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115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-409
_______________________________________________________________________
TAX CUTS AND JOBS ACT
----------
R E P O R T
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ON
H.R. 1
together with
DISSENTING AND ADDITIONAL VIEWS
[Including cost estimate of the Congressional Budget Office]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
November 13, 2017.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
____________
U.S. GOVERNMENT PUBLISHING OFFICE
27-533 WASHINGTON: 2017
C O N T E N T S
----------
Page
I. SUMMARY AND BACKGROUND.........................................112
A. Purpose and Summary................................. 112
B. Background and Need for Legislation................. 112
C. Legislative History................................. 112
II. EXPLANATION OF THE BILL........................................115
TITLE I--TAX REFORM FOR INDIVIDUALS.............................. 115
A. Simplification and Reform of Rates, Standard
Deductions, and Exemptions......................... 115
1. Reduction and simplification of individual
income tax rates (secs. 1001 and 1005 of the
bill and sec. 1 of the Code)................... 115
2. Enhancement of standard deduction (sec. 1002 of
the bill and sec. 63 of the Code).............. 123
3. Repeal of deduction for personal exemptions
(sec. 1003 of the bill and secs. 151-153 of the
Code).......................................... 124
4. Maximum rate on business income of individuals
(sec. 1004 of the bill and new sec. 4 of the
Code).......................................... 126
B. Simplification and Reform of Family and Individual
Tax................................................ 135
1. Enhancement of child tax credit and new family
tax credit (sec. 1101 of the bill and sec. 24
of the Code)................................... 135
2. Repeal of credit for the elderly and permanently
disabled (sec. 1102(a) of the bill and sec. 22
of the Code)................................... 137
3. Termination of credit for interest on certain
home mortgages (sec. 1102(b) of the bill and
sec. 25 of the Code)........................... 138
4. Repeal of credit for plug-in electric drive
motor vehicles (sec. 1102(c) of the bill and
sec. 30D of the Code).......................... 138
5. Modification of taxpayer identification number
requirements for the child tax credit, earned
income credit, and American Opportunity credit
(sec. 1103 of the bill and secs. 24, 25A and 32
of the Code)................................... 139
6. Procedures to reduce improper claims of earned
income credit (sec. 1104 of the bill and new
secs. 32(c)(2)(B)(vii) and 6011(i) of the Code) 142
7. Certain income disallowed for purposes of the
earned income tax credit (sec. 1105 of the
bill, new secs. 32(n) and 32(c)(2)(C) of the
Code, and secs. 6051, 6052, 6041(a), and
6050(w) of the Code)........................... 144
C. Simplification and Reform of Education Incentives... 147
1. Reform of American opportunity tax credit and
repeal of lifetime learning credit (sec. 1201
of the bill and sec. 25A of the Code).......... 147
2. Consolidation and modification of education
savings rules (sec. 1202 of the bill and secs.
529 and 530 of the Code)....................... 149
3. Reforms to discharge of certain student loan
indebtedness (sec. 1203 of the bill and sec.
108(f) of the Code)............................ 153
4. Repeal of deduction for student loan interest
(sec. 1204 of the bill and sec. 221 of the
Code).......................................... 154
5. Repeal of deduction for qualified tuition and
related expenses (sec. 1204 of the bill and
sec. 222 of the Code).......................... 155
6. Repeal of exclusion for educational assistance
programs (sec. 1204 of the bill and sec. 127 of
the Code)...................................... 156
7. Repeal of exclusion for interest on United
States savings bonds used for higher education
expenses (sec. 1204 of the bill and sec. 135 of
the Code)...................................... 157
8. Repeal of exclusion for qualified tuition
reductions (sec. 1204 of the bill and sec.
117(d) of the Code)............................ 158
9. Rollovers between qualified tuition programs and
qualified ABLE programs (sec. 1205 of the bill
and secs. 529 and 529A of the Code)............ 159
D. Simplification and Reform of Deductions............. 162
1. Repeal of overall limitation on itemized
deductions (sec. 1301 of the bill and sec. 68
of the Code)................................... 162
2. Modification of deduction for home mortgage
interest (sec. 1302 of the bill and sec. 163(h)
of the Code)................................... 163
3. Modification of deduction for taxes not paid or
accrued in a trade or business (sec. 1303 of
the bill and sec. 164(b) of the Code).......... 165
4. Repeal of deduction for personal casualty and
theft losses (sec. 1304 of the bill and sec.
165 of the Code)............................... 166
5. Limitation on wagering losses (sec. 1305 of the
bill and sec. 165 of the Code)................. 167
6. Modifications to the deduction for charitable
contributions (sec. 1306 of the bill and sec.
170 of the Code)............................... 168
7. Repeal of deduction for tax preparation expenses
(sec. 1307 of the bill and sec. 212 of the
Code).......................................... 178
8. Repeal of deduction for medical expenses (sec.
1308 of the bill and sec. 213 of the Code)..... 179
9. Repeal of deduction for alimony payments and
corresponding inclusion in gross income (sec.
1309 of the bill and secs. 61, 71, and 215 of
the Code)...................................... 179
10. Repeal of deduction for moving expenses (sec.
1310 of the bill and secs. 134 and 217 of the
Code).......................................... 180
11. Termination of deduction and exclusions for
contributions to medical savings accounts (sec.
1311 of the bill and secs. 106(b) and 220 of
the Code)...................................... 181
12. Denial of deduction for expenses attributable
to the trade or business of being an employee,
expenses of teachers, performing artists and
certain officials (sec. 1312 of the bill and
secs. 62, 67, and new sec. 262A of the Code)... 184
E. Simplification and Reform of Exclusions and Taxable
Compensation....................................... 186
1. Limitation on exclusion for employer-provided
housing (sec. 1401 of the bill and sec. 119 of
the Code)...................................... 186
2. Modification of exclusion of gain on sale of a
principal residence (sec. 1402 of the bill and
sec. 121 of the Code).......................... 187
3. Repeal of exclusion, etc., for employee
achievement awards (sec. 1403 of the bill and
secs. 74(c) and 274(j) of the Code)............ 188
4. Sunset of exclusion for dependent care
assistance programs (sec. 1404 of the bill and
sec. 129 of the Code).......................... 188
5. Repeal of exclusion for qualified moving expense
reimbursement (sec. 1405 of the bill and sec.
132(g) of the Code)............................ 189
6. Repeal of exclusion for adoption assistance
programs (sec. 1406 of the bill and sec. 137 of
the Code)...................................... 190
F. Simplification and Reform of Savings, Pensions,
Retirement......................................... 191
1. Repeal of special rule permitting
recharacterization of IRA contributions (sec.
1501 of the bill and sec. 408A of the Code).... 191
2. Reduction in minimum age for allowable in-
service distributions (sec. 1502 of the bill
and secs. 401 and 457 of the Code)............. 194
3. Modification of rules governing hardship
distributions (sec. 1503 of the bill and secs.
401 and 403 of the Code)....................... 195
4. Modification of rules relating to hardship
withdrawals from cash or deferred arrangements
(sec. 1504 of the bill and sec. 401 of the
Code).......................................... 196
5. Extended rollover period for the rollover of
plan loan offset amounts in certain cases (sec.
1505 of the bill and sec. 402 of the Code)..... 198
6. Modification of nondiscrimination rules for
certain plans providing benefits or
contributions to older, longer service
participants (sec. 1506 of the bill and sec.
401 of the Code)............................... 199
G. Estate, Gift, and Generation-Skipping Transfer Taxes 209
1. Increase in estate and gift tax exemption,
followed by repeal of estate and generation-
skipping transfer taxes and reduction in gift
tax rate (secs. 1601 and 1602 of the bill,
secs. 2010, 2056A, 2502, and 2505 of the Code,
and new secs. 2210 and 2664 of the Code)....... 209
TITLE II--ALTERNATIVE MINIMUM TAX REPEAL......................... 219
1. Repeal of alternative minimum tax (sec. 2001 of
the bill and sec. 55 of the Code).............. 219
TITLE III--BUSINESS TAX REFORM................................... 225
A. Tax Rates........................................... 225
1. Reduction in corporate tax rate (sec. 3001 of
the bill and sec. 11 of the Code).............. 225
B. Cost Recovery....................................... 227
1. Increased expensing (sec. 3101 of the bill and
sec. 168(k) of the Code)....................... 227
C. Small Business Reforms.............................. 234
1. Expansion of section 179 expensing (sec. 3201 of
the bill and sec. 179 of the Code)............. 234
2. Small business accounting method reform and
simplification (sec. 3202 of the bill and secs.
263A, 448, 460, and 471 of the Code)........... 236
3. Small business exception from limitation on
deduction of business interest (sec. 3203 of
the bill and sec. 163(j) of the Code).......... 243
4. Modification of treatment of S corporation
conversions to C corporations (sec. 3204 of the
bill and secs. 481 and 1371 of the Code)....... 243
D. Reform of Business-related Exclusions, Deductions,
etc................................................ 246
1. Interest (sec. 3301 of the bill and sec. 163(j)
of the Code)................................... 246
2. Modification of net operating loss deduction
(sec. 3302 of the bill and sec. 172 of the
Code).......................................... 252
3. Like-kind exchanges of real property (sec. 3303
of the bill and sec. 1031 of the Code)......... 253
4. Revision of treatment of contributions to
capital (sec. 3304 of the bill and sec. 118 of
the Code)...................................... 255
5. Repeal of deduction for local lobbying expenses
(sec. 3305 of the bill and sec. 162(e) of the
Code).......................................... 257
6. Repeal of deduction for income attributable to
domestic production activities (sec. 3306 of
the bill and sec. 199 of the Code)............. 259
7. Entertainment, etc. expenses (sec. 3307 of the
bill and sec. 274 of the Code)................. 261
8. Unrelated business taxable income increased by
amount of certain fringe benefit expenses for
which deduction is disallowed (sec. 3308 of the
bill and sec. 512 of the Code)................. 265
9. Limitation on deduction for FDIC premiums (sec.
3309 of the bill and sec. 162 of the Code)..... 266
10. Repeal of rollover of publicly traded
securities gain into specialized small business
investment companies (sec. 3310 of the bill and
sec. 1044 of the Code)......................... 269
11. Certain self-created property not treated as a
capital asset (sec. 3311 of the bill and sec.
1221 of the Code).............................. 270
12. Repeal of special rule for sale or exchange of
patents (sec. 3312 of the bill and sec. 1235 of
the Code)...................................... 272
13. Repeal of technical termination of partnerships
(sec. 3313 of the bill and sec. 708(b) of the
Code).......................................... 272
14. Recharacterization of certain gains in the case
of partnership profits interests held in
connection with performance of investment
services (sec. 3314 of the bill and secs. 1 and
83 of the Code)................................ 274
15. Amortization of research and experimental
expenditures (sec. 3315 of the bill and sec.
174 of the Code)............................... 280
16. Uniform treatment of expenses in contingency
fee cases (sec. 3316 of the bill and new sec.
162(q) of the Code)............................ 283
E. Reform of Business Credits.......................... 284
1. Repeal of credit for clinical testing expenses
for certain drugs for rare diseases or
conditions (sec. 3401 of the bill and sec. 45C
of the Code)................................... 284
2. Repeal of employer-provided child care credit
(sec. 3402 of the bill and sec. 45F of the
Code).......................................... 285
3. Repeal of rehabilitation credit (sec. 3403 of
the bill and sec. 47 of the Code).............. 286
4. Repeal of work opportunity tax credit (sec. 3404
of the bill and sec. 51 of the Code)........... 287
5. Repeal of deduction for certain unused business
credits (sec. 3405 of the bill and sec. 196 of
the Code)...................................... 289
6. Termination of new markets tax credit (sec. 3406
of the bill and sec. 45D of the Code).......... 290
7. Repeal of credit for expenditures to provide
access to disabled individuals (sec. 3407 of
the bill and sec. 44 of the Code).............. 292
8. Modification of credit for portion of employer
social security taxes paid with respect to
employee tips (sec. 3408 of the bill and sec.
45B of the Code)............................... 293
F. Energy Credits...................................... 295
1. Modifications to credit for electricity produced
from certain renewable resources (sec. 3501 of
the bill and sec. 45 of the Code).............. 295
2. Modification of the energy investment tax credit
(sec. 3502 of the bill and sec. 48 of the Code) 297
3. Extension and phaseout of residential energy
efficient property credit (sec. 3503 of the
bill and sec. 25D of the Code)................. 300
4. Repeal of enhanced oil recovery credit (sec.
3504 of the bill and sec. 43 of the Code)...... 301
5. Repeal of credit for producing oil and gas from
marginal wells (sec. 3505 of the bill and sec.
