the Tennessee Valley Authority, but 
does not include any Federal power marketing agency.
    \324\Sec. 451(i)(6).
---------------------------------------------------------------------------
    In general, an independent transmission company is defined 
as: (1) an independent transmission provider\325\ approved by 
the Federal Energy Regulatory Commission (``FERC''); (2) a 
person (i) who the FERC determines under section 203 of the 
Federal Power Act\326\ (or by declaratory order) is not a 
``market participant'' and (ii) whose transmission facilities 
are placed under the operational control of a FERC-approved 
independent transmission provider no later than four years 
after the close of the taxable year in which the transaction 
occurs; or (3) in the case of facilities subject to the 
jurisdiction of the Public Utility Commission of Texas, (i) a 
person which is approved by that Commission as consistent with 
Texas State law regarding an independent transmission 
organization, or (ii) a political subdivision, or affiliate 
thereof, whose transmission facilities are under the 
operational control of an organization described in (i).\327\
---------------------------------------------------------------------------
    \325\For example, a regional transmission organization, an 
independent system operator, or an independent transmission company.
    \326\16 U.S.C. sec. 824b.
    \327\Sec. 451(i)(4).
---------------------------------------------------------------------------
    Exempt utility property is defined as: (1) property used in 
the trade or business of (i) generating, transmitting, 
distributing, or selling electricity or (ii) producing, 
transmitting, distributing, or selling natural gas; or (2) 
stock in a controlled corporation whose principal trade or 
business consists of the activities described in (1).\328\ 
Exempt utility property does not include any property that is 
located outside of the United States.\329\
---------------------------------------------------------------------------
    \328\Sec. 451(i)(5).
    \329\Sec. 451(i)(5)(C).
---------------------------------------------------------------------------
    If a taxpayer is a member of an affiliated group of 
corporations filing a consolidated return, the reinvestment 
property may be purchased by any member of the affiliated group 
(in lieu of the taxpayer).\330\
---------------------------------------------------------------------------
    \330\Sec. 451(i)(7).
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                           REASONS FOR CHANGE

    The Committee believes that the ``unbundling'' of electric 
transmission assets held by vertically integrated utilities, 
with the transmission assets ultimately placed under the 
ownership or control of independent transmission providers (or 
other similarly-approved operators), continues to be an 
important policy. To continue facilitating the implementation 
of this policy, the Committee believes it is appropriate to 
continue to assist taxpayers in moving forward with industry 
restructuring by continuing to provide a tax deferral for gain 
associated with certain dispositions of electric transmission 
assets. The Committee believes this provision will encourage 
the sale of transmission property from electric utilities to 
independent transmission companies to improve transmission 
management and facilitate competitive transmission markets.

                        EXPLANATION OF PROVISION

    The provision extends for two years the treatment under the 
present-law deferral provision to sales or dispositions by a 
qualified electric utility that occur prior to January 1, 2017.

                             EFFECTIVE DATE

    The provision applies to dispositions after December 31, 
2014.

12. Extension of excise tax credits and payment provisions relating to 
 alternative fuel (sec. 162 of the bill and secs. 6426 and 6427 of the 
                                 Code)


                              PRESENT LAW

Fuel excise taxes

    Fuel excise taxes are imposed on taxable fuel (gasoline, 
diesel fuel or kerosene) under section 4081. In general, these 
fuels are taxed when removed from a refinery, terminal rack, 
upon entry into the United States, or upon sale to an 
unregistered person. A back-up tax under section 4041 is 
imposed on previously untaxed fuel and alternative fuel used or 
sold for use as fuel in a motor vehicle or motorboat to the 
supply tank of a highway vehicle. In general, the rates of tax 
are 18.3 cents per gallon (or in the case of compressed natural 
gas 18.3 cents per gasoline gallon equivalent), and in the case 
of liquefied natural gas, and liquid fuel derived from coal or 
biomass, 24.3 cents per gallon.

Alternative fuel and alternative fuel mixture credits and payments

    The Code provides two per-gallon excise tax credits with 
respect to alternative fuel: the alternative fuel credit, and 
the alternative fuel mixture credit. For this purpose, the term 
``alternative fuel'' means liquefied petroleum gas, P Series 
fuels (as defined by the Secretary of Energy under 42 U.S.C. 
sec. 13211(2)), compressed or liquefied natural gas, liquefied 
hydrogen, liquid fuel derived from coal through the Fischer-
Tropsch process (``coal-to-liquids''), compressed or liquefied 
gas derived from biomass, or liquid fuel derived from biomass. 
Such term does not include ethanol, methanol, or biodiesel.
    For coal-to-liquids produced after December 30, 2009, the 
fuel must be certified as having been derived from coal 
produced at a gasification facility that separates and 
sequesters 75 percent of such facility's total carbon dioxide 
emissions.
    The alternative fuel credit is allowed against section 4041 
liability, and the alternative fuel mixture credit is allowed 
against section 4081 liability. Neither credit is allowed 
unless the taxpayer is registered with the Secretary. The 
alternative fuel credit is 50 cents per gallon of alternative 
fuel or gasoline gallon equivalents\331\ of nonliquid 
alternative fuel sold by the taxpayer for use as a motor fuel 
in a motor vehicle or motorboat, sold for use in aviation or so 
used by the taxpayer.
---------------------------------------------------------------------------
    \331\``Gasoline gallon equivalent'' means, with respect to any 
nonliquid alternative fuel (for example, compressed natural gas), the 
amount of such fuel having a Btu (British thermal unit) content of 
124,800 (higher heating value).
---------------------------------------------------------------------------
    The alternative fuel mixture credit is 50 cents per gallon 
of alternative fuel used in producing an alternative fuel 
mixture for sale or use in a trade or business of the taxpayer. 
An ``alternative fuel mixture'' is a mixture of alternative 
fuel and taxable fuel (gasoline, diesel fuel or kerosene) that 
contains at least 1/10 of one percent taxable fuel. The mixture 
must be sold by the taxpayer producing such mixture to any 
person for use as a fuel, or used by the taxpayer producing the 
mixture as a fuel. The credits expired after December 31, 2014.
    A person may file a claim for payment equal to the amount 
of the alternative fuel credit (but not the alternative fuel 
mixture credit). The alternative fuel credit must first be 
applied to the applicable excise tax liability under section 
4041 or 4081, and any excess credit may be taken as a payment. 
These payment provisions generally also expire after December 
31, 2014.
    For purposes of the alternative fuel credit, alternative 
fuel mixture credit and related payment provisions, 
``alternative fuel'' does not include fuel (including lignin, 
wood residues, or spent pulping liquors) derived from the 
production of paper or pulp.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
incentives for alternative fuel to provide certainty to the 
industry and allow for business planning.

                        EXPLANATION OF PROVISION

In general

    The provision extends the alternative fuel credit and 
related payment provisions, and the alternative fuel mixture 
credit through December 31, 2016.
    In light of the retroactive nature of the provision, as it 
relates to alternative fuel sold or used in 2015, the provision 
creates a special rule to address claims regarding excise 
credits and claims for payment associated with periods 
occurring during 2015. In particular the provision directs the 
Secretary to issue guidance within 30 days of the date of 
enactment. Such guidance is to provide for a one-time 
submission of claims covering periods occurring during 2015. 
The guidance is to provide for a 180-day period for the 
submission of such claims (in such manner as prescribed by the 
Secretary) to begin no later than 30 days after such guidance 
is issued.\332\ Such claims shall be paid by the Secretary of 
the Treasury not later than 60 days after receipt. If the claim 
is not paid within 60 days of the date of the filing, the claim 
shall be paid with interest from such date determined by using 
the overpayment rate and method under section 6621 of such 
Code.
---------------------------------------------------------------------------
    \332\This guidance is provided by Notice 2015-3, 2015-6 I.R.B. 583.
---------------------------------------------------------------------------

Liquefied petroleum gas and liquefied natural gas

    Under section 303 of the bill, the alternative fuel excise 
tax credits and outlay payment provisions related to liquefied 
natural gas and liquefied petroleum gas also are converted to 
the same energy equivalent basis used for the purpose of the 
tax. For LNG, the credit is 50 cents per energy equivalent of 
diesel fuel (approximately 29 cents per gallon of LNG) and for 
liquefied petroleum gas the credit is 50 cents per energy 
equivalent of gasoline (approximately 36 cents per gallon).

                             EFFECTIVE DATE

    The provision is generally effective for fuel sold or used 
after December 31, 2014.

                TITLE II--PROVISION THAT EXPIRED IN 2013


 A. Extension of Credit for Electric Motorcycles (sec. 201 of the bill 
                       and sec. 30D of the Code)


                              PRESENT LAW

    For vehicles acquired before 2014, a 10-percent credit was 
available for qualifying plug-in electric motorcycles and 
three-wheeled vehicles.\333\ Qualifying two- or three-wheeled 
vehicles needed to have a battery capacity of at least 2.5 
kilowatt-hours, be manufactured primarily for use on public 
streets, roads, and highways, and be capable of achieving 
speeds of at least 45 miles per hours. The maximum credit for 
any qualifying vehicle was $2,500.
---------------------------------------------------------------------------
    \333\Sec. 30D(g).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that further investments in advanced 
technology vehicles are necessary to transform automotive 
transportation in the United States to be cleaner, more fuel 
efficient, and less reliant on petroleum fuels. For this 
reason, the Committee believes the credit for electric 
motorcycles should be extended.

                        EXPLANATION OF PROVISION

    The provision reauthorizes the credit for electric 
motorcycles acquired in 2015 and 2016 (but not 2014). The 
credit for electric three-wheeled vehicles is not extended.

                             EFFECTIVE DATE

    The provision is effective for vehicles acquired after 
December 31, 2014.

                 TITLE III--REVENUE RAISING PROVISIONS

    1. Exclusion from gross income of certain clean coal power 
grants to non-corporate taxpayers (sec. 301 of the bill)

                              PRESENT LAW

    Section 402 of the Energy Policy Act of 2005 provides 
criteria for Federal financial assistance under the Clean Coal 
Power Initiative. To the extent this financial assistance comes 
in the form of a grant, award, or allowance, it must generally 
be included in income under section 61 of the Internal Revenue 
Code (the ``Code'').
    Corporate taxpayers may be eligible to exclude such 
financial assistance from gross income as a contribution of 
capital under section 118 of the Code. The basis of any 
property acquired by reason of such a contribution of capital 
must be reduced by the amount of the contribution. This 
exclusion is not available to non-corporate taxpayers.

                           REASONS FOR CHANGE

    The Committee believes that Federal financial assistance 
under the Clean Coal Power Initiative should be excludable from 
the income of investors in order to make such assistance as 
effective as possible in encouraging clean coal power. In 
addition, the Committee believes that a corresponding basis 
reduction is necessary in all cases to prevent any unintended 
double benefit under the incentive.

                        EXPLANATION OF PROVISION

    With respect to eligible non-corporate recipients, the 
provision excludes from gross income and alternative minimum 
taxable income any grant, award, or allowance made pursuant to 
section 402 of the Energy Policy Act of 2005. The provision 
requires that, to the extent the grant, award or allowance is 
related to depreciable property, the adjusted basis is reduced 
by the amount excluded from income under the provision. The 
provision requires eligible non-corporate recipients to pay an 
upfront payment to the Federal government equal to 1.18-percent 
of the value of the grant, award, or allowance.
    Under the provision, eligible non-corporate recipients are 
defined as (1) any recipient (other than a corporation) of any 
grant, award, or allowance made pursuant to Section 402 of the 
Energy Policy Act of 2005 that (2) makes the upfront 1.18-
percent payment, where (3) the grant, award, or allowance would 
have been excludable from income by reason of Code section 118 
if the taxpayer had been a corporation. In the case of a 
partnership, the eligible non-corporate recipients are the 
partners.

                             EFFECTIVE DATE

    The provision is effective for payments received in taxable 
years beginning after December 31, 2011.

  2. Treatment of certain persons as employers with respect to motion 
 picture projects (sec. 302 of the bill and new sec. 3512 of the Code)


                              PRESENT LAW

FICA and FUTA taxes

    The Federal Insurance Contributions Act (``FICA'') imposes 
tax on employers and employees based on the amount of wages (as 
defined for FICA purposes) paid to an employee during the 
year.\334\ The tax imposed on the employer and on the employee 
is each composed of two parts: (1) the Social Security or old 
age, survivors, and disability insurance (``OASDI'') tax equal 
to 6.2 percent of covered wages up to the OASDI wage base 
($118,500 for 2015); and (2) the Medicare or hospital insurance 
(``HI'') tax equal to 1.45 percent of all covered wages.\335\ 
The employee portion of the FICA tax generally must be withheld 
and remitted to the Federal government by the employer.
---------------------------------------------------------------------------
    \334\Secs. 3101-3128.
    \335\For taxable years beginning after 2012, the employee portion 
of the HI tax under FICA (not the employer portion) is increased by an 
additional tax of 0.9 percent on wages received in excess of a 
threshold amount. The threshold amount is $250,000 in the case of a 
joint return, $125,000 in the case of a married individual filing a 
separate return, and $200,000 in any other case.
---------------------------------------------------------------------------
    The Federal Unemployment Tax Act (``FUTA'') imposes a tax 
on employers of six percent of wages up to the FUTA wage base 
of $7,000.\336\ An employer may take a credit against its FUTA 
tax liability for its contributions to a State unemployment 
fund and, in certain cases, an additional credit for 
contributions that would have been required if the employer had 
been subject to a higher contribution rate under State law. For 
purposes of the credit, the term ``contributions'' means 
payments required by State law to be made by an employer into 
an unemployment fund, to the extent the payments are made by 
the employer without being deducted or deductible from 
employees' remuneration.
---------------------------------------------------------------------------
    \336\Secs. 3301-3311. FICA taxes, FUTA taxes, taxes under the 
Railroad Retirement Tax Act or ``RRTA'' (secs. 3201-3241) and income 
tax withholding (secs. 3401-3404) are commonly referred to collectively 
as employment taxes. Sections 3501-3511 provide additional employment 
tax rules.
---------------------------------------------------------------------------