45I of the Code)............................... 302
6. Modification of credit for production from
advanced nuclear power facilities (sec. 3506 of
the bill and sec. 45J of the Code)............. 303
G. Bond Reforms........................................ 305
1. Termination of private activity bonds (sec. 3601
of the bill and sec. 103 of the Code).......... 305
2. Repeal of advance refunding bonds (sec. 3602 of
the bill and sec. 149(d) of the Code).......... 307
3. Repeal of tax credit bonds (sec. 3603 of the
bill and secs. 54A, 54B, 54C, 54D, 54E, 54F and
6431 of the Code).............................. 309
4. No tax-exempt bonds for professional stadiums
(sec. 3604 of the bill and sec. 103 of the
Code).......................................... 312
H. Insurance........................................... 314
1. Net operating losses of life insurance companies
(sec. 3701 of the bill and sec. 810 of the
Code).......................................... 314
2. Repeal of small life insurance company deduction
(sec. 3702 of the bill and sec. 806 of the
Code).......................................... 315
3. Surtax on life insurance company taxable income
(sec. 3703 of the bill and sec. 801 of the
Code).......................................... 316
4. Adjustment for change in computing reserves
(sec. 3704 of the bill and sec. 807 of the
Code).......................................... 319
5. Repeal of special rule for distributions to
shareholders from pre-1984 policyholders
surplus account (sec. 3705 of the bill and sec.
815 of the Code)............................... 320
6. Modification of proration rules for property and
casualty insurance companies (sec. 3706 of the
bill and sec. 832 of the Code)................. 322
7. Modification of discounting rules for property
and casualty insurance companies (sec. 3707 of
the bill and sec. 832 of the Code)............. 323
8. Repeal of special estimated tax payments (sec.
3708 of the bill and sec. 847 of the Code)..... 326
I. Compensation........................................ 328
1. Modification of limitation on excessive employee
remuneration (sec. 3801 of the bill and sec.
162(m) of the Code)............................ 328
2. Excise tax on excess tax-exempt organization
executive compensation (sec. 3802 of the bill
and sec. 4960 of the Code)..................... 332
3. Treatment of qualified equity grants (sec. 3803
of the bill and secs. 83, 3401, and 6051 of the
Code).......................................... 335
TITLE IV--TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS......... 343
PRESENT LAW...................................................... 343
A. Principles Common to Inbound and Outbound Taxation.. 343
1. Residence....................................... 344
2. Entity classification........................... 345
3. Source of income rules.......................... 346
4. Intercompany transfers.......................... 350
B. U.S. Tax Rules Applicable to Nonresident Aliens and
Foreign Corporations (Inbound)..................... 351
1. Gross-basis taxation of U.S.-source income...... 351
2. Net-basis taxation of U.S.-source income........ 355
3. Special rules................................... 359
C. U.S. Tax Rules Applicable to Foreign Activities of
U.S. Persons (Outbound)............................ 361
1. In general...................................... 361
2. Anti-deferral regimes........................... 361
3. Foreign tax credit.............................. 366
4. Special rules................................... 368
TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS................... 370
A. Establishment of Participation Exemption System for
Taxation of Foreign Income......................... 370
1. Deduction for foreign-source portion of
dividends received by domestic corporations
from specified 10-percent owned foreign
corporations (sec. 4001 of the bill and new
sec. 245A of the Code)......................... 370
2. Application of participation exemption to
investments in United States property (sec.
4002 of the bill sec. 956 of the Code)......... 373
3. Limitation on losses with respect to specified
10-percent owned foreign corporations (sec.
4003 of the bill secs. 367(a)(3)(C) and 961 of
the Code, and new sec. 91 of the Code)......... 373
4. Treatment of deferred foreign income upon
transition to participation exemption system of
taxation (sec. 4004 of the bill and secs. 78,
904, 907, and 965 of the Code)................. 375
B. Modifications Related to Foreign Tax Credit System.. 383
1. Repeal of section 902 indirect foreign tax
credits; determination of section 960 credit on
current year basis (sec. 4101 of the bill and
secs. 78, 902 and 960 of the Code)............. 383
2. Source of income from sales of inventory
determined solely on basis of production
activities (sec. 4102 of the bill and sec. 863
of the Code)................................... 384
C. Modifications of Subpart F Provisions............... 384
1. Repeal of inclusion based on withdrawal of
previously excluded subpart F income from
qualified investment (sec. 4201 of the bill and
sec. 955 of the Code).......................... 384
2. Repeal of treatment of foreign base company oil
related income as subpart F income (sec. 4202
of the bill and sec. 954(a) of the Code)....... 385
3. Inflation adjustment of de minimis exception for
foreign base company income (sec. 4203 of the
bill and sec. 954(b)(3) of the Code)........... 386
4. Look-thru rule for related controlled foreign
corporations made permanent (sec. 4204 of the
bill and sec. 954(c)(6) of the Code)........... 386
5. Modification of stock attribution rules for
determining status as a controlled foreign
corporation (sec. 4205 of the bill secs. 318,
958 and 6038 of the Code)...................... 387
6. Elimination of requirement that corporation must
be controlled for 30 days before subpart F
inclusions apply (sec. 4206 of the bill and
951(a)(1) of the Code)......................... 387
D. Prevention of Base Erosion.......................... 388
1. Current year inclusion by United States
shareholders with foreign high returns (sec.
4301 of the bill and secs. 78 and 960 and new
sec. 951A of the Code)......................... 388
2. Limitation on deduction of interest by domestic
corporations which are members of an
international financial reporting group (sec.
4302 of the bill and sec. 163 of the Code)..... 397
3. Excise tax on certain payments from domestic
corporations to related foreign corporations;
election to treat such payments as effectively
connected income (sec. 4303 of the bill and
secs. 882, 4491, 6038C, and 6038E of the Code). 400
E. Provisions Related to Possessions of the United
States............................................. 405
1. Extension of deduction allowable with respect to
income attributable to domestic production
activities in Puerto Rico (sec. 4401 of the
bill and sec. 199 of the Code)................. 405
2. Extension of temporary increase in limit on
cover over of rum excise taxes to Puerto Rico
and the Virgin Islands (sec. 4402 of the bill
and sec. 119(d) of the Code)................... 406
3. Extension of American Samoa economic development
credit (sec. 4403 of the bill and sec. 119 of
Pub. L. No. 109-432)........................... 407
F. Other International Reforms......................... 409
1. Restriction on insurance business exception to
the passive foreign investment company rules
(sec. 4501 of the bill and sec. 1297 of the
Code).......................................... 409
TITLE V--EXEMPT ORGANIZATIONS.......................... 412
A. Unrelated Business Income Tax....................... 412
1. Clarification of unrelated business income tax
treatment of entities exempt from tax under
section 501(a) (sec. 5001 of the bill and sec.
511 of the Code)............................... 412
2. Exclusion of research income from unrelated
business taxable income limited to publicly
available research (sec. 5002 of the bill and
sec. 512(b)(9) of the Code).................... 414
B. Excise Taxes........................................ 416
1. Simplification of excise tax on private
foundation investment income (sec. 5101 of the
bill and sec. 4940 of the Code)................ 416
2. Private operating foundation requirements
relating to operation of an art museum (sec.
5102 of the bill and sec. 4942(j) of the Code). 417
3. Excise tax based on investment income of private
colleges and universities (sec. 5103 of the
bill and new sec. 4969 of the Code)............ 420
4. Provide an exception to the private foundation
excess business holdings rules for
philanthropic business holdings (sec. 5104 of
the bill and sec. 4943 of the Code)............ 423
C. Requirements for Organizations Exempt From Tax...... 426
1. Section 501(c)(3) organizations permitted to
make statements relating to political campaign
in ordinary course of activities in carrying
out exempt purpose (sec. 5201 of the bill and
sec. 501 of the Code).......................... 426
2. Additional reporting requirements for donor
advised fund sponsoring organizations (sec.
5202 of the bill and sec. 6033 of the Code).... 428
III. VOTES OF THE COMMITTEE.........................................430
IV. BUDGET EFFECTS OF THE BILL.....................................449
A. Committee Estimate of Budgetary Effects............. 449
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 461
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 461
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.....470
A. Committee Oversight Findings and Recommendations.... 470
B. Statement of General Performance Goals and
Objectives......................................... 470
C. Information Relating to Unfunded Mandates........... 470
D. Tax Complexity Analysis............................. 470
E. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 475
F. Duplication of Federal Programs..................... 475
G. Disclosure of Directed Rule Makings................. 476
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED..........476
VII. DISSENTING VIEWS AND ADDITIONAL VIEWS..........................477
115th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 115-409
======================================================================
TAX CUTS AND JOBS ACT
_______
November 13, 2017.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
DISSENTING AND ADDITIONAL VIEWS
[To accompany H.R. 1]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the bill
(H.R. 1) to provide for reconciliation pursuant to title II of the
concurrent resolution on the budget for fiscal year 2018, having
considered the same, report favorably thereon with amendments and
recommend that the bill as amended do pass.
The amendments are as follows:
Strike all after the enacting clause and insert the following:
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Tax Cuts and Jobs
Act''.
(b) Amendment of 1986 Code.--Except as otherwise expressly provided,
whenever in this Act an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--TAX REFORM FOR INDIVIDUALS
Subtitle A--Simplification and Reform of Rates, Standard Deduction, and
Exemptions
Sec. 1001. Reduction and simplification of individual income tax rates.
Sec. 1002. Enhancement of standard deduction.
Sec. 1003. Repeal of deduction for personal exemptions.
Sec. 1004. Maximum rate on business income of individuals.
Sec. 1005. Conforming amendments related to simplification of
individual income tax rates.
Subtitle B--Simplification and Reform of Family and Individual Tax
Credits
Sec. 1101. Enhancement of child tax credit and new family tax credit.
Sec. 1102. Repeal of nonrefundable credits.
Sec. 1103. Refundable credit program integrity.
Sec. 1104. Procedures to reduce improper claims of earned income
credit.
Sec. 1105. Certain income disallowed for purposes of the earned income
tax credit.
Subtitle C--Simplification and Reform of Education Incentives
Sec. 1201. American opportunity tax credit.
Sec. 1202. Consolidation of education savings rules.
Sec. 1203. Reforms to discharge of certain student loan indebtedness.
Sec. 1204. Repeal of other provisions relating to education.
Sec. 1205. Rollovers between qualified tuition programs and qualified
ABLE programs.
Subtitle D--Simplification and Reform of Deductions
Sec. 1301. Repeal of overall limitation on itemized deductions.
Sec. 1302. Mortgage interest.
Sec. 1303. Repeal of deduction for certain taxes not paid or accrued in
a trade or business.
Sec. 1304. Repeal of deduction for personal casualty losses.
Sec. 1305. Limitation on wagering losses.
Sec. 1306. Charitable contributions.
Sec. 1307. Repeal of deduction for tax preparation expenses.
Sec. 1308. Repeal of medical expense deduction.
Sec. 1309. Repeal of deduction for alimony payments.
Sec. 1310. Repeal of deduction for moving expenses.
Sec. 1311. Termination of deduction and exclusions for contributions to
medical savings accounts.
Sec. 1312. Denial of deduction for expenses attributable to the trade
or business of being an employee.
Subtitle E--Simplification and Reform of Exclusions and Taxable
Compensation
Sec. 1401. Limitation on exclusion for employer-provided housing.
Sec. 1402. Exclusion of gain from sale of a principal residence.
Sec. 1403. Repeal of exclusion, etc., for employee achievement awards.
Sec. 1404. Sunset of exclusion for dependent care assistance programs.
Sec. 1405. Repeal of exclusion for qualified moving expense
reimbursement.
Sec. 1406. Repeal of exclusion for adoption assistance programs.
Subtitle F--Simplification and Reform of Savings, Pensions, Retirement
Sec. 1501. Repeal of special rule permitting recharacterization of Roth
IRA contributions as traditional IRA contributions.
Sec. 1502. Reduction in minimum age for allowable in-service
distributions.
Sec. 1503. Modification of rules governing hardship distributions.
Sec. 1504. Modification of rules relating to hardship withdrawals from
cash or deferred arrangements.
Sec. 1505. Extended rollover period for the rollover of plan loan
offset amounts in certain cases.
Sec. 1506. Modification of nondiscrimination rules to protect older,
longer service participants.
Subtitle G--Estate, Gift, and Generation-skipping Transfer Taxes
Sec. 1601. Increase in credit against estate, gift, and generation-
skipping transfer tax.
Sec. 1602. Repeal of estate and generation-skipping transfer taxes.
TITLE II--ALTERNATIVE MINIMUM TAX REPEAL
Sec. 2001. Repeal of alternative minimum tax.