Responsibility for employment tax compliance

    FICA and FUTA tax responsibility generally rests with the 
person who is the employer of an employee under a common-law 
test that has been incorporated into Treasury regulations.\337\ 
Under the regulations, an employer-employee relationship 
generally exists if the person for whom services are performed 
has the right to control and direct the individual who performs 
the services, not only as to the result to be accomplished by 
the work, but also as to the details and means by which that 
result is accomplished. That is, an employee is subject to the 
will and control of the employer, not only as to what is to be 
done, but also as to how it is to be done. It is not necessary 
that the employer actually control the manner in which the 
services are performed, rather it is sufficient that the 
employer have a right to control. Whether the requisite control 
exists is determined on the basis of all the relevant facts and 
circumstances. The test of whether an employer-employee 
relationship exists often arises in determining whether a 
worker is an employee or an independent contractor. However, 
the same test applies in determining whether a worker is an 
employee of one person or another.
---------------------------------------------------------------------------
    \337\Treas. Reg. secs. 31.3121(d)-1(c)(1) and 31.3306(i)-1(a).
---------------------------------------------------------------------------
    In some cases, a person other than the common-law employer 
(a ``third party'') may be liable for employment taxes. In 
particular, if wages are paid to an employee by a third party 
and the third party, rather than the employer, has control of 
the payment of the wages, the third party is the ``statutory'' 
employer responsible for complying with applicable employment 
tax requirements.\338\
---------------------------------------------------------------------------
    \338\Sec. 3401(d)(1) (for purposes of income tax withholding, if 
the employer does not have control of the payment of wages, the person 
having control of the payment of such wages is treated as the 
employer); Otte v. United States, 419 U.S. 43 (1974) (the person who 
has the control of the payment of wages is treated as the employer for 
purposes of withholding the employee's share of FICA taxes from wages); 
In re Armadillo Corporation, 561 F.2d 1382 (10th Cir. 1977), and In re 
The Laub Baking Company v. United States, 642 F.2d 196 (6th Cir. 1981) 
(the person who has control of the payment of wages is the employer for 
purposes of the employer's share of FICA taxes and FUTA tax). The mere 
fact that wages are paid by a person other than the employer does not 
necessarily mean that the payor has control of the payment of the 
wages. Rather, control depends on the facts and circumstances. See, for 
example, Consolidated Flooring Services v. United States, 38 Fed. Cl. 
450 (1997), and Winstead v. United States, 109 F. 2d 989 (4th Cir. 
1997).
---------------------------------------------------------------------------
    As indicated above, remuneration with respect to employment 
with a particular employer for a year is excepted from OASDI or 
FUTA taxes to the extent it exceeds the applicable OASDI or 
FUTA wage base.\339\ In contrast, if an employee works for 
multiple employers during a year, a separate wage base 
generally applies in determining the employer share of OASDI 
tax and FUTA tax with respect to remuneration for employment 
with each employer, even if the wages earned with all the 
employers are paid by the same third party.\340\
---------------------------------------------------------------------------
    \339\An employee is subject to OASDI tax only with respect to 
remuneration up to the applicable wage base for a year, regardless of 
whether the employee works for only one employer or for more than one 
employer during the year. If, as a result of working for more than one 
employer, OASDI tax is withheld with respect to remuneration above the 
applicable wage base, the employee is allowed a credit under section 
31(b).
    \340\Cencast Services, L.P. v. United States, 729 F.3d 1352 (Fed. 
Cir. 2013).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    In the motion picture industry, payroll and various other 
administrative services are commonly handled by a company that 
specializes in such services (referred to as a motion picture 
payroll service company or ``MPPSC''), rather than by the 
entity created for each motion picture project. In many cases, 
even if an employee works on various motion picture projects 
over the course of a year, all of the employee's wages are paid 
by the same MPPSC. Although not a common law employer, an MPPSC 
generally has control of the payment of employee wages and is 
thus the statutory employer responsible for employment tax 
compliance. The Committee believes that the use of MPPSCs 
furthers employment tax compliance and considers it appropriate 
to treat an MPPSC as the employer for purposes of applying the 
OASDI and FUTA wage bases.

                        EXPLANATION OF PROVISION

    Under the provision, for purposes of the OASDI and FUTA 
wage bases, remuneration paid by a ``motion picture project 
employer'' during a calendar year to a ``motion picture project 
worker'' is treated as remuneration paid with respect to 
employment of the motion picture project worker by the motion 
picture project employer. As a result, all remuneration paid by 
the motion picture project employer to a motion picture project 
worker during a calendar year is subject to a single OASDI wage 
base and a single FUTA wage base, without regard to the 
worker's status as a common law employee of multiple clients of 
the motion picture project employer during the year.
    A person must meet several criteria to be treated as a 
motion picture project employer. The person (directly or 
through an affiliate\341\) must (1) be a party to a written 
contract covering the services of motion picture project 
workers with respect to motion picture projects\342\ in the 
course of the trade or business of a client of the motion 
picture project employer, (2) be contractually obligated to pay 
remuneration to the motion picture project workers without 
regard to payment or reimbursement by any other person, (3) 
control the payment (within the meaning of the Code) of 
remuneration to the motion picture project workers and pay the 
remuneration from its own account or accounts, (4) be a 
signatory to one or more collective bargaining agreements with 
a labor organization that represents motion picture project 
workers, and (5) have treated substantially all motion picture 
project workers whom the person pays as employees (and not as 
independent contractors) during the calendar year for purposes 
of determining FICA, FUTA and other employment taxes. In 
addition, at least 80 percent of all FICA remuneration paid by 
the person in the calendar year must be paid to motion picture 
project workers.
---------------------------------------------------------------------------
    \341\For purposes of the proposal, ``affiliate'' and ``affiliated'' 
status are based on the aggregation rules applicable for retirement 
plan purposes under section 414(b) and (c).
    \342\For purposes of the provision, a motion picture project 
generally means a project for the production of a motion picture film 
or video tape as described in section 168(f)(3).
---------------------------------------------------------------------------
    A motion picture project worker means any individual who 
provides services on motion picture projects for clients of a 
motion picture project employer that are not affiliated with 
the motion picture project employer.

                             EFFECTIVE DATE

    The provision applies to remuneration paid after December 
31, 2015.

3. Equalization of Excise Tax and Credits for Liquefied Natural Gas and 
  Liquefied Petroleum Gas (sec. 303 of the bill and sec. 4041 of the 
                               Code)\343\

---------------------------------------------------------------------------
    \343\After the provision was considered by the Committee, a 
significant portion of the provision, as it relates to the changes in 
the section 4041 tax, was included in H.R. 3236, the ``Surface 
Transportation and Veterans Health Care Choice Improvement Act of 
2015,'' which was passed by the House of Representatives on July 29, 
2015, and the Senate on July 30, 2015, and signed into law on July 31, 
2015.
---------------------------------------------------------------------------

                              PRESENT LAW

Excise Taxes

    The Code imposes an excise tax on gasoline, diesel fuel, 
kerosene, and certain alternative fuels at the following 
rates:\344\
---------------------------------------------------------------------------
    \344\These fuels are subject to an additional 0.1-cent-per-gallon 
excise tax to fund the Leaking Underground Storage Tank (``LUST'') 
Trust Fund (secs. 4041(d) and 4081(a)(2)(B)). That tax is imposed as an 
``add-on'' to other existing taxes.