TITLE III--BUSINESS TAX REFORM
Subtitle A--Tax Rates
Sec. 3001. Reduction in corporate tax rate.
Subtitle B--Cost Recovery
Sec. 3101. Increased expensing.
Subtitle C--Small Business Reforms
Sec. 3201. Expansion of section 179 expensing.
Sec. 3202. Small business accounting method reform and simplification.
Sec. 3203. Small business exception from limitation on deduction of
business interest.
Sec. 3204. Modification of treatment of S corporation conversions to C
corporations.
Subtitle D--Reform of Business-related Exclusions, Deductions, etc.
Sec. 3301. Interest.
Sec. 3302. Modification of net operating loss deduction.
Sec. 3303. Like-kind exchanges of real property.
Sec. 3304. Revision of treatment of contributions to capital.
Sec. 3305. Repeal of deduction for local lobbying expenses.
Sec. 3306. Repeal of deduction for income attributable to domestic
production activities.
Sec. 3307. Entertainment, etc. expenses.
Sec. 3308. Unrelated business taxable income increased by amount of
certain fringe benefit expenses for which deduction is disallowed.
Sec. 3309. Limitation on deduction for FDIC premiums.
Sec. 3310. Repeal of rollover of publicly traded securities gain into
specialized small business investment companies.
Sec. 3311. Certain self-created property not treated as a capital
asset.
Sec. 3312. Repeal of special rule for sale or exchange of patents.
Sec. 3313. Repeal of technical termination of partnerships.
Sec. 3314. Recharacterization of certain gains in the case of
partnership profits interests held in connection with performance of
investment services.
Sec. 3315. Amortization of research and experimental expenditures.
Sec. 3316. Uniform treatment of expenses in contingency fee cases.
Subtitle E--Reform of Business Credits
Sec. 3401. Repeal of credit for clinical testing expenses for certain
drugs for rare diseases or conditions.
Sec. 3402. Repeal of employer-provided child care credit.
Sec. 3403. Repeal of rehabilitation credit.
Sec. 3404. Repeal of work opportunity tax credit.
Sec. 3405. Repeal of deduction for certain unused business credits.
Sec. 3406. Termination of new markets tax credit.
Sec. 3407. Repeal of credit for expenditures to provide access to
disabled individuals.
Sec. 3408. Modification of credit for portion of employer social
security taxes paid with respect to employee tips.
Subtitle F--Energy Credits
Sec. 3501. Modifications to credit for electricity produced from
certain renewable resources.
Sec. 3502. Modification of the energy investment tax credit.
Sec. 3503. Extension and phaseout of residential energy efficient
property.
Sec. 3504. Repeal of enhanced oil recovery credit.
Sec. 3505. Repeal of credit for producing oil and gas from marginal
wells.
Sec. 3506. Modifications of credit for production from advanced nuclear
power facilities.
Subtitle G--Bond Reforms
Sec. 3601. Termination of private activity bonds.
Sec. 3602. Repeal of advance refunding bonds.
Sec. 3603. Repeal of tax credit bonds.
Sec. 3604. No tax exempt bonds for professional stadiums.
Subtitle H--Insurance
Sec. 3701. Net operating losses of life insurance companies.
Sec. 3702. Repeal of small life insurance company deduction.
Sec. 3703. Surtax on life insurance company taxable income.
Sec. 3704. Adjustment for change in computing reserves.
Sec. 3705. Repeal of special rule for distributions to shareholders
from pre-1984 policyholders surplus account.
Sec. 3706. Modification of proration rules for property and casualty
insurance companies.
Sec. 3707. Modification of discounting rules for property and casualty
insurance companies.
Sec. 3708. Repeal of special estimated tax payments.
Subtitle I--Compensation
Sec. 3801. Modification of limitation on excessive employee
remuneration.
Sec. 3802. Excise tax on excess tax-exempt organization executive
compensation.
Sec. 3803. Treatment of qualified equity grants.
TITLE IV--TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS
Subtitle A--Establishment of Participation Exemption System for
Taxation of Foreign Income
Sec. 4001. Deduction for foreign-source portion of dividends received
by domestic corporations from specified 10-percent owned foreign
corporations.
Sec. 4002. Application of participation exemption to investments in
United States property.
Sec. 4003. Limitation on losses with respect to specified 10-percent
owned foreign corporations.
Sec. 4004. Treatment of deferred foreign income upon transition to
participation exemption system of taxation.
Subtitle B--Modifications Related to Foreign Tax Credit System
Sec. 4101. Repeal of section 902 indirect foreign tax credits;
determination of section 960 credit on current year basis.
Sec. 4102. Source of income from sales of inventory determined solely
on basis of production activities.
Subtitle C--Modification of Subpart F Provisions
Sec. 4201. Repeal of inclusion based on withdrawal of previously
excluded subpart F income from qualified investment.
Sec. 4202. Repeal of treatment of foreign base company oil related
income as subpart F income.
Sec. 4203. Inflation adjustment of de minimis exception for foreign
base company income.
Sec. 4204. Look-thru rule for related controlled foreign corporations
made permanent.
Sec. 4205. Modification of stock attribution rules for determining
status as a controlled foreign corporation.
Sec. 4206. Elimination of requirement that corporation must be
controlled for 30 days before subpart F inclusions apply.
Subtitle D--Prevention of Base Erosion
Sec. 4301. Current year inclusion by United States shareholders with
foreign high returns.
Sec. 4302. Limitation on deduction of interest by domestic corporations
which are members of an international financial reporting group.
Sec. 4303. Excise tax on certain payments from domestic corporations to
related foreign corporations; election to treat such payments as
effectively connected income.
Subtitle E--Provisions Related to Possessions of the United States
Sec. 4401. Extension of deduction allowable with respect to income
attributable to domestic production activities in Puerto Rico.
Sec. 4402. Extension of temporary increase in limit on cover over of
rum excise taxes to Puerto Rico and the Virgin Islands.
Sec. 4403. Extension of American Samoa economic development credit.
Subtitle F--Other International Reforms
Sec. 4501. Restriction on insurance business exception to passive
foreign investment company rules.
TITLE V--EXEMPT ORGANIZATIONS
Subtitle A--Unrelated Business Income Tax
Sec. 5001. Clarification of unrelated business income tax treatment of
entities treated as exempt from taxation under section 501(a).
Sec. 5002. Exclusion of research income limited to publicly available
research.
Subtitle B--Excise Taxes
Sec. 5101. Simplification of excise tax on private foundation
investment income.
Sec. 5102. Private operating foundation requirements relating to
operation of art museum.
Sec. 5103. Excise tax based on investment income of private colleges
and universities.
Sec. 5104. Exception from private foundation excess business holding
tax for independently-operated philanthropic business holdings.
Subtitle C--Requirements for Organizations Exempt From Tax
Sec. 5201. 501(c)(3) organizations permitted to make statements
relating to political campaign in ordinary course of activities.
Sec. 5202. Additional reporting requirements for donor advised fund
sponsoring organizations.
TITLE I--TAX REFORM FOR INDIVIDUALS
Subtitle A--Simplification and Reform of Rates, Standard Deduction, and
Exemptions
SEC. 1001. REDUCTION AND SIMPLIFICATION OF INDIVIDUAL INCOME TAX RATES.
(a) In General.--Section 1 is amended by striking subsection (i) and
by striking all that precedes subsection (h) and inserting the
following:
``SEC. 1. TAX IMPOSED.
``(a) In General.--There is hereby imposed on the income of every
individual a tax equal to the sum of--
``(1) 12 percent bracket.--12 percent of so much of the
taxable income as does not exceed the 25-percent bracket
threshold amount,
``(2) 25 percent bracket.--25 percent of so much of the
taxable income as exceeds the 25-percent bracket threshold
amount but does not exceed the 35-percent bracket threshold
amount, plus
``(3) 35 percent bracket.--35 percent of so much of taxable
income as exceeds the 35-percent bracket threshold amount but
does not exceed the 39.6 percent bracket threshold amount.
``(4) 39.6 percent bracket.--39.6 percent of so much of
taxable income as exceeds the 39.6-percent bracket threshold
amount.
``(b) Bracket Threshold Amounts.--For purposes of this section--
``(1) 25-percent bracket threshold amount.--The term `25-
percent bracket threshold amount' means--
``(A) in the case of a joint return or surviving
spouse, $90,000,
``(B) in the case of an individual who is the head of
a household (as defined in section 2(b)), $67,500,
``(C) in the case of any other individual (other than
an estate or trust), an amount equal to \1/2\ of the
amount in effect for the taxable year under
subparagraph (A), and
``(D) in the case of an estate or trust, $2,550.
``(2) 35-percent bracket threshold amount.--The term `35-
percent bracket threshold amount' means--
``(A) in the case of a joint return or surviving
spouse, $260,000,
``(B) in the case of a married individual filing a
separate return, an amount equal to \1/2\ of the amount
in effect for the taxable year under subparagraph (A),
and
``(C) in the case of any other individual (other than
an estate or trust), $200,000, and
``(D) in the case of an estate or trust, $9,150.
``(3) 39.6-percent bracket threshold amount.--The term `39.6-
percent bracket threshold amount' means--
``(A) in the case of a joint return or surviving
spouse, $1,000,000,
``(B) in the case of any other individual (other than
an estate or trust), an amount equal to \1/2\ of the
amount in effect for the taxable year under
subparagraph (A), and
``(C) in the case of an estate or trust, $12,500.
``(c) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year beginning
after 2018, each dollar amount in subsections (b) and (e)(3)
(other than any amount determined by reference to such a dollar
amount) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
this subsection for the calendar year in which the
taxable year begins by substituting `2017' for `2016'
in paragraph (2)(A)(ii).
If any increase determined under the preceding sentence is not
a multiple of $100, such increase shall be rounded to the next
lowest multiple of $100.
``(2) Cost-of-living adjustment.--For purposes of this
subsection--
``(A) In general.--The cost-of-living adjustment for
any calendar year is the percentage (if any) by which--
``(i) the C-CPI-U for the preceding calendar
year, exceeds
``(ii) the normalized CPI for calendar year
2016.
``(B) Special rule for adjustments with a base year
after 2016.--For purposes of any provision which
provides for the substitution of a year after 2016 for
`2016' in subparagraph (A)(ii), subparagraph (A) shall
be applied by substituting `C-CPI-U' for `normalized
CPI' in clause (ii).
``(3) Normalized cpi.--For purposes of this subsection, the
normalized CPI for any calendar year is the product of--
``(A) the CPI for such calendar year, multiplied by
``(B) the C-CPI-U transition multiple.
``(4) C-CPI-U transition multiple.--For purposes of this
subsection, the term `C-CPI-U transition multiple' means the
amount obtained by dividing--
``(A) the C-CPI-U for calendar year 2016, by
``(B) the CPI for calendar year 2016.
``(5) C-CPI-U.--For purposes of this subsection--
``(A) In general.--The term `C-CPI-U' means the
Chained Consumer Price Index for All Urban Consumers
(as published by the Bureau of Labor Statistics of the
Department of Labor). The values of the Chained
Consumer Price Index for All Urban Consumers taken into
account for purposes of determining the cost-of-living
adjustment for any calendar year under this subsection
shall be the latest values so published as of the date
on which such Bureau publishes the initial value of the
Chained Consumer Price Index for All Urban Consumers
for the month of August for the preceding calendar
year.
``(B) Determination for calendar year.--The C-CPI-U
for any calendar year is the average of the C-CPI-U as
of the close of the 12-month period ending on August 31
of such calendar year.
``(6) CPI.--For purposes of this subsection--
``(A) In general.--The term `Consumer Price Index'
means the last Consumer Price Index for All Urban
Consumers published by the Department of Labor. For
purposes of the preceding sentence, the revision of the
Consumer Price Index which is most consistent with the
Consumer Price Index for calendar year 1986 shall be
used.
``(B) Determination for calendar year.--The CPI for
any calendar year is the average of the Consumer Price
Index as of the close of the 12-month period ending on
August 31 of such calendar year.
``(d) Special Rules for Certain Children With Unearned Income.--
``(1) In general.--In the case of any child to whom this
subsection applies for any taxable year--
``(A) the 25-percent bracket threshold amount shall
not be more than the taxable income of such child for
the taxable year reduced by the net unearned income of
such child, and
``(B) the 35-percent bracket threshold amount shall
not be more than the sum of--
``(i) the taxable income of such child for
the taxable year reduced by the net unearned
income of such child, plus
``(ii) the dollar amount in effect under
subsection (b)(2)(D) for the taxable year.
``(C) the 39.6-percent bracket threshold amount shall
not be more than the sum of--
``(i) the taxable income of such child for
the taxable year reduced by the net unearned
income of such child, plus
``(ii) the dollar amount in effect under
subsection (b)(3)(C).