 
 
 
Gasoline                           18.3 cents per gallon
Diesel fuel and kerosene           24.3 cents per gallon\345\
Alternative fuels                  24.3 and 18.3 cents per gallon\346\
 

    The Code imposes tax on gasoline, diesel fuel, and kerosene 
upon removal from a refinery or on importation, unless the fuel 
is transferred in bulk by registered pipeline or barge to a 
registered terminal facility.\347\ The imposition of tax on 
alternative fuels generally occurs at retail when the fuel is 
sold to an owner, lessee or other operator of a motor vehicle 
or motorboat for use as a fuel in such motor vehicle or 
motorboat.
---------------------------------------------------------------------------
    \345\Diesel-water emulsions are taxed at 19.7 cents per gallon 
(sec. 4081(a)(2)(D)).
    \346\The rate of tax is 24.3 cents per gallon in the case of 
liquefied natural gas, any liquid fuel (other than ethanol or methanol) 
derived from coal, and liquid hydrocarbons derived from biomass. Other 
alternative fuels sold or used as motor fuel are generally taxed at 
18.3 cents per gallon. ``Alternative fuel'' also includes compressed 
natural gas. The rate for compressed natural gas is 18.3 cents per 
energy equivalent of a gallon of gasoline. See sec. 4041(a)(2) and (3).
    \347\Sec. 4081(a)(1).
---------------------------------------------------------------------------
    Liquefied natural gas (``LNG'') and liquefied petroleum gas 
(also known as propane) are classified as alternative fuels. 
LNG is taxed at the same per gallon rate as diesel, 24.3 cents 
per gallon. According to the Oak Ridge National Laboratory, 
diesel fuel has an energy content of 128,700 Btu per gallon 
(lower heating value) and LNG has an energy content of 74,700 
Btu per gallon (lower heating value). Therefore, a gallon of 
LNG produces approximately 58 percent of the energy produced by 
a gallon of diesel fuel.
    Liquefied petroleum gas is taxed at the same per gallon 
rate as gasoline, 18.3 cents per gallon. According to the Oak 
Ridge National Laboratory, gasoline has an energy content of 
115,400 Btu per gallon (lower heating value), and liquefied 
petroleum gas has an energy content of 83,500 Btu per gallon 
(lower heating value). Therefore, a gallon of liquefied 
petroleum gas produces approximately 72 percent of the energy 
produced by a gallon of gasoline.

Alternative fuel credits and outlay payments

    The Code provides two per-gallon excise tax credits with 
respect to alternative fuel: the alternative fuel credit, and 
the alternative fuel mixture credit. For this purpose, the term 
``alternative fuel'' means liquefied petroleum gas, P Series 
fuels (as defined by the Secretary of Energy under 42 U.S.C. 
sec. 13211(2)), compressed or liquefied natural gas, liquefied 
hydrogen, liquid fuel derived from coal through the Fischer-
Tropsch process (``coal-to-liquids''), compressed or liquefied 
gas derived from biomass, or liquid fuel derived from biomass.
    The alternative fuel credit is allowed against section 4041 
liability, and the alternative fuel mixture credit is allowed 
against section 4081 liability. Neither credit is allowed 
unless the taxpayer is registered with the Secretary. The 
alternative fuel credit is 50 cents per gallon of alternative 
fuel or gasoline gallon equivalents\348\ of nonliquid 
alternative fuel sold by the taxpayer for use as a motor fuel 
in a motor vehicle or motorboat, sold for use in aviation or so 
used by the taxpayer.
---------------------------------------------------------------------------
    \348\``Gasoline gallon equivalent'' means, with respect to any 
nonliquid alternative fuel (for example, compressed natural gas), the 
amount of such fuel having a Btu (British thermal unit) content of 
124,800 (higher heating value).
---------------------------------------------------------------------------
    The alternative fuel mixture credit is 50 cents per gallon 
of alternative fuel used in producing an alternative fuel 
mixture for sale or use in a trade or business of the taxpayer. 
An ``alternative fuel mixture'' is a mixture of alternative 
fuel and taxable fuel (gasoline, diesel fuel or kerosene) that 
contains at least 1/10 of one percent taxable fuel. The mixture 
must be sold by the taxpayer producing such mixture to any 
person for use as a fuel, or used by the taxpayer producing the 
mixture as a fuel.
    A person may file a claim for payment equal to the amount 
of the alternative fuel credit (but not the alternative fuel 
mixture credit). The alternative fuel credit must first be 
applied to the applicable excise tax liability under section 
4041 or 4081, and any excess credit may be taken as a payment.

                           REASONS FOR CHANGE

    LNG is a transportation fuel source used for large trucks 
and some marine and rail vessels. Currently, the excise tax 
rate for both LNG and diesel fuel is set at 24.3 cents per 
gallon. However, LNG produces less energy per gallon than 
diesel fuel. It takes approximately 1.7 gallons of LNG to equal 
the energy in one gallon of diesel fuel, resulting in LNG being 
taxed at approximately 170 percent of the rate of diesel fuel 
on an energy equivalent basis. The current tax system can 
result in thousands of dollars of additional cost for companies 
choosing to utilize LNG. Similarly, liquefied petroleum gas and 
gasoline are both taxed at 18.3 cents per gallon. However, a 
gallon of liquefied petroleum gas has only 72 percent of the 
energy content of a gallon of gasoline but is taxed at 138 
percent of the rate of gasoline on an energy equivalent basis. 
Therefore, the Committee believes it is appropriate to lower 
the tax rate of both liquefied petroleum gas and LNG, basing 
the tax rate on the energy content of those fuels as compared 
with gasoline and diesel, respectively.

                        EXPLANATION OF PROVISION

Excise taxes

    The provision changes the tax rate of LNG to a rate based 
on its energy equivalent of a gallon of diesel (approximately 
14.1 cents per gallon) and changes the tax rate of liquefied 
petroleum gas to a rate based on its energy equivalent of a 
gallon of gasoline (approximately 13.2 cents per gallon).
    Specifically, the provision provides that liquefied 
petroleum gas is taxed at 18.3 cents per energy equivalent of a 
gallon of gasoline. For this purpose, ``energy equivalent of a 
gallon of gasoline'' means, with respect to liquefied petroleum 
gas, the amount of such fuel having a Btu content of 115,400 
(lower heating value). LNG is taxed at 24.3 cents per energy 
equivalent of a gallon of diesel fuel. For this purpose, 
``energy equivalent of a gallon of diesel'' means, with respect 
to a liquefied natural gas fuel, the amount of such fuel having 
a Btu content of 128,700 (lower heating value).

Excise tax credit and outlay payments

    The alternative fuel excise tax credits and outlay payment 
provisions related to liquefied natural gas and liquefied 
petroleum gas also are converted to the same energy equivalent 
basis used for the purpose of the tax. For LNG, the credit is 
50 cents per energy equivalent of diesel fuel (approximately 29 
cents per gallon of LNG) and for liquefied petroleum gas the 
credit is 50 cents per energy equivalent of gasoline 
(approximately 36 cents per gallon).

                             EFFECTIVE DATE

    The provision is effective for fuel sold or used after 
December 31, 2014.

  4. Additional information on returns relating to mortgage interest 
         (sec. 304 of the bill and sec. 6050H of the Code)\349\

---------------------------------------------------------------------------
    \349\A similar provision was included in H.R.3236, Surface 
Transportation and Veterans Health Care Choice Improvement Act of 2015, 
which was passed by the House of Representatives on July 29, 2015 and 
the Senate on July 30, 2015, and signed into law on July 31, 2015.
---------------------------------------------------------------------------

                              PRESENT LAW

    Any person who, in the course of a trade or business during 
a calendar year, received from an individual $600 or more of 
interest during a calendar year on an obligation secured by 
real property (such as mortgage interest) must file an 
information return with the IRS and must provide a copy of that 
return to the payor.\350\ The information return generally must 
include the name, address, and taxpayer identification number 
of the individual from whom the interest was received, and the 
amount of the interest and points received for the calendar 
year.
---------------------------------------------------------------------------
    \350\Sec. 6050H.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the reporting of certain 
additional information with respect to a debt secured by real 
property will help to further improve taxpayer compliance in 
this area.\351\ The Committee also believes that the expansion 
of these information reporting requirements does not impose a 
substantial tax compliance burden on mortgage servicers and 
their vendors.
---------------------------------------------------------------------------
    \351\Government Accountability Office, Report to the Joint 
Committee on Taxation, Home Mortgage Interest Deduction: Despite 
Challenges Presented by Complex Tax Rules, IRS Could Enhance 
Enforcement and Guidance, (GAO-09-769), July 29, 2009 (report found 
that expanding information reporting on taxpayers' mortgages to include 
property addresses, debt balances, and an indicator of loan refinancing 
would allow the IRS to identify taxpayers reporting mortgage interest 
exceeding the acquisition debt limit).
---------------------------------------------------------------------------

                        EXPLANATION OF PROVISION

    Under the provision, the following additional information 
is required to be included in information returns filed with 
the IRS and statements furnished to the payor with respect to a 
debt secured by real property: (i) the amount of outstanding 
principal on the mortgage as of the beginning of the calendar 
year, (ii) the address of the property securing the mortgage, 
and (iii) the loan origination date.

                             EFFECTIVE DATE

    The provision applies to returns and statements due after 
December 31, 2016.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates


                     1. Budgetary revenue estimate

    In compliance with paragraph 11(a) of Rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of S. ___, a bill to amend the Internal Revenue Code 
of 1986 to extend certain expired tax provisions, as reported.


                        2. Macroeconomic effects

    Pursuant to the Concurrent Resolution on the Budget for 
Fiscal Year 2016, section 3112, the staff of the Joint 
Committee on Taxation (``Joint Committee staff'') has estimated 
the budgetary effects of changes in economic output, 
employment, and capital stock resulting from the ``Tax Relief 
Extension Act of 2015.'' The estimate of the macroeconomic 
revenue feedback effects of this legislation and the following 
supplementary analysis were produced using the Joint Committee 
staff's Macroeconomic Equilibrium Growth model to simulate the 
macroeconomic effects of the bill.
            Overview
    The following discussion analyzes the macroeconomic effects 
of the bill. This analysis is presented relative to the 2015 
economic and receipts baseline (``present law''), published by 
the Congressional Budget Office (``CBO'') in January, 
2015.\352\
---------------------------------------------------------------------------
    \352\Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2015-2025, January 26, 2015.
---------------------------------------------------------------------------
    The bill provides for the temporary extension of a number 
of provisions in the Internal Revenue Code that provide 
favorable tax treatment for certain activities of businesses 
and individuals. The provisions in the bill affecting taxation 
of personal income are relatively small and projected to have 
little effect on incentives to supply labor to the economy. The 
provisions affecting businesses, especially the extension of 50 
percent expensing, are expected to have a more significant, 
although temporary, impact on the after-tax cost of capital. 
Thus, the primary effect of the bill on the economy is expected 
to be an initial increase in the stock of business capital of 
about 0.3 percent in the first half of the budget period, 
resulting in an increase in production, output, and receipts by 
about 0.1 percent during that period. After the expiration of 
these provisions, the growth of capital is expected to decrease 
gradually, reversing these effects. These changes in investment 
are projected to be mirrored by small changes in hours worked 
and wages. The gradual decline in investment in the later 
period is primarily caused by the loss of the tax incentives, 
and partially by the effects of the increase in the deficit on 
costs of private sector borrowing. Because the size of these 
effects depends on how strongly investors respond to the 
incentives, and to a lesser extent for this proposal, on the 
actions of the Federal Reserve Board, the exact magnitude of 
these effects is subject to some uncertainty.
            Fiscal Years 2016-2025
    The growth generated by the increase in capital stock at 
the beginning of the budget period is projected to increase 
revenues relative to present law by about $17.2 billion over 
the 2016-2025 budget period. By the end of this period, as the 
capital stock returns to pre-policy levels, this revenue 
feedback effect is diminished. At the same time, a small 
increase in interest rates generated by the increase in Federal 
debt is expected to increase the cost of Federal debt service 
by about $6.8 billion over the budget window. Because the bill 
is projected to have a negligible effect on employment and 
consumption, it is projected to have a negligible effect on 
other outlays. Overall, the budgetary effects of changes in 
economic growth are projected to reduce the deficit by $10.4 
billion during the budget window. Details of the estimate 
appear on Table 1, below.
            Second and Third Decade Effects
    In the second and third decade after enactment, because the 
bill is expected to result in an increase in Federal debt, it 
is expected to make private borrowing more expensive, thus 
slightly lowering the capital stock relative to present law and 
reducing economic growth and associated revenues relative to 
present law. The expected increase in debt generated by the 
proposal is quite small relative to the overall size of the 
economy; therefore the long run effect is expected to be small.
            Data, models, and assumptions used in the analysis
    The Joint Committee staff analyzed the proposal using the 
staff's Macroeconomic Equilibrium Growth Model (``MEG'').\353\ 
While the model is based on economic data from the National 
Income and Product Accounts, taxable income is adjusted to 
reflect taxable income as measured by reporting on tax returns. 
The MEG model is based on the standard, neoclassical assumption 
that the amount of output is determined by the availability of 
labor and capital, and in the long run demand for labor and 
capital equals the amount supplied by households. Individuals 
are assumed to make decisions based on observed characteristics 
of the economy, including wages, prices, interest rates, tax 
rates, and government spending levels. Individuals in the MEG 
model do not anticipate future changes in the economy or 
government finances; thus, this type of model is often referred 
to as a ``myopic'' behavior model.
---------------------------------------------------------------------------
    \353\A detailed description of the MEG model and its behavioral 
parameters may be found in: Joint Committee on Taxation, Macroeconomic 
Analysis of Various Proposals to Provide $500 Billion in Tax Relief, 
(JCX-4-05), March 1, 2005, and Joint Committee on Taxation, Overview of 
the Work of the Staff of the Joint Committee on Taxation to Model the 
Macroeconomic Effects of Proposed Tax Legislation to Comply with House 
Rule XIII.3(h)(2), (JCX-105-03), December 22, 2003.
---------------------------------------------------------------------------
    Monetary policy conducted by the Federal Reserve Board is 
explicitly modeled, with lagged price adjustments allowing for 
the economy to be temporarily out of equilibrium in response to 
fiscal and monetary policy changes. Under an ``Aggressive Fed'' 
policy, it is assumed that the Federal Reserve Board would work 
to counteract any demand incentives resulting from fiscal 
policy. ``Neutral Fed'' simulations assume that the Federal 
Reserve Board targets a fixed monetary growth rate, and does 
not try to counteract fiscal policy. The policy is only in 
effect during 2015 and 2016, a period in which the Federal 
Reserve Board is not expected to counteract expansionary fiscal 
policy; thus the macroeconomic revenue effects provided in the 
estimate were generated using the ``Neutral Fed'' simulation.
    Labor supply decisions are modeled separately for four 
groups: low income primary earners, low income secondary 
earners, other primary earners, and other secondary earners. 
Firms make investment decisions based on an expected after-tax 
rate of return. The simulation used for this estimate includes 
the high substitution elasticity parameters for labor supply.
    Information about the effects of the proposal on individual 
and business average and effective marginal tax rates, and on 
after-tax returns to capital and labor is obtained from various 
Joint Committee staff tax models\354\ (used in the production 
of conventional revenue estimates) to characterize the effects 
of the bill within the MEG model. Changes in deductions, 
credits and exclusions can impact effective marginal tax rates 
as well as average tax rates. The table below provides a 
summary of key behavioral parameters in the MEG model.
---------------------------------------------------------------------------
    \354\Descriptions of the Joint Committee staff conventional 
estimating models may be found in JCX-46-11, Testimony of the Staff of 
the Joint Committee on Taxation before the House Committee on Ways and 
Means Regarding Economic Modeling, September 21, 2011, JCX-75-15, 
Estimating Changes in the Federal Individual Income tax: Description of 
the Individual Tax Model, April 24, 2015, and other documents at 
www.jct.gov under ``Estimating Methodology.''