``(2) Child to whom subsection applies.--This subsection
shall apply to any child for any taxable year if--
``(A) such child--
``(i) has not attained age 18 before the
close of the taxable year, or
``(ii) has attained age 18 before the close
of the taxable year and is described in
paragraph (3),
``(B) either parent of such child is alive at the
close of the taxable year, and
``(C) such child does not file a joint return for the
taxable year.
``(3) Certain children whose earned income does not exceed
one-half of individual's support.--A child is described in this
paragraph if--
``(A) such child--
``(i) has not attained age 19 before the
close of the taxable year, or
``(ii) is a student (within the meaning of
section 7706(f)(2)) who has not attained age 24
before the close of the taxable year, and
``(B) such child's earned income (as defined in
section 911(d)(2)) for such taxable year does not
exceed one-half of the amount of the individual's
support (within the meaning of section 7706(c)(1)(D)
after the application of section 7706(f)(5) (without
regard to subparagraph (A) thereof)) for such taxable
year.
``(4) Net unearned income.--For purposes of this subsection--
``(A) In general.--The term `net unearned income'
means the excess of--
``(i) the portion of the adjusted gross
income for the taxable year which is not
attributable to earned income (as defined in
section 911(d)(2)), over
``(ii) the sum of--
``(I) the amount in effect for the
taxable year under section 63(c)(2)(A)
(relating to limitation on standard
deduction in the case of certain
dependents), plus
``(II) The greater of the amount
described in subclause (I) or, if the
child itemizes his deductions for the
taxable year, the amount of the
itemized deductions allowed by this
chapter for the taxable year which are
directly connected with the production
of the portion of adjusted gross income
referred to in clause (i).
``(B) Limitation based on taxable income.--The amount
of the net unearned income for any taxable year shall
not exceed the individual's taxable income for such
taxable year.
``(e) Phaseout of 12-percent Rate.--
``(1) In general.--The amount of tax imposed by this section
(determined without regard to this subsection) shall be
increased by 6 percent of the excess (if any) of--
``(A) adjusted gross income, over
``(B) the applicable dollar amount.
``(2) Limitation.--The increase determined under paragraph
(1) with respect to any taxpayer for any taxable year shall not
exceed 27.6 percent of the lesser of--
``(A) the taxpayer's taxable income for such taxable
year, or
``(B) the 25-percent bracket threshold amount in
effect with respect to the taxpayer for such taxable
year.
``(3) Applicable dollar amount.--For purposes of this
subsection, the term `applicable dollar amount' means--
``(A) in the case of a joint return or a surviving
spouse, $1,200,000,
``(B) in the case of a married individual filing a
separate return, an amount equal to \1/2\ of the amount
in effect for the taxable year under subparagraph (A),
and
``(C) in the case of any other individual,
$1,000,000.
``(4) Estates and trusts.--Paragraph (1) shall not apply in
the case of an estate or trust.''.
(b) Application of Current Income Tax Brackets to Capital Gains
Brackets.--
(1) In general.--
(A) 0-percent capital gains bracket.--Section 1(h)(1)
is amended by striking ``which would (without regard to
this paragraph) be taxed at a rate below 25 percent''
in subparagraph (B)(i) and inserting ``below the 15-
percent rate threshold''.
(B) 15-percent capital gains bracket.--Section
1(h)(1)(C)(ii)(I) is amended by striking ``which would
(without regard to this paragraph) be taxed at a rate
below 39.6 percent'' and inserting ``below the 20-
percent rate threshold''.
(2) Rate thresholds defined.--Section 1(h) is amended by
adding at the end the following new paragraph:
``(12) Rate thresholds defined.--For purposes of this
subsection--
``(A) 15-percent rate threshold.--The 15-percent rate
threshold shall be--
``(i) in the case of a joint return or
surviving spouse, $77,200 (\1/2\ such amount in
the case of a married individual filing a
separate return),
``(ii) in the case of an individual who is
the head of a household (as defined in section
2(b)), $51,700,
``(iii) in the case of any other individual
(other than an estate or trust), an amount
equal to \1/2\ of the amount in effect for the
taxable year under clause (i), and
``(iv) in the case of an estate or trust,
$2,600.
``(B) 20-percent rate threshold.--The 20-percent rate
threshold shall be--
``(i) in the case of a joint return or
surviving spouse, $479,000 (\1/2\ such amount
in the case of a married individual filing a
separate return),
``(ii) in the case of an individual who is
the head of a household (as defined in section
2(b)), $452,400,
``(iii) in the case of any other individual
(other than an estate or trust), $425,800, and
``(iv) in the case of an estate or trust,
$12,700.
``(C) Inflation adjustment.--In the case of any
taxable year beginning after 2018, each of the dollar
amounts in subparagraphs (A) and (B) shall be increased
by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under subsection (c)(2)(A) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2017'
for `calendar year 2016' in clause (ii)
thereof.''.
(c) Application of Section 15.--
(1) In general.--Subsection (a) of section 15 is amended by
striking ``by this chapter'' and inserting ``by section 11 (or
by reference to any such rates)''.
(2) Conforming amendments.--
(A) Section 15 is amended by striking subsections (d)
and (f) and by redesignating subsection (e) as
subsection (d).
(B) Section 15(d), as redesignated by subparagraph
(A), is amended by striking ``section 1 or 11(b)'' and
inserting ``section 11(b)''.
(C) Section 6013(c) is amended by striking ``sections
15, 443, and 7851(a)(1)(A)'' and inserting ``sections
443 and 7851(a)(1)(A)''.
(3) Application to this act.--Section 15 of the Internal
Revenue Code of 1986 shall not apply to any change in a rate of
tax imposed by chapter 1 of such Code which occurs by reason of
any amendment made by this Act (other than the amendments made
by section 3001).
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2017.
(2) Subsection (c).--The amendments made by subsection (c)
shall take effect on the date of the enactment of this Act.
SEC. 1002. ENHANCEMENT OF STANDARD DEDUCTION.
(a) Increase in Standard Deduction.--Section 63(c) is amended to read
as follows:
``(c) Standard Deduction.--For purposes of this subtitle--
``(1) In general.--Except as otherwise provided in this
subsection, the term `standard deduction' means--
``(A) $24,400, in the case of a joint return (or a
surviving spouse (as defined in section 2(a)),
``(B) three-quarters of the amount in effect under
subparagraph (A) for the taxable year, in the case of
the head of a household (as defined in section 2(b)),
and
``(C) one-half of the amount in effect under
subparagraph (A) for the taxable year, in any other
case.
``(2) Limitation on standard deduction in the case of certain
dependents.--In the case of an individual who is a dependent of
another taxpayer for a taxable year beginning in the calendar
year in which the individual's taxable year begins, the
standard deduction applicable to such individual for such
individual's taxable year shall not exceed the greater of--
``(A) $500, or
``(B) the sum of $250 and such individual's earned
income (within the means of section 32).
``(3) Certain individuals, etc., not eligible for standard
deduction.--In the case of--
``(A) a married individual filing a separate return
where either spouse itemizes deductions,
``(B) a nonresident alien individual,
``(C) an individual making a return under section
443(a)(1) for a period of less than 12 months on
account of a change in his annual accounting period, or
``(D) an estate or trust, common trust fund, or
partnership,
the standard deduction shall be zero.
``(4) Unmarried individual.--For purposes of this section,
the term `unmarried individual' means any individual who--
``(A) is not married as of the close of the taxable
year (as determined by applying section 7703),
``(B) is not a surviving spouse (as defined in
section 2(a)) for the taxable year, and
``(C) is not a dependent of another taxpayer for a
taxable year beginning in the calendar year in which
the individual's taxable year begins.
``(5) Inflation adjustments.--
``(A) Standard deduction amount.--In the case of any
taxable year beginning after 2019, the dollar amount in
paragraph (1)(A) shall be increased by an amount equal
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(c)(2)(A) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2018'
for `calendar year 2016' in clause (ii)
thereof.
``(B) Limitation amount in case of certain
dependents.--In the case of any taxable year beginning
after 2017, each of the dollar amounts in paragraph (2)
shall be increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii)(I) in the case of the dollar amount in
paragraph (2)(A), under section 1(c)(2)(A) for
the calendar year in which the taxable year
begins determined by substituting `calendar
year 1987' for `calendar year 2016' in clause
(ii) thereof, and
``(II) in the case of the dollar amount in
paragraph (2)(B), under section 1(c)(2)(A) for
the calendar year in which the taxable year
begins determined by substituting `calendar
year 1997' for `calendar year 2016' in clause
(ii) thereof.
If any increase determined under this paragraph is not a
multiple of $100, such increase shall be rounded to the next
lowest multiple of $100.''.
(b) Conforming Amendments.--
(1) Section 63(b) is amended by striking ``, minus--'' and
all that follows and inserting ``minus the standard
deduction''.
(2) Section 63 is amended by striking subsections (f) and
(g).
(3) Section 1398(c) is amended--
(A) by striking ``Basic'' in the heading thereof,
(B) by striking ``Basic standard'' in the heading of
paragraph (3) and inserting ``Standard'', and
(C) by striking ``basic'' in paragraph (3).
(4) Section 3402(m)(3) is amended by striking ``(including
the additional standard deduction under section 63(c)(3) for
the aged and blind)''.
(5) Section 6014(b)(4) is amended by striking ``section
63(c)(5)'' and inserting ``section 63(c)(2)''.
(c) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1003. REPEAL OF DEDUCTION FOR PERSONAL EXEMPTIONS.
(a) In General.--Part V of subchapter B of chapter 1 is hereby
repealed.
(b) Definition of Dependent Retained.--Section 152, prior to repeal
by subsection (a), is hereby redesignated as section 7706 and moved to
the end of chapter 79.
(c) Application to Estates and Trusts.--Subsection (b) of section 642
is amended--
(1) by striking paragraph (2)(C),
(2) by striking paragraph (3), and
(3) by striking ``Deduction for Personal Exemption'' in the
heading thereof and inserting ``Basic Deduction''.
(d) Application to Nonresident Aliens.--Section 873(b) is amended by
striking paragraph (3).
(e) Modification of Wage Withholding Rules.--
(1) In general.--Section 3402(a) is amended by striking
paragraph (2).
(2) Conforming amendment.--Section 3402(a) is amended--
(A) by redesignating subparagraphs (A) and (B) of
paragraph (1) as paragraphs (1) and (2) and moving such
redesignated paragraphs 2 ems to the left, and
(B) by striking all that precedes ``otherwise
provided in this section'' and inserting the following:
``(a) Requirement of Withholding.--Except as''.
(3) Number of exemptions.--Section 3402(f)(1) is amended--
(A) in subparagraph (A), by striking ``an individual
described in section 151(d)(2)'' and inserting ``a
dependent of any other taxpayer'', and
(B) in subparagraph (C), by striking ``with respect
to whom, on the basis of facts existing at the
beginning of such day, there may reasonably be expected
to be allowable an exemption under section 151(c)'' and
inserting ``who, on the basis of facts existing at the
beginning of such day, is reasonably expected to be a
dependent of the employee''.
(f) Modification of Return Requirement.--
(1) In general.--Paragraph (1) of section 6012(a) is amended
to read as follows:
``(1) Every individual who has gross income for the taxable
year, except that a return shall not be required of--
``(A) an individual who is not married (determined by
applying section 7703) and who has gross income for the
taxable year which does not exceed the standard
deduction applicable to such individual for such
taxable year under section 63, or
``(B) an individual entitled to make a joint return
if--
``(i) the gross income of such individual,
when combined with the gross income of such
individual's spouse, for the taxable year does
not exceed the standard deduction which would
be applicable to the taxpayer for such taxable
year under section 63 if such individual and
such individual's spouse made a joint return,
``(ii) such individual and such individual's
spouse have the same household as their home at
the close of the taxable year,
``(iii) such individual's spouse does not
make a separate return, and
``(iv) neither such individual nor such
individual's spouse is an individual described
in section 63(c)(2) who has income (other than
earned income) in excess of the amount in
effect under section 63(c)(2)(A).''.
(2) Bankruptcy estates.--Paragraph (8) of section 6012(a) is
amended by striking ``the sum of the exemption amount plus the
basic standard deduction under section 63(c)(2)(D)'' and
inserting ``the standard deduction in effect under section
63(c)(1)(B)''.
(g) Conforming Amendments.--
(1) Section 2(a)(1)(B) is amended by striking ``a dependent''
and all that follows through ``section 151'' and inserting ``a
dependent who (within the meaning of section 7706, determined
without regard to subsections (b)(1), (b)(2) and (d)(1)(B)
thereof) is a son, stepson, daughter, or stepdaughter of the
taxpayer''.