               KEY PARAMETER ASSUMPTIONS IN THE MEG MODEL
------------------------------------------------------------------------
                                                High            Low
 Labor supply elasticities in     Income     Elasticity      Elasticity
  disaggregated labor supply                Substitution    Substitution
------------------------------------------------------------------------
Low income primary............       -0.1           0.2             0.15
Other primary.................       -0.1           0.1             0.1
Low income secondary..........       -0.3           0.8             0.4
Other secondary...............       -0.2           0.6             0.3
Wage-weighted population             -0.1           0.2             0.1
 average with baseline rates..
------------------------------------------------------------------------
                     Savings/consumption parameters
------------------------------------------------------------------------
Rate of time preference.......                      0.015
Intertemporal elasticity of                         0.35
 substitution.................
Derived long-run savings                            0.25
 elasticity to the after tax
 rate of return on capital....
------------------------------------------------------------------------

                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that the revenue-reducing provision of the 
bill involves increased tax expenditures (see revenue table in 
Part A, above).

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office will be provided separately.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 4, 2015.
Hon. Orrin G. Hatch,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Tax Relief 
Extension Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Pamela 
Greene.
            Sincerely,
                                         Robert A. Sunshine
                                                  (For Keith Hall).
    Enclosure.

Tax Relief Extension Act of 2015

    Summary: The Tax Relief Extension Act of 2015 would 
reinstate and extend certain expired tax provisions through 
December 31, 2016; almost all of the provisions expired on 
December 31, 2014, and those provisions would be retroactively 
reinstated, extended, and in a few cases amended. The bill also 
would make a few additional changes to tax law.
    Because of the magnitude of its budgetary effects, this 
bill is ``major legislation,'' as defined in section 3112 of S. 
Con. Res. 11, the Concurrent Resolution on the Budget for 
Fiscal Year 2016. Hence, the cost estimate prepared by CBO and 
the staff of the Joint Committee on Taxation (JCT) incorporates 
the federal budgetary effects of changes in economic output and 
other macroeconomic variables that would result from enacting 
the legislation.
    Specifically, JCT estimates that enacting the bill would 
increase deficits by about $87 billion over the 2015-2025 
period. That estimate includes two components. First, excluding 
macroeconomic feedback effects, JCT estimates that the bill 
would increase deficits by about $97 billion over the 2015-2025 
period. In addition, the macroeconomic feedback would reduce 
deficits by about $10 billion over that period, JCT 
estimates.\1\ Most of the effects on deficits would result from 
changes in revenues.
---------------------------------------------------------------------------
    \1\For more details, see Joint Committee on Taxation, A Report to 
the Congressional Budget Office of the Macroeconomic Effects of the 
``Tax Relief Extension Act of 2015,'' as Ordered to be Reported by the 
Senate Committee on Finance (JCX-107-15), August 4, 2015.
---------------------------------------------------------------------------
    Enacting the legislation would affect direct spending and 
revenues; therefore, pay-as-you-go procedures apply.
    JCT has determined that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA).
    Estimated cost to the Federal Government: The estimated 
budgetary impacts of the bill are shown in Table 1.

                      TABLE 1. SUMMARY OF ESTIMATED EFFECTS ON DIRECT SPENDING AND REVENUES OF THE TAX RELIEF EXTENSION ACT OF 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  By fiscal year, in billions of dollars--
                                                  ------------------------------------------------------------------------------------------------------
                                                     2016    2017    2018    2019    2020    2021    2022    2023    2024    2025   2015-2020  2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    ESTIMATED CHANGES WITHOUT MACROECONOMIC FEEDBACK
 
Effects on Outlays...............................        *       *       0       0       0       0       0       0       0       0         *          *
Effects on Revenues..............................     -153     -17      34      21      14       7       1       *      -2      -2      -100        -97
Effects on the Deficit\a\........................      154      17     -34     -21     -14      -7      -1       *       2       2       101         97
 
                                                  ESTIMATED BUDGETARY IMPACT OF MACROECONOMIC FEEDBACK
 
Effects on Outlays...............................        2       1       1       1       1       *       *       *       *       *         6          7
Effects on Revenues..............................        2       2       2       2       2       2       2       2       1       1        10         17
Effects on the Deficit\a\........................        *      -1      -1      -1      -1      -1      -1      -1      -1      -1        -4        -10
 
                                                TOTAL ESTIMATED CHANGES, INCLUDING MACROECONOMIC FEEDBACK
 
Effects on Outlays...............................        2       1       1       1       1       *       *       *       *       *         6          7
Effects on Revenues..............................     -152     -14      37      23      16       8       3       1      -1      -1       -91        -79
Effects on the Deficit\a\........................      154      16     -36     -22     -15      -8      -3      -1       1       1        97        87
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
Note: * = between -$0.5 billion and $0.5 billion.
\a\Positive numbers indicate increases in the deficit, and negative numbers indicate reductions in the deficit.

    Because the estimate of macroeconomic effects incorporates 
the impact of all of the bill's provisions taken together, the 
estimates of the bill's effects by type of provision do not 
reflect the macroeconomic feedback effects. Those estimates are 
shown in Table 2.

                            TABLE 2. ESTIMATE OF DIRECT SPENDING AND REVENUE EFFECTS OF THE TAX RELIEF EXTENSION ACT OF 2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             By fiscal year, in billions of dollars--
                                        ----------------------------------------------------------------------------------------------------------------
                                           2016      2017     2018     2019     2020     2021     2022     2023     2024     2025   2015-2020  2015-2025
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    ESTIMATED CHANGES WITHOUT MACROECONOMIC FEEDBACK
 
Changes in Revenues:
    Individual Tax Extensions..........      -9.8     -6.8     -0.3     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1     -0.1      -17.1     -17.6
    Business Tax Extensions............    -138.4     -8.3     35.1     21.9     15.2      8.1      2.9      1.1     -0.2     -0.1      -74.4     -62.6
    Energy Tax Extensions..............      -5.2     -1.4     -0.4     -0.9     -1.1     -1.3     -1.4     -1.5     -1.6     -1.7       -9.0     -16.6
    Other Provisions...................         *        *        *        *      0.1        *        *        *        *        *        0.1       0.2
        Total Revenues.................    -153.4    -16.6     34.4     21.1     14.1      6.7      1.4     -0.5     -1.9     -1.9     -100.5     -96.6
            On-budget..................    -153.4    -16.5     34.4     21.1     14.1      6.7      1.4     -0.5     -1.9     -1.9     -100.4     -96.5
            Off-budget.................      -0.1        *        0        0        0        0        0        0        0        0       -0.1      -0.1
Changes in Direct Spending:
    Rum Excise Tax Payments:
        Estimated Budget Authority.....       0.3        *        0        0        0        0        0        0        0        0        0.3       0.3
        Estimated Outlays..............       0.3        *        0        0        0        0        0        0        0        0        0.3       0.3
Net Increase or Decrease (-) in the
 Deficit from Changes in Direct
 Spending and Revenues Without
 Macroeconomic Feedback:
    Effects on Deficits................     153.7     16.6    -34.4    -21.1    -14.1     -6.7     -1.4      0.5      1.9      1.9      100.8      96.9
        On-budget......................     153.7     16.6    -34.4    -21.1    -14.1     -6.7     -1.4      0.5      1.9      1.9      100.7      96.9
        Off-budget.....................       0.1        *        0        0        0        0        0        0        0        0        0.1       0.1
 