(2) Section 36B(b)(2)(A) is amended by striking ``section
152'' and inserting ``section 7706''.
(3) Section 36B(b)(3)(B) is amended by striking ``unless a
deduction is allowed under section 151 for the taxable year
with respect to a dependent'' in the flush matter at the end
and inserting ``unless the taxpayer has a dependent for the
taxable year''.
(4) Section 36B(c)(1)(D) is amended by striking ``with
respect to whom a deduction under section 151 is allowable to
another taxpayer'' and inserting ``who is a dependent of
another taxpayer''.
(5) Section 36B(d)(1) is amended by striking ``equal to the
number of individuals for whom the taxpayer is allowed a
deduction under section 151 (relating to allowance of deduction
for personal exemptions) for the taxable year'' and inserting
``the sum of 1 (2 in the case of a joint return) plus the
number of the taxpayer's dependents for the taxable year''.
(6) Section 36B(e)(1) is amended by striking ``1 or more
individuals for whom a taxpayer is allowed a deduction under
section 151 (relating to allowance of deduction for personal
exemptions) for the taxable year (including the taxpayer or his
spouse)'' and inserting ``1 or more of the taxpayer, the
taxpayer's spouse, or any dependent of the taxpayer''.
(7) Section 42(i)(3)(D)(ii)(I) is amended--
(A) by striking ``section 152'' and inserting
``section 7706'', and
(B) by striking the period at the end and inserting a
comma.
(8) Section 72(t)(2)(D)(i)(III) is amended by striking
``section 152'' and inserting ``section 7706''.
(9) Section 72(t)(7)(A)(iii) is amended by striking ``section
152(f)(1)'' and inserting ``section 7706(f)(1)''.
(10) Section 105(b) is amended--
(A) by striking ``as defined in section 152'' and
inserting ``as defined in section 7706'',
(B) by striking ``section 152(f)(1)'' and inserting
``section 7706(f)(1)'' and
(C) by striking ``section 152(e)'' and inserting
``section 7706(e)''.
(11) Section 105(c)(1) is amended by striking ``section 152''
and inserting ``section 7706''.
(12) Section 125(e)(1)(D) is amended by striking ``section
152'' and inserting ``section 7706''.
(13) Section 132(h)(2)(B) is amended--
(A) by striking ``section 152(f)(1)'' and inserting
``section 7706(f)(1)'', and
(B) by striking ``section 152(e)'' and inserting
``section 7706(e)''.
(14) Section 139D(c)(5) is amended by striking ``section
152'' and inserting ``section 7706''.
(15) Section 162(l)(1)(D) is amended by striking ``section
152(f)(1)'' and inserting ``section 7706(f)(1)''.
(16) Section 170(g)(1) is amended by striking ``section 152''
and inserting ``section 7706''.
(17) Section 170(g)(3) is amended by striking ``section
152(d)(2)'' and inserting ``section 7706(d)(2)''.
(18) Section 172(d) is amended by striking paragraph (3).
(19) Section 220(b)(6) is amended by striking ``with respect
to whom a deduction under section 151 is allowable to'' and
inserting ``who is a dependent of''.
(20) Section 220(d)(2)(A) is amended by striking ``section
152'' and inserting ``section 7706''.
(21) Section 223(b)(6) is amended by striking ``with respect
to whom a deduction under section 151 is allowable to'' and
inserting ``who is a dependent of''.
(22) Section 223(d)(2)(A) is amended by striking ``section
152'' and inserting ``section 7706''.
(23) Section 401(h) is amended by striking ``section
152(f)(1)'' in the last sentence and inserting ``section
7706(f)(1)''.
(24) Section 402(l)(4)(D) is amended by striking ``section
152'' and inserting ``section 7706''.
(25) Section 409A(a)(2)(B)(ii)(I) is amended by striking
``section 152(a)'' and inserting ``section 7706(a)''.
(26) Section 501(c)(9) is amended by striking ``section
152(f)(1)'' and inserting ``section 7706(f)(1)''.
(27) Section 529(e)(2)(B) is amended by striking ``section
152(d)(2)'' and inserting ``section 7706(d)(2)''.
(28) Section 703(a)(2) is amended by striking subparagraph
(A) and by redesignating subparagraphs (B) through (F) as
subparagraphs (A) through (E), respectively.
(29) Section 874 is amended by striking subsection (b) and by
redesignating subsection (c) as subsection (b).
(30) Section 891 is amended by striking ``under section 151
and''.
(31) Section 904(b) is amended by striking paragraph (1).
(32) Section 931(b)(1) is amended by striking ``(other than
the deduction under section 151, relating to personal
exemptions)''.
(33) Section 933 is amended--
(A) by striking ``(other than the deduction under
section 151, relating to personal exemptions)'' in
paragraph (1), and
(B) by striking ``(other than the deduction for
personal exemptions under section 151)'' in paragraph
(2).
(34) Section 1212(b)(2)(B)(ii) is amended to read as follows:
``(ii) in the case of an estate or trust, the
deduction allowed for such year under section
642(b).''.
(35) Section 1361(c)(1)(C) is amended by striking ``section
152(f)(1)(C)'' and inserting ``section 7706(f)(1)(C)''.
(36) Section 1402(a) is amended by striking paragraph (7).
(37) Section 2032A(c)(7)(D) is amended by striking ``section
152(f)(2)'' and inserting ``section 7706(f)(2)''.
(38) Section 3402(m)(1) is amended by striking ``other than
the deductions referred to in section 151 and''.
(39) Section 3402(r)(2) is amended by striking ``the sum of--
'' and all that follows and inserting ``the standard deduction
in effect under section 63(c)(1)(B).''.
(40) Section 5000A(b)(3)(A) is amended by striking ``section
152'' and inserting ``section 7706''.
(41) Section 5000A(c)(4)(A) is amended by striking ``the
number of individuals for whom the taxpayer is allowed a
deduction under section 151 (relating to allowance of deduction
for personal exemptions) for the taxable year'' and inserting
``the sum of 1 (2 in the case of a joint return) plus the
number of the taxpayer's dependents for the taxable year''.
(42) Section 6013(b)(3)(A) is amended--
(A) by striking ``had less than the exemption amount
of gross income'' in clause (ii) and inserting ``had no
gross income'',
(B) by striking ``had gross income of the exemption
amount or more'' in clause (iii) and inserting ``had
any gross income'', and
(C) by striking the flush language following clause
(iii).
(43) Section 6103(l)(21)(A)(iii) is amended to read as
follows:
``(iii) the number of the taxpayer's
dependents,''.
(44) Section 6213(g)(2) is amended by striking subparagraph
(H).
(45) Section 6334(d)(2) is amended to read as follows:
``(2) Exempt amount.--
``(A) In general.--For purposes of paragraph (1), the
term `exempt amount' means an amount equal to--
``(i) the standard deduction, divided by
``(ii) 52.
``(B) Verified statement.--Unless the taxpayer
submits to the Secretary a written and properly
verified statement specifying the facts necessary to
determine the proper amount under subparagraph (A),
subparagraph (A) shall be applied as if the taxpayer
were a married individual filing a separate return with
no dependents.''.
(46) Section 7702B(f)(2)(C)(iii) is amended by striking
``section 152(d)(2)'' and inserting ``section 7706(d)(2)''.
(47) Section 7703(a) is amended by striking ``part V of
subchapter B of chapter 1 and''.
(48) Section 7703(b)(1) is amended by striking ``section
152(f)(1)'' and all that follows and inserting ``section
7706(f)(1),''.
(49) Section 7706(a), as redesignated by this section, is
amended by striking ``this subtitle'' and inserting ``subtitle
A''.
(50)(A) Section 7706(d)(1)(B), as redesignated by this
section, is amended by striking ``the exemption amount (as
defined in section 151(d))'' and inserting ``$4,150''.
(B) Section 7706(d), as redesignated by this section, is
amended by adding at the end the following new paragraph:
``(6) Inflation adjustment.--In the case of any calendar year
beginning after 2018, the $4,150 amount in paragraph (1)(B)
shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(c)(2)(A) for such calendar year, determined
by substituting `calendar year 2017' for `calendar year
2016' in clause (ii) thereof.
If any increase determined under the preceding sentence is not
a multiple of $100, such increase shall be rounded to the next
lowest multiple of $100.''.
(51) The table of sections for chapter 79 is amended by
adding at the end the following new item:
``Sec. 7706. Dependent defined.''.
(h) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1004. MAXIMUM RATE ON BUSINESS INCOME OF INDIVIDUALS.
(a) In General.--Part I of subchapter A of chapter 1 is amended by
inserting after section 3 the following new section:
``SEC. 4. 25 PERCENT MAXIMUM RATE ON BUSINESS INCOME OF INDIVIDUALS.
``(a) Reduction in Tax to Achieve 25 Percent Maximum Rate.--The tax
imposed by section 1 shall be reduced by the sum of--
``(1) 10 percent of the lesser of--
``(A) qualified business income, or
``(B) the excess (if any) of--
``(i) taxable income reduced by net capital
gain (as defined in section 1(h)(11)(A)), over
``(ii) the maximum dollar amount for the 25-
percent rate bracket which applies to the
taxpayer under section 1 for the taxable year,
and
``(2) 4.6 percent of the excess (if any) of--
``(A) the lesser of--
``(i) qualified business income, or
``(ii) the excess (if any) determined under
paragraph (1)(B), over
``(B) the excess of--
``(i) the maximum dollar amount for the 35-
percent rate bracket which applies to the
taxpayer under section 1 for the taxable year,
over
``(ii) the maximum dollar amount for the 25-
percent rate bracket which applies to the
taxpayer under section 1 for the taxable year.
``(b) Qualified Business Income.--For purposes of this section, the
term `qualified business income' means the excess (if any) of--
``(1) the sum of--
``(A) 100 percent of any net business income derived
from any passive business activity, plus
``(B) the capital percentage of any net business
income derived from any active business activity, over
``(2) the sum of--
``(A) 100 percent of any net business loss derived
from any passive business activity,
``(B) except as provided in subsection (e)(3)(A), 30
percent of any net business loss derived from any
active business activity, plus
``(C) any carryover business loss determined for the
preceding taxable year.
``(c) Determination of Net Business Income or Loss.--For purposes of
this section--
``(1) In general.--Net business income or loss shall be
determined with respect to any business activity by
appropriately netting items of income, gain, deduction, and
loss with respect to such business activity.
``(2) Wages, etc.--Any wages (as defined in section 3401),
payments described in subsection (a) or (c) of section 707, or
directors' fees received by the taxpayer which are properly
attributable to any business activity shall be taken into
account under paragraph (1) as an item of income with respect
to such business activity.
``(3) Exception for certain investment-related items.--There
shall not be taken into account under paragraph (1)--
``(A) any item of short-term capital gain, short-term
capital loss, long-term capital gain, or long-term
capital loss,
``(B) any dividend, income equivalent to a dividend,
or payment in lieu of dividends described in section
954(c)(1)(G),
``(C) any interest income other than interest income
which is properly allocable to a trade or business,
``(D) any item of gain or loss described in
subparagraph (C) or (D) of section 954(c)(1) (applied
by substituting `business activity' for `controlled
foreign corporation'),
``(E) any item of income, gain, deduction, or loss
taken into account under section 954(c)(1)(F)
(determined without regard to clause (ii) thereof and
other than items attributable to notional principal
contracts entered into in transactions qualifying under
section 1221(a)(7)),
``(F) any amount received from an annuity which is
not received in connection with the trade or business
of the business activity, and
``(G) any item of deduction or loss properly
allocable to an amount described in any of the
preceding subparagraphs.
``(4) Application of restrictions applicable to determining
taxable income.--Net business income or loss shall be
appropriately adjusted so as only to take into account any
amount of income, gain, deduction, or loss to the extent such
amount affects the determination of taxable income for the
taxable year.
``(5) Carryover business loss.--For purposes of subsection
(b)(2)(C), the carryover business loss determined for any
taxable year is the excess (if any) of the sum described in
subsection (b)(2) over the sum described in subsection (b)(1)
for such taxable year.
``(d) Passive and Active Business Activity.--For purposes of this
section--
``(1) Passive business activity.--The term `passive business
activity' means any passive activity as defined in section
469(c) determined without regard to paragraphs (3) and (6)(B)
thereof.
``(2) Active business activity.--The term `active business
activity' means any business activity which is not a passive
business activity.
``(3) Business activity.--The term `business activity' means
any activity (within the meaning of section 469) which involves
the conduct of any trade or business.
``(e) Capital Percentage.--For purposes of this section--
``(1) In general.--Except as otherwise provided in this
section, the term `capital percentage' means 30 percent.
``(2) Increased percentage for capital-intensive business
activities.--In the case of a taxpayer who elects the
application of this paragraph with respect to any active
business activity (other than a specified service activity),
the capital percentage shall be equal to the applicable
percentage (as defined in subsection (f)) for each taxable year
with respect to which such election applies. Any election made
under this paragraph shall apply to the taxable year for which
such election is made and each of the 4 subsequent taxable
years. Such election shall be made not later than the due date
(including extensions) for the return of tax for the taxable
year for which such election is made, and, once made, may not
be revoked.
``(3) Treatment of specified service activities.--
``(A) In general.--In the case of any active business
activity which is a specified service activity--
``(i) the capital percentage shall be 0
percent, and
``(ii) subsection (b)(2)(B) shall be applied
by substituting `0 percent' for `30 percent'.
``(B) Exception for capital-intensive specified
service activities.--If--
``(i) the taxpayer elects the application of
this subparagraph with respect to such activity
for any taxable year, and
``(ii) the applicable percentage (as defined
in subsection (f)) with respect to such
activity for such taxable year is at least 10
percent,
then subparagraph (A) shall not apply and the capital
percentage with respect to such activity shall be equal
to such applicable percentage.
``(C) Specified service activity.--The term
`specified service activity' means any activity
involving the performance of services described in
section 1202(e)(3)(A), including investing, trading, or
dealing in securities (as defined in section
475(c)(2)), partnership interests, or commodities (as
defined in section 475(e)(2)).
``(4) Reduction in capital percentage in certain cases.--The
capital percentage (determined after the application of
paragraphs (2) and (3)) with respect to any active business
activity shall not exceed 1 minus the quotient (not greater
than 1) of--
``(A) any amounts described in subsection (c)(2)
which are taken into account in determining the net
business income derived from such activity, divided by
``(B) such net business income.
``(f) Applicable Percentage.--For purposes of this section--
``(1) In general.--The term `applicable percentage' means,
with respect to any active business activity for any taxable
year, the quotient (not greater than 1) of--
``(A) the specified return on capital with respect to
such activity for such taxable year, divided by
``(B) the taxpayer's net business income derived from
such activity for such taxable year.
``(2) Specified return on capital.--The term `specified
return on capital' means, with respect to any active business
activity referred to in paragraph (1), the excess of--
``(A) the product of--
``(i) the deemed rate of return for the
taxable year, multiplied by
``(ii) the asset balance with respect to such
activity for such taxable year, over
``(B) an amount equal to the interest which is paid
or accrued, and for which a deduction is allowed under
this chapter, with respect to such activity for such
taxable year.
``(3) Deemed rate of return.--The term `deemed rate of
return' means, with respect to any taxable year, the Federal
short-term rate (determined under section 1274(d) for the month
in which or with which such taxable year ends) plus 7
percentage points.
``(4) Asset balance.--
``(A) In general.--The asset balance with respect to
any active business activity referred to in paragraph
(1) for any taxable year equals the taxpayer's adjusted
basis of any property described in section 1221(a)(2)
which is used in connection with such activity as of
the end of the taxable year (determined without regard
to sections 168(k) and 179).
``(B) Application to activities carried on through
partnerships and s corporations.--In the case of any
active business activity carried on through a
partnership or S corporation, the taxpayer shall take
into account such taxpayer's distributive or pro rata
share (as the case may be) of the asset balance with
respect to such activity as determined with respect to
such partnership or S corporation under subparagraph
(A) (applied by substituting `the partnership's or S
corporation's adjusted basis' for `the taxpayer's
adjusted basis').
``(g) Reduced Rate for Small Businesses With Net Active Business
Income.--
``(1) In general.--The tax imposed by section 1 shall be
reduced by 3 percent of the excess (if any) of--
``(A) the least of--
``(i) qualified active business income,
``(ii) taxable income reduced by net capital
gain (as defined in section 1(h)(11)(A)), or
``(iii) the 9-percent bracket threshold
amount, over
``(B) the excess (if any) of taxable income over the
applicable threshold amount.
``(2) Phase-in of rate reduction.--In the case of any taxable
year beginning before January 1, 2022, paragraph (1) shall be
applied by substituting for `3 percent'--
``(A) in the case of any taxable year beginning after
December 31, 2017, and before January 1, 2020, `1
percent', and
``(B) in the case of any taxable year beginning after
December 31, 2019, and before January 1, 2022, `2
percent'.
``(3) Qualified active business income.--For purposes of this
subsection, the term `qualified active business income' means
the excess (if any) of--
``(A) any net business income derived from any active
business activity, over
``(B) any net business loss derived from any active
business activity.
``(4) 9-percent bracket threshold amount.--For purposes of
this subsection, the term `9-percent bracket threshold amount'
means--
``(A) in the case of a joint return or surviving
spouse, $75,000,
``(B) in the case of an individual who is the head of
a household (as defined in section 2(b)), \3/4\ of the
amount in effect for the taxable year under
subparagraph (A), and
``(C) in the case of any other individual, \1/2\ of
the amount in effect for the taxable year under
subparagraph (A).
``(5) Applicable threshold amount.--For purposes of this
subsection, the term `applicable threshold amount' means--
``(A) in the case of a joint return or surviving
spouse, $150,000,
``(B) in the case of an individual who is the head of
a household (as defined in section 2(b)), \3/4\ of the
amount in effect for the taxable year under
subparagraph (A), and
``(C) in the case of any other individual, \1/2\ of
the amount in effect for the taxable year under
subparagraph (A).
``(6) Estates and trusts.--Paragraph (1) shall not apply to
any estate or trust.
``(7) Inflation adjustment.--In the case of any taxable year
beginning after 2018, the dollar amounts in paragraphs (4)(A)
and (5)(A) shall each be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
subsection (c)(2)(A) for the calendar year in which the
taxable year begins, determined by substituting
`calendar year 2017' for `calendar year 2016' in clause
(ii) thereof.
If any increase determined under the preceding sentence is not
a multiple of $100, such increase shall be rounded to the next
lowest multiple of $100.
``(h) Regulations.--The Secretary may issue such regulations or other
guidance as may be necessary or appropriate to carry out the purposes
of this section, including regulations or other guidance--
``(1) which ensures that no amount is taken into account
under subsection (f)(4) with respect to more than one activity,
and
``(2) which treats all specified service activities of the
taxpayer as a single business activity for purposes of this
section to the extent that such activities would be treated as
a single employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414.
``(i) References.--Any reference in this title to section 1 shall be
treated as including a reference to this section unless the context of
such reference clearly indicates otherwise.''.
(b) 25 Percent Rate for Certain Dividends of Real Estate Investment
Trusts and Cooperatives.--Section 1(h), as amended by the preceding
provisions of this Act, is amended by adding at the end the following
new paragraph:
``(13) 25 percent rate for certain dividends of real estate
investment trusts and cooperatives.--
``(A) In general.--For purposes of this subsection,
net capital gain (as defined in paragraph (11)) and
unrecaptured section 1250 gain (as defined in paragraph
(6)) shall each be increased by specified dividend
income.
``(B) Specified dividend income.--For purposes of
this paragraph, the term `specified dividend income'
means--
``(i) in the case of any dividend received
from a real estate investment trust, the
portion of such dividend which is neither--
``(I) a capital gain dividend (as
defined in section 852(b)(3)), nor
``(II) taken into account in
determining qualified dividend income
(as defined in paragraph (11)), and
``(ii) any dividend which is includible in
gross income and which is received from an
organization or corporation described in
section 501(c)(12) or 1381(a).''.
(c) Clerical Amendment.--The table of sections for part I of
subchapter A of chapter 1 is amended by inserting after the item
relating to section 3 the following new item:
``Sec. 4. 25 percent maximum rate on business income of individuals.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
(e) Transition Rule.--In the case of any taxable year which includes
December 31, 2017, the amendment made by subsection (a) shall apply
with respect to such taxable year adjusted--
(1) so as to apply with respect to the rates of tax in effect
under section 1 of the Internal Revenue Code of 1986 with
respect to such taxable year (and so as to achieve a 25 percent
effective rate of tax on the business income (determined
without regard to paragraph (2)) in the same manner as such
amendment applies to taxable years beginning after such date
with respect to the rates of tax in effect for such years), and
(2) by reducing the amount of the reduction in tax (as
otherwise determined under paragraph (1)) by the amount which
bears the same proportion to the amount of such reduction as
the number of days in the taxable year which are before January
1, 2018, bears to the number of days in the entire taxable
year.
SEC. 1005. CONFORMING AMENDMENTS RELATED TO SIMPLIFICATION OF
INDIVIDUAL INCOME TAX RATES.
(a) Amendments Related to Modification of Inflation Adjustment.--
(1) Section 32(b)(2)(B)(ii)(II) is amended by striking
``section 1(f)(3) for the calendar year in which the taxable
year begins determined by substituting `calendar year 2008' for
`calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) for the calendar year in which
the taxable year begins determined by substituting `calendar
year 2008' for `calendar year 2016' in clause (ii) thereof''.
(2) Section 32(j)(1)(B) is amended--
(A) in the matter preceding clause (i), by striking
``section 1(f)(3)'' and inserting ``section
1(c)(2)(A)'',
(B) in clause (i), by striking ``for `calendar year
1992' in subparagraph (B) thereof'' and inserting ``for
`calendar year 2016' in clause (ii) thereof'', and
(C) in clause (ii), by striking ``for `calendar year
1992' in subparagraph (B) of such section 1'' and
inserting ``for `calendar year 2016' in clause (ii)
thereof''.
(3) Section 36B(b)(3)(A)(ii)(II) is amended by striking
``consumer price index'' and inserting ``C-CPI-U (as defined in
section 1(c))''.
(4) Section 41(e)(5)(C) is amended to read as follows:
``(C) Cost-of-living adjustment defined.--
``(i) In general.--The cost-of-living
adjustment for any calendar year is the cost-
of-living adjustment for such calendar year
determined under section 1(c)(2)(A), by
substituting `calendar year 1987' for `calendar
year 2016' in clause (ii) thereof.
``(ii) Special rule where base period ends in
a calendar year other than 1983 or 1984.--If
the base period of any taxpayer does not end in
1983 or 1984, clause (i) shall be applied by
substituting the calendar year in which such
base period ends for 1987.''.
(5) Section 42(e)(3)(D)(ii) is amended by striking ``section
1(f)(3) for such calendar year by substituting `calendar year
2008' for `calendar year 1992' in subparagraph (B) thereof''
and inserting ``section 1(c)(2)(A) for such calendar year by
substituting `calendar year 2008' for `calendar year 2016' in
clause (ii) thereof''.
(6) Section 42(h)(3)(H)(i)(II) is amended by striking
``section 1(f)(3) for such calendar year by substituting
`calendar year 2001' for `calendar year 1992' in subparagraph
(B) thereof'' and inserting ``section 1(c)(2)(A) for such
calendar year by substituting `calendar year 2001' for
`calendar year 2016' in clause (ii) thereof''.
(7) Section 45R(d)(3)(B)(ii) is amended by striking ``section
1(f)(3) for the calendar year, determined by substituting
`calendar year 2012' for `calendar year 1992' in subparagraph
(B) thereof'' and inserting ```section 1(c)(2)(A) for such
calendar year, determined by substituting ``calendar year
2012'' for ``calendar year 2016'' in clause (ii) thereof'''.
(8) Section 125(i)(2) is amended--
(A) by striking ``section 1(f)(3) for the calendar
year in which the taxable year begins by substituting
`calendar year 2012' for `calendar year 1992' in
subparagraph (B) thereof'' in subparagraph (B) and
inserting ``section 1(c)(2)(A) for the calendar year in
which the taxable year begins'', and
(B) by striking ``$50'' both places it appears in the
last sentence and inserting ``$100''.
(9) Section 162(o)(3) is amended by inserting ``as in effect
before enactment of the Tax Cuts and Jobs Act'' after ``section
1(f)(5)''.
(10) Section 220(g)(2) is amended by striking ``section
1(f)(3) for the calendar year in which the taxable year begins
by substituting `calendar year 1997' for `calendar year 1992'
in subparagraph (B) thereof'' and inserting ``section
1(c)(2)(A) for the calendar year in which the taxable year
begins, determined by substituting `calendar year 1997' for
`calendar year 2016' in clause (ii) thereof''.
(11) Section 223(g)(1) is amended by striking all that
follows subparagraph (A) and inserting the following:
``(B) the cost-of-living adjustment determined under
section 1(c)(2)(A) for the calendar year in which the
taxable year begins, determined--
``(i) by substituting for `calendar year
2016' in clause (ii) thereof--
``(I) except as provided in clause
(ii), `calendar year 1997', and
``(II) in the case of each dollar
amount in subsection (c)(2)(A),
`calendar year 2003', and
``(ii) by substituting `March 31' for `August
31' in paragraphs (5)(B) and (6)(B) of section
1(c).