                                                  ESTIMATED BUDGETARY IMPACT OF MACROECONOMIC FEEDBACK
 
Effects on Outlays.....................       1.8      1.4      1.0      0.7      0.6      0.4      0.3      0.2      0.1      0.1        5.6       6.8
Effects on Revenues....................       1.7      2.3      2.2      1.8      1.7      1.7      1.7      1.6      1.4      1.2        9.6      17.2
Effects on the Deficita................       0.1     -0.9     -1.2     -1.0     -1.1     -1.3     -1.4     -1.3     -1.2     -1.1       -4.1     -10.4
 
                                                TOTAL ESTIMATED CHANGES, INCLUDING MACROECONOMIC FEEDBACK
 
Effects on Outlays.....................       2.1      1.4      1.0      0.7      0.6      0.4      0.3      0.2      0.1      0.1        5.9       7.1
Effects on Revenues....................    -151.7    -14.3     36.6     22.8     15.7      8.4      3.2      1.1     -0.5     -0.7      -90.8     -79.4
Effects on the Deficita................     153.9     15.7    -35.6    -22.1    -15.2     -8.0     -2.8     -0.8      0.7      0.8       96.7     86.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
Notes: Details may not add to totals because of rounding; * = between -$50 million and $50 million.
aPositive numbers indicate increases in the deficit, and negative numbers indicate reductions in the deficit.

    Basis of Estimate: JCT provided the estimates of all 
provisions except one dealing with outlays of certain rum 
excise taxes. The estimates reflect an assumed enactment date 
of October 1, 2015.

Estimates Excluding Macroeconomic Feedback

    JCT and CBO estimate that the Tax Relief Extension Act of 
2015 would increase deficits by about $97 billion over the 
2015-2025 period, excluding the effects of macroeconomic 
feedback. The effects of the main provisions, excluding any 
macroeconomic feedback, are highlighted below.
    Extensions of Individual Tax Provisions. The individual 
income tax provisions would reduce revenues by $17.6 billion 
over the 2016-2025 period, JCT estimates. Those amounts 
include, among others, the effects of extending provisions that 
would allow:
       Individuals to claim state and local sales taxes 
as an itemized deduction in lieu of state and local income 
taxes in calculating their individual income tax liability; JCT 
estimates that enacting this provision would reduce revenues by 
a total of $6.7 billion over the 2016-2018 period.
       An exclusion from gross income for the discharge 
of indebtedness on a principal residence; JCT estimates that 
this provision would reduce revenues by $5.2 billion over 
fiscal years 2016 and 2017.
    Extensions of Business Tax Provisions. The business tax 
provisions would reduce revenues by $62.6 billion over the 
2016-2025 period, JCT estimates. In addition, CBO estimates 
that those provisions would increase outlays by $0.3 billion 
over the 2016-2025 period. Those amounts include, among others, 
the effects of provisions that would allow:
       Businesses to qualify for both additional first-
year depreciation of 50 percent of the basis for qualifying 
property and additional expensing (that is, immediate deduction 
from taxable income) for qualifying property under section 179 
of the Internal Revenue Code. JCT estimates that those 
provisions would reduce revenues by $113.2 billion in 2016, and 
increase revenues by $106.7 billion over the 2017-2025 period, 
with the net effect of reducing revenues by $6.5 billion over 
the 2016-2025 period.
       Businesses to claim the research tax credit, 
which JCT estimates would reduce revenues by $22.6 billion over 
the 2016-2025 period. The provision would extend the credit in 
effect in 2014 in modified form.
       Certain foreign subsidiaries that engage in 
banking, financial, and related businesses to defer taxation of 
certain income until it is repatriated to the U.S. parent 
corporation; JCT estimates that the provision would reduce 
revenues by $13.5 billion over fiscal years 2016 and 2017.
       The Treasuries of Puerto Rico and the Virgin 
Islands to receive increased payments relating to excise taxes 
on rum manufactured in those places as well as rum imported 
from other countries. CBO estimates that those payments, which 
are recorded in the budget as outlays, would total $336 million 
over the 2016-2025 period.
    Extensions of Energy Tax Provisions. The extension of the 
energy tax provisions would lower revenues by about $16.6 
billion over the 2016-2025 period, JCT estimates. The provision 
with the largest effect on revenues--reducing them by an 
estimated $10.5 billion over the 2017-2025 period--would 
extend, to the end of 2016, the date by which construction must 
begin in order for renewable power facilities to be eligible 
for the electricity production credit or the investment credit 
in lieu of the production credit.
    Other Provisions. JCT estimates that the three other 
provisions in the bill would increase revenues by $0.2 billion 
over the 2016-2025 period. The other provision with the largest 
effect would modify the tax credit for certain alternative 
fuels.

Macroeconomic Feedback Effects

    JCT has separately provided a description of the 
macroeconomic feedback effects of the bill (see Joint Committee 
on Taxation, JCX-107-15). CBO has incorporated those effects 
into the estimates shown here.
    JCT estimates that the bill would increase the capital 
stock at the beginning of the budget period, increasing 
revenues by about $17 billion over the 2016-2025 period. At the 
same time, a small increase in interest rates from higher 
federal debt would increase the cost of federal debt service by 
about $7 billion over the 2016-2025 period. The net effect of 
the macroeconomic feedback would be to reduce deficits by about 
$10 billion over the 10-year period.

Long-term impacts

    CBO and JCT estimate that enacting the legislation would 
not increase direct spending, revenues, or the deficit by at 
least $5 billion in any of the four consecutive 10-year periods 
beginning in 2026. That estimate includes macroeconomic 
feedback.
    In the second and third decade after enactment, because the 
bill is expected to result in an increase in federal debt, JCT 
expects it to make private borrowing more expensive, thus 
slightly lowering the capital stock relative to present law and 
reducing economic growth and associated revenues relative to 
present law. The expected increase in debt generated by the 
proposal is quite small relative to the overall size of the 
economy; therefore the long-run effect is expected to be small.
    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 revenues and outlays that are 
subject to those pay-as-you-go procedures are shown in the 
following table and include macroeconomic feedback. Only on-
budget changes to outlays or revenues are subject to pay-as-
you-go procedures.

                TABLE 3. CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR THE TAX RELIEF EXTENSION ACT OF 2015, AS ORDERED REPORTED BY THE SENATE COMMITTEE ON FINANCE ON JULY 21, 2015
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   By fiscal year, in millions of dollars 2015--
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
                                                     2015       2016        2017       2018       2019       2020       2021       2022       2023       2024       2025    2016-2020  2016-2025
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      NET INCREASE OR DECREASE (-) IN THE ON-BUDGET DEFICIT
 
Statutory Pay-As-You-Go Effects.................          0     155,494     17,191    -35,118    -22,105    -15,217     -8,044     -2,878       -911        540        602    100,245     89,552
Memorandum:
    Changes in Revenues.........................          0    -153,347    -15,773     36,137     22,854     15,783      8,485      3,214      1,149       -393       -542    -94,345    -82,430
    Changes in Outlays..........................          0       2,147      1,418      1,019        749        566        441        336        238        147         60      5,900     7,122
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office and staff of the Joint Committee on Taxation.

    Intergovernmental and private-sector impact: JCT has 
determined that the bill contains no intergovernmental or 
private sector mandates as defined in UMRA.
    Estimate prepared by: Federal revenues: Pamela Greene and 
staff of the Joint Committee on Taxation; Federal spending: 
Matthew Pickford; Macroeconomic feedback: Staff of the Joint 
Committee on Taxation.
    Estimate approved by: Mark Booth, Unit Chief, Revenue 
Estimating.