The Secretary shall publish the dollar amounts as
adjusted under this subsection for taxable years
beginning in any calendar year no later than June 1 of
the preceding calendar year.''.
(12) Section 430(c)(7)(D)(vii)(II) is amended by striking
``section 1(f)(3) for the calendar year, determined by
substituting `calendar year 2009' for `calendar year 1992' in
subparagraph (B) thereof'' and inserting ``section 1(c)(2)(A)
for the calendar year, determined by substituting `calendar
year 2009' for `calendar year 2016' in clause (ii) thereof''.
(13) Section 512(d)(2)(B) is amended by striking ``section
1(f)(3) for the calendar year in which the taxable year begins,
by substituting `calendar year 1994' for `calendar year 1992'
in subparagraph (B) thereof''and inserting ``section 1(c)(2)(A)
for the calendar year in which the taxable year begins,
determined by substituting `calendar year 1994' for `calendar
year 2016' in clause (ii) thereof''.
(14) Section 513(h)(2)(C)(ii) is amended by striking
``section 1(f)(3) for the calendar year in which the taxable
year begins by substituting `calendar year 1987' for `calendar
year 1992' in subparagraph (B) thereof'' and inserting
``section 1(c)(2)(A) for the calendar year in which the taxable
year begins, determined by substituting `calendar year 1987'
for `calendar year 2016' in clause (ii) thereof''.
(15) Section 831(b)(2)(D)(ii) is amended by striking
``section 1(f)(3) for such calendar year by substituting
`calendar year 2013' for `calendar year 1992' in subparagraph
(B) thereof'' and inserting ``section 1(c)(2)(A) for such
calendar year by substituting `calendar year 2013' for
`calendar year 2016' in clause (ii) thereof''.
(16) Section 877A(a)(3)(B)(i)(II) is amended by striking
``section 1(f)(3) for the calendar year in which the taxable
year begins, by substituting `calendar year 2007' for `calendar
year 1992' in subparagraph (B) thereof'' and inserting
``section 1(c)(2)(A) for the calendar year in which the taxable
year begins, determined by substituting `calendar year 2007'
for `calendar year 2016' in clause (ii) thereof''.
(17) Section 911(b)(2)(D)(ii)(II) is amended by striking
``section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting `2004' for `1992' in
subparagraph (B) thereof'' and inserting ``section 1(c)(2)(A)
for the calendar year in which the taxable year begins,
determined by substituting `calendar year 2004' for `calendar
year 2016' in clause (ii) thereof''.
(18) Section 1274A(d)(2) is amended to read as follows:
``(2) Inflation adjustment.--
``(A) In general.--In the case of any debt instrument
arising out of a sale or exchange during any calendar
year after 2018, each adjusted dollar amount shall be
increased by an amount equal to--
``(i) such adjusted dollar amount, multiplied
by
``(ii) the cost-of-living adjustment
determined under section 1(c)(2)(A) for such
calendar year, determined by substituting
`calendar year 2017' for `calendar year 2016'
in clause (ii) thereof.
``(B) Adjusted dollar amounts.--For purposes of this
paragraph, the term `adjusted dollar amount' means the
dollar amounts in subsections (b) and (c), in each case
as in effect for calendar year 2018.
``(C) Rounding.--Any increase under subparagraph (A)
shall be rounded to the nearest multiple of $100.''.
(19) Section 2010(c)(3)(B)(ii) is amended by striking
``section 1(f)(3) for such calendar year by substituting
`calendar year 2010' for `calendar year 1992' in subparagraph
(B) thereof'' and inserting ``section 1(c)(2)(A) for such
calendar year, determined by substituting `calendar year 2010'
for `calendar year 2016' in clause (ii) thereof''.
(20) Section 2032A(a)(3)(B) is amended by striking ``section
1(f)(3) for such calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph (B) thereof''
and inserting ``section 1(c)(2)(A) for such calendar year,
determined by substituting `calendar year 1997' for `calendar
year 2016' in clause (ii) thereof''.
(21) Section 2503(b)(2)(B) is amended by striking ``section
1(f)(3) for such calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph (B) thereof''
and inserting ``section 1(c)(2)(A) for the calendar year,
determined by substituting `calendar year 1997' for `calendar
year 2016' in clause (ii) thereof''.
(22) Section 4161(b)(2)(C)(i)(II) is amended by striking
``section 1(f)(3) for such calendar year, determined by
substituting `2004' for `1992' in subparagraph (B) thereof''
and inserting ``section 1(c)(2)(A) for such calendar year,
determined by substituting `calendar year 2004' for `calendar
year 2016' in clause (ii) thereof''.
(23) Section 4261(e)(4)(A)(ii) is amended by striking
``section 1(f)(3) for such calendar year by substituting the
year before the last nonindexed year for `calendar year 1992'
in subparagraph (B) thereof'' and inserting ``section
1(c)(2)(A) for such calendar year, determined by substituting
the year before the last nonindexed year for `calendar year
2016' in clause (ii) thereof''.
(24) Section 4980I(b)(3)(C)(v)(II) is amended--
(A) by striking ``section 1(f)(3)'' and inserting
``section 1(c)(2)(A)'',
(B) by striking ``subparagraph (B)'' and inserting
``clause (ii)'', and
(C) by striking ``1992'' and inserting ``2016''.
(25) Section 5000A(c)(3)(D)(ii) is amended--
(A) by striking ``section 1(f)(3)'' and inserting
``section 1(c)(2)(A)'',
(B) by striking ``subparagraph (B)'' and inserting
``clause (ii)'', and
(C) by striking ``1992'' and inserting ``2016''.
(26) Section 6039F(d) is amended by striking ``section
1(f)(3), except that subparagraph (B) thereof'' and inserting
``section 1(c)(2)(A), except that clause (ii) thereof''.
(27) Section 6323(i)(4)(B) is amended by striking ``section
1(f)(3) for the calendar year, determined by substituting
`calendar year 1996' for `calendar year 1992' in subparagraph
(B) thereof'' and inserting ``section 1(c)(2)(A) for the
calendar year, determined by substituting `calendar year 1996'
for `calendar year 2016' in clause (ii) thereof''.
(28) Section 6334(g)(1)(B) is amended by striking ``section
1(f)(3) for such calendar year, by substituting `calendar year
1998' for `calendar year 1992' in subparagraph (B) thereof''
and inserting ``section 1(c)(2)(A) for such calendar year,
determined by substituting `calendar year 1999' for `calendar
year 2016' in clause (ii) thereof''.
(29) Section 6601(j)(3)(B) is amended by striking ``section
1(f)(3) for such calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph (B) thereof''
and inserting ``section 1(c)(2)(A) for such calendar year by
substituting `calendar year 1997' for `calendar year 2016' in
clause (ii) thereof''.
(30) Section 6651(i)(1) is amended by striking ``section
1(f)(3) determined by substituting `calendar year 2013' for
`calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) determined by substituting
`calendar year 2013' for `calendar year 2016' in clause (ii)
thereof''.
(31) Section 6721(f)(1) is amended--
(A) by striking ``section 1(f)(3)'' and inserting
``section 1(c)(2)(A)'',
(B) by striking ``subparagraph (B)'' and inserting
``clause (ii)'', and
(C) by striking ``1992'' and inserting ``2016''.
(32) Section 6722(f)(1) is amended--
(A) by striking ``section 1(f)(3)'' and inserting
``section 1(c)(2)(A)'',
(B) by striking ``subparagraph (B)'' and inserting
``clause (ii)'', and
(C) by striking ``1992'' and inserting ``2016''.
(33) Section 6652(c)(7)(A) is amended by striking ``section
1(f)(3) determined by substituting `calendar year 2013' for
`calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) determined by substituting
`calendar year 2013' for `calendar year 2016' in clause (ii)
thereof''.
(34) Section 6695(h)(1) is amended by striking ``section
1(f)(3) determined by substituting `calendar year 2013' for
`calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) determined by substituting
`calendar year 2013' for `calendar year 2016' in clause (ii)
thereof''.
(35) Section 6698(e)(1) is amended by striking ``section
1(f)(3) determined by substituting `calendar year 2013' for
`calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) determined by substituting
`calendar year 2013' for `calendar year 2016' in clause (ii)
thereof''.
(36) Section 6699(e)(1) is amended by striking ``section
1(f)(3) determined by substituting `calendar year 2013' for
`calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) determined by substituting
`calendar year 2013' for `calendar year 2016' in clause (ii)
thereof''.
(37) Section 7345(f)(2) is amended by striking ``section
1(f)(3) for the calendar year, determined by substituting
`calendar year 2015' for `calendar year 1992' in subparagraph
(B) thereof'' and inserting ``section 1(c)(2)(A) for the
calendar year, determined by substituting `calendar year 2015'
for `calendar year 2016' in clause (ii) thereof''.
(38) Section 7430(c)(1) is amended by striking ``section
1(f)(3) for such calendar year, by substituting `calendar year
1995' for `calendar year 1992' in subparagraph (B) thereof'' in
the flush text at the end and inserting ``section 1(c)(2)(A)
for such calendar year, determined by substituting `calendar
year 1995' for `calendar year 2016' in clause (ii) thereof''.
(39) Section 7872(g)(5) is amended to read as follows:
``(5) Inflation adjustment.--
``(A) In general.--In the case of any loan made
during any calendar year after 2018 to which paragraph
(1) applies, the adjusted dollar amount shall be
increased by an amount equal to--
``(i) such adjusted dollar amount, multiplied
by
``(ii) the cost-of-living adjustment
determined under section 1(c)(2)(A) for such
calendar year, determined by substituting
`calendar year 2017' for `calendar year 2016'
in clause (ii) thereof.
``(B) Adjusted dollar amount.--For purposes of this
paragraph, the term `adjusted dollar amount' means the
dollar amount in paragraph (2) as in effect for
calendar year 2018.
``(C) Rounding.--Any increase under subparagraph (A)
shall be rounded to the nearest multiple of $100.''.
(40) Section 219(b)(5)(C)(i)(II) is amended by striking
``section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting `calendar year 2007'
for `calendar year 1992' in subparagraph (B) thereof'' and
inserting ``section 1(c)(2)(A) for the calendar year in which
the taxable year begins, determined by substituting `calendar
year 2007' for `calendar year 2016' in clause (ii) thereof''.
(41) Section 219(g)(8)(B) is amended by striking ``section
1(f)(3) for the calendar year in which the taxable year begins,
determined by substituting `calendar year 2005' for `calendar
year 1992' in subparagraph (B) thereof'' and inserting
``section 1(c)(2)(A) for the calendar year in which the taxable
year begins, determined by substituting `calendar year 2005'
for `calendar year 2016' in clause (ii) thereof''.
(b) Other Conforming Amendments.--
(1) Section 36B(b)(3)(B)(ii)(I)(aa) is amended to read as
follows:
``(aa) who is described in
section 1(b)(1)(B) and who does
not have any dependents for the
taxable year,''.
(2) Section 486B(b)(1) is amended--
(A) by striking ``maximum rate in effect'' and
inserting ``highest rate specified'', and
(B) by striking ``section 1(e)'' and inserting
``section 1''.
(3) Section 511(b)(1) is amended by striking ``section 1(e)''
and inserting ``section 1''.
(4) Section 641(a) is amended by striking ``section 1(e)
shall apply to the taxable income'' and inserting ``section 1
shall apply to the taxable income''.
(5) Section 641(c)(2)(A) is amended to read as follows:
``(A) Except to the extent provided in section 1(h),
the rate of tax shall be treated as being the highest
rate of tax set forth in section 1(a).''.
(6) Section 646(b) is amended to read as follows:
``(b) Taxation of Income of Trust.--Except as provided in subsection
(f)(1)(B)(ii), there is hereby imposed on the taxable income of an
electing Settlement Trust a tax at the rate specified in section
1(a)(1). Such tax shall be in lieu of the income tax otherwise imposed
by this chapter on such income.''.
(7) Section 685(c) is amended by striking ``Section 1(e)''
and inserting ``Section 1''.
(8) Section 904(b)(3)(E)(ii)(I) is amended by striking ``set
forth in subsection (a), (b), (c), (d), or (e) of section 1
(whichever applies)'' and inserting ``the highest rate of tax
specified in section 1''.
(9) Section 1398(c)(2) is amended by striking ``subsection
(d) of''.
(10) Section 3402(p)(1)(B) is amended by striking ``any
percentage applicable to any of the 3 lowest income brackets in
the table under section 1(c),'' and inserting ``12 percent, 25
percent,''.