                       IV. VOTES OF THE COMMITTEE

    The Modification to the Chairman's Mark was deemed 
incorporated into the Mark.
    Amendment #2, Grassley/Cantwell/Thune #2: Biodiesel Tax 
Incentive Reform Act--approved by voice vote.
    Amendment #68, Stabenow/Heller/Menendez/Isakson/Brown/
Casey/Cardin #4, as modified: Refinement to the Mortgage 
Forgiveness Tax Relief Act to Provide More Certainty to 
Struggling Homeowners--approved by voice vote.
    Final Passage of an Original Bill to Extend Certain 
Expiring Tax Provisions--approved by roll call vote of 23 ayes, 
3 nays.
    Ayes: Hatch, Grassley, Crapo, Roberts, Cornyn (proxy), 
Thune (proxy), Burr, Isakson (proxy), Portman, Heller, Scott, 
Wyden, Schumer, Stabenow, Cantwell, Nelson (proxy), Menendez, 
Carper, Cardin, Brown (proxy), Bennet, Casey, Warner (proxy).
    Nays: Enzi, Toomey, Coats.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of Rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The bill includes provisions to extend present-law tax 
benefits, expand eligibility for other benefits, and creates 
new tax incentives. The bill also includes provisions providing 
for the inflation indexing of section 179 expensing, permitting 
a qualified small business to elect to apply some or all of its 
research credit as does not exceed $250,000 against its 
employer OASDI liability rather than against its income tax 
liability, and expanding information reporting with respect to 
mortgages.
    The bill includes various other provisions that are not 
expected to impose additional administrative requirements or 
regulatory burdens on individuals or businesses.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill contains one 
private sector mandate: additional information on returns 
relating to mortgage interest.\355\ The costs required to 
comply with the Federal private sector mandate generally are no 
greater than the aggregate estimated budget effects of the 
provision.
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    \355\A similar provision was included in H.R.3236, Surface 
Transportation and Veterans Health Care Choice Improvement Act of 2015, 
which was passed by the House of Representatives on July 29, 2015 and 
the Senate on July 30, 2015, and signed into law on July 31, 2015.
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    The Committee has determined that the bill does not impose 
a Federal intergovernmental mandate on State, local, or tribal 
governments.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'') 
requires the staff of the Joint Committee on Taxation (in 
consultation with the Internal Revenue Service (``IRS'') and 
the Treasury Department) to provide a tax complexity analysis. 
The complexity analysis is required for all legislation 
reported by the Senate Committee on Finance, the House 
Committee on Ways and Means, or any committee of conference if 
the legislation includes a provision that directly or 
indirectly amends the Internal Revenue Code and has widespread 
applicability to individuals or small businesses. For each such 
provision identified by the staff of the Joint Committee on 
Taxation, a summary description of the provision is provided 
along with an estimate of the number and type of affected 
taxpayers, and a discussion regarding the relevant complexity 
and administrative issues.
    Following the analysis of the staff of the Joint Committee 
on Taxation are the comments of the IRS and Treasury regarding 
each of the provisions included in the complexity analysis.

Extension of bonus depreciation

            Summary description of the provision
    The bill extends the 50-percent additional first-year 
depreciation deduction for two years, generally through 2016 
(through 2017 for certain longer-lived and transportation 
property).
    The bill provides that solely for purposes of determining 
the percentage of completion under section 460(b)(1)(A), the 
cost of qualified property with a MACRS recovery period of 7 
years or less which is placed in service before January 1, 2017 
(January 1, 2018, in the case of certain longer-lived and 
transportation property) is taken into account as a cost 
allocated to the contract as if bonus depreciation had not been 
enacted.
    The bill also extends the election to increase the AMT 
credit limitation in lieu of bonus depreciation for two years 
to property placed in service before January 1, 2017 (January 
1, 2018, in the case of certain longer-lived property and 
transportation property). A bonus depreciation amount, maximum 
amount, and maximum increase amount is computed separately with 
respect to property to which the extension of additional first-
year depreciation applies (``round 5 extension property'').
    Under the bill, a corporation that has an election in 
effect with respect to round 4 extension property to claim 
minimum tax credits in lieu of bonus depreciation is treated as 
having an election in effect for round 5 extension property, 
unless the corporation elects otherwise. The bill also allows a 
corporation that does not have an election in effect with 
respect to round 4 extension property to elect to claim minimum 
tax credits in lieu of bonus depreciation for round 5 extension 
property. A separate bonus depreciation amount, maximum amount, 
and maximum increase amount is computed and applied to round 5 
extension property.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of small business tax returns.
            Discussion
    The reporting requirements are unchanged by this provision. 
Capital assets purchased during the tax year will still need to 
be reported on Form 4562, Depreciation and Amortization 
(Including Information on Listed Property); however, the 
current year tax deduction associated with such assets will 
increase.

Extension and modification of increased expensing limitations and 
        treatment of certain real property as section 179 property

            Summary description of the provision
    The bill provides that the maximum amount a taxpayer may 
expense, for taxable years beginning in 2015 and 2016, is 
$500,000 of the cost of qualifying property placed in service 
for the taxable year. The $500,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$2,000,000. The $500,000 and $2,000,000 amounts are indexed for 
inflation for taxable years beginning after 2014.
    In addition, the bill extends, for taxable years beginning 
in 2015 and 2016, the treatment of off-the-shelf computer 
software as qualifying property. The bill also extends the 
treatment of qualified real property as eligible section 179 
property for taxable years beginning in 2015 and 2016, 
including the limitation on carryovers and the maximum amount 
available with respect to qualified real property of $250,000 
for each taxable year. For taxable years beginning in 2015 and 
2016, the bill continues to allow a taxpayer to revoke an 
election, or any specification contained therein, made under 
section 179 without the consent of the Commissioner.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of small business tax returns.
            Discussion
    While taxpayers purchasing section 179 property will still 
be required to complete and file Form 4562, Depreciation and 
Amortization (Including Information on Listed Property), 
significantly less detail is required to be included on such 
form. Accordingly, the compliance burden of many taxpayers will 
be reduced.

Additional information on returns relating to mortgage interest\356\
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    \356\A similar provision was included in H.R. 3236, Surface 
Transportation and Veterans Health Care Choice Improvement Act of 2015, 
which was passed by the House of Representatives on July 29, 2015 and 
the Senate on July 30, 2015, and signed into law on July 31, 2015.
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            Summary description of the provision
    The bill expands information reporting with respect to an 
obligation secured by real property by requiring the following 
additional information to be included in information returns 
filed with the IRS and provided to the payor: (i) the amount of 
outstanding principal on the mortgage as of the beginning of 
the calendar year, (ii) the address of the property securing 
the mortgage, and (iii) the loan origination date. The 
provision applies to returns and statements due after December 
31, 2016.
            Number of affected taxpayers
    It is estimated that the provision will affect over 10 
percent of individual tax returns.
            Discussion
    The additional information reporting requirements imposed 
on those who, in the course of a trade or business, receive 
from any individual mortgage interest of $600 or more in a 
calendar year will result in additional information being 
provided to mortgage payors. The additional information 
received is not expected to result in additional complexity for 
individuals who receive the additional information. The 
additional information may make it easier for individuals who 
are payors of mortgage interest to identify deductible amounts 
with respect to each loan and each property that is mortgaged. 
For example, the additional information can assist taxpayers to 
distinguish among home mortgage, home equity, and investment 
interest payments with respect to mortgaged properties. Thus, 
these additional information reporting requirements could have 
a simplification benefit for individuals, rather than causing 
them additional complexity.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of Rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

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