(11) Section 3402(q)(1) is amended by striking ``the product
of third lowest rate of tax applicable under section 1(c) and''
and inserting ``25 percent of''.
(12) Section 3402(r)(3) is amended by striking ``the amount
of tax which would be imposed by section 1(c) (determined
without regard to any rate of tax in excess of the fourth
lowest rate of tax applicable under section 1(c)) on an amount
of taxable income equal to'' and inserting ``an amount equal to
the product of 25 percent multiplied by''.
(13) Section 3406(a)(1) is amended by striking ``the product
of the fourth lowest rate of tax applicable under section 1(c)
and'' and inserting ``25 percent of''.
(14) Section 6103(e)(1)(A)(iii) is amended by inserting ``(as
in effect on the day before the date of the enactment of the
Tax Cuts and Jobs Act)'' after ``section 1(g)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle B--Simplification and Reform of Family and Individual Tax
Credits
SEC. 1101. ENHANCEMENT OF CHILD TAX CREDIT AND NEW FAMILY TAX CREDIT.
(a) Increase in Credit Amount and Addition of Other Dependents.--
(1) In General.--Section 24(a) is amended to read as follows:
``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an amount
equal to the sum of--
``(1) with respect to each qualifying child of the taxpayer,
$1,600, and
``(2) for taxable years beginning before January 1, 2023,
with respect to the taxpayer (each spouse in the case of a
joint return) and each dependent of the taxpayer to whom
paragraph (1) does not apply, $300.''.
(2) Conforming Amendments.--
(A) Section 24(c) is amended--
(i) by redesignating paragraphs (1) and (2) as
paragraphs (2) and (3), respectively,
(ii) by striking ``152(c)'' in paragraph (2) (as so
redesignated) and inserting ``7706(c)'',
(iii) by inserting before paragraph (2) (as so
redesignated) the following new paragraph:
``(1) Dependent.--
``(A) In general.--The term `dependent' shall have
the meaning given such term by section 7706.
``(B) Certain individuals not treated as
dependents.--In the case of an individual with respect
to whom a credit under this section is allowable to
another taxpayer for a taxable year beginning in the
calendar year in which the individual's taxable year
begins, the amount applicable to such individual under
subsection (a) for such individual's taxable year shall
be zero.'',
(iv) in paragraph (3) (as so redesignated)--
(I) by striking ``term `qualifying child'''
and inserting ``terms `qualifying child' and
`dependent''', and
(II) by striking ``152(b)(3)'' and inserting
``7706(b)(3)'', and
(v) in the heading by striking ``Qualifying'' and
inserting ``Dependent; Qualifying''.
(B) The heading for section 24 is amended by inserting ``and
family'' after ``child''.
(C) The table of sections for subpart A of part IV of
subchapter A of chapter 1 is amended by striking the item
relating to section 24 and inserting the following new item:
``Sec. 24. Child and family tax credit.''.
(b) Elimination of Marriage Penalty.--Section 24(b)(2) is amended--
(1) by striking ``$110,000'' in subparagraph (A) and inserting
``$230,000'',
(2) by inserting ``and'' at the end of subparagraph (A),
(3) by striking ``$75,000 in the case of an individual who is not
married'' and all that follows through the period at the end and
inserting ``one-half of the amount in effect under subparagraph (A) for
the taxable year in the case of any other individual.''.
(c) Credit Refundable up to $1,000 Per Child.--
(1) In General.--Section 24(d)(1)(A) is amended by striking all that
follows ``under this section'' and inserting the following:
``determined--
``(i) without regard to this subsection and
the limitation under section 26(a),
``(ii) without regard to subsection (a)(2),
and
``(iii) by substituting `$1,000' for `$1,600'
in subsection (a)(1), or''.
(2) Inflation Adjustment.--Section 24(d) is amended by inserting
after paragraph (2) the following new paragraph:
``(3) Inflation adjustment.--In the case of any taxable year
beginning in a calendar year after 2017, the $1,000 amount in
paragraph (1)(A)(iii) shall be increased by an amount equal
to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment under section
1(c)(2)(A) for such calendar year.
Any increase determined under the preceding sentence shall be
rounded to the next highest multiple of $100 and shall not
exceed the amount in effect under subsection (a)(2).''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1102. REPEAL OF NONREFUNDABLE CREDITS.
(a) Repeal of Section 22.--
(1) In general.--Subpart A of part IV of subchapter A of
chapter 1 is amended by striking section 22 (and by striking
the item relating to such section in the table of sections for
such subpart).
(2) Conforming amendment.--
(A) Section 86(f) is amended by striking paragraph
(1) and by redesignating paragraphs (2), (3), and (4)
as paragraphs (1), (2), and (3), respectively.
(B)(i) Subsections (c)(3)(B) and (d)(4)(A) of section
7706, as redesignated by this Act, are each amended by
striking ``(as defined in section 22(e)(3)''.
(ii) Section 7706(f), as redesignated by this Act, is
amended by redesignating paragraph (7) as paragraph (8)
and by inserting after paragraph (6) the following new
paragraph:
``(7) Permanent and total disability defined.--An individual
is permanently and totally disabled if he is unable to engage
in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than 12
months. An individual shall not be considered to be permanently
and totally disabled unless he furnishes proof of the existence
thereof in such form and manner, and at such times, as the
Secretary may require.''.
(iii) Section 415(c)(3)(C)(i) is amended by striking
``22(e)(3)'' and inserting ``7706(f)(7)''.
(iv) Section 422(c)(6) is amended by striking
``22(e)(3)'' and inserting ``7706(f)(7)''.
(b) Termination of Section 25.--Section 25, as amended by section
3601, is amended by adding at the end the following new subsection:
``(k) Termination.--No credit shall be allowed under this section
with respect to any mortgage credit certificate issued after December
31, 2017.''.
(c) Repeal of Section 30D.--
(1) In general.--Subpart B of part IV of subchapter A of
chapter 1 is amended by striking section 30D (and by striking
the item relating to such section in the table of sections for
such subpart).
(2) Conforming amendments.--
(A) Section 38(b) is amended by striking paragraph
(35).
(B) Section 1016(a) is amended by striking paragraph
(37).
(C) Section 6501(m) is amended by striking
``30D(e)(4),''.
(d) Effective Date.--
(1) In general.--Except as provided in paragraphs (2) and
(3), the amendments made by this section shall apply to taxable
years beginning after December 31, 2017.
(2) Subsection (b).--The amendment made by subsection (c)
shall apply to taxable years ending after December 31, 2017.
(3) Subsection (c).--The amendments made by subsection (d)
shall apply to vehicles placed in service in taxable years
beginning after December 31, 2017.
SEC. 1103. REFUNDABLE CREDIT PROGRAM INTEGRITY.
(a) Identification Requirements for Child and Family Tax Credit.--
(1) In general.--Section 24(e) is amended to read as follows:
``(e) Identification Requirements.--
``(1) Requirements for qualifying child.--No credit shall be
allowed under this section to a taxpayer with respect to any
qualifying child unless the taxpayer includes the name and
social security number of such qualifying child on the return
of tax for the taxable year. The preceding sentence shall not
prevent a qualifying child from being treated as a dependent
described in subsection (a)(2).
``(2) Other identification requirements.--No credit shall be
allowed under this section with respect to any individual
unless the taxpayer identification number of such individual is
included on the return of tax for the taxable year and such
identifying number was issued before the due date for filing
the return for the taxable year.
``(3) Social security number.--For purposes of this
subsection, the term `social security number' means a social
security number issued by the Social Security Administration
(but only if the social security number is issued to a citizen
of the United States or pursuant to subclause (I) (or that
portion of subclause (III) that relates to subclause (I)) of
section 205(c)(2)(B)(i) of the Social Security Act)).''.
(2) Omissions treated as mathematical or clerical error.--
(A) In general.--Section 6213(g)(2)(I) is amended to
read as follows:
``(I) an omission of a correct social security
number, or a correct TIN, required under section 24(e)
(relating to child tax credit), to be included on a
return,''.
(b) Social Security Number Must Be Provided.--
(1) In general.--Section 25A(f)(1)(A), as amended by section
1201 of this Act, is amended by striking ``taxpayer
identification number'' each place it appears and inserting
``social security number''.
(2) Omission treated as mathematical or clerical error.--
Section 6213(g)(2)(J) is amended by striking ``TIN'' and
inserting ``social security number and employer identification
number''.
(c) Individuals Prohibited From Engaging in Employment in United
States Not Eligible for Earned Income Tax Credit.--Section 32(m) is
amended--
(1) by striking ``(other than:'' and all that follows through
``of the Social Security Act)'', and
(2) by inserting before the period at the end the following:
``, but only if, in the case of subsection (c)(1)(E), the
social security number is issued to a citizen of the United
States or pursuant to subclause (I) (or that portion of
subclause (III) that relates to subclause (I)) of section
205(c)(2)(B)(i) of the Social Security Act''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1104. PROCEDURES TO REDUCE IMPROPER CLAIMS OF EARNED INCOME
CREDIT.
(a) Clarification Regarding Determination of Self-employment Income
Which Is Treated as Earned Income.--Section 32(c)(2)(B) is amended by
striking ``and'' at the end of clause (v), by striking the period at
the end of clause (vi) and inserting ``, and'', and by adding at the
end the following new clause:
``(vii) in determining the taxpayer's net
earnings from self-employment under
subparagraph (A)(ii) there shall not fail to be
taken into account any deduction which is
allowable to the taxpayer under this
subtitle.''.
(b) Required Quarterly Reporting of Wages of Employees.--Section 6011
is amended by adding at the end the following new subsection:
``(i) Employer Reporting of Wages.--Every person required to deduct
and withhold from an employee a tax under section 3101 or 3402 shall
include on each return or statement submitted with respect to such tax,
the name and address of such employee and the amount of wages for such
employee on which such tax was withheld.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after the date of the enactment of this Act.
(2) Reporting.--The Secretary of the Treasury, or his
designee, may delay the application of the amendment made by
subsection (b) for such period as such Secretary (or designee)
determines to be reasonable to allow persons adequate time to
modify electronic (or other) systems to permit such person to
comply with the requirements of such amendment.
SEC. 1105. CERTAIN INCOME DISALLOWED FOR PURPOSES OF THE EARNED INCOME
TAX CREDIT.
(a) Substantiation Requirement.--Section 32 is amended by adding at
the end the following new subsection:
``(n) Inconsistent Income Reporting.--If the earned income of a
taxpayer claimed on a return for purposes of this section is not
substantiated by statements or returns under sections 6051, 6052,
6041(a), or 6050W with respect to such taxpayer, the Secretary may
require such taxpayer to provide books and records to substantiate such
income, including for the purpose of preventing fraud.''.
(b) Exclusion of Unsubstantiated Amount From Earned Income.--Section
32(c)(2) is amended by adding at the end the following new
subparagraph:
``(C) Exclusion.--In the case of a taxpayer with
respect to which there is an inconsistency described in
subsection (n) who fails to substantiate such
inconsistency to the satisfaction of the Secretary, the
term `earned income' shall not include amounts to the
extent of such inconsistency.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years ending after the date of the enactment of this Act.
Subtitle C--Simplification and Reform of Education Incentives
SEC. 1201. AMERICAN OPPORTUNITY TAX CREDIT.
(a) In General.--Section 25A is amended to read as follows:
``SEC. 25A. AMERICAN OPPORTUNITY TAX CREDIT.
``(a) In General.--In the case of an individual, there shall be
allowed as a credit against the tax imposed by this chapter for the
taxable year an amount equal to the sum of--
``(1) 100 percent of so much of the qualified tuition and
related expenses paid by the taxpayer during the taxable year
(for education furnished to any eligible student for whom an
election is in effect under this section for such taxable year
during any academic period beginning in such taxable year) as
does not exceed $2,000, plus
``(2) 25 percent of so much of such expenses so paid as
exceeds the dollar amount in effect under paragraph (1) but
does not exceed twice such dollar amount.
``(b) Portion of Credit Refundable.--40 percent of the credit
allowable under subsection (a)(1) (determined without regard to this
subsection and section 26(a) and after application of all other
provisions of this section) shall be treated as a credit allowable
under subpart C (and not under this part). The preceding sentence shall
not apply to any taxpayer for any taxable year if such taxpayer is a
child to whom section 1(d) applies for such taxable year.
``(c) Limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount allowable as a credit under
subsection (a) for any taxable year shall be reduced (but not
below zero) by an amount which bears the same ratio to the
amount so allowable (determined without regard to this
subsection and subsection (b) but after application of all
other provisions of this section) as--
``(A) the excess of--
``(i) the taxpayer's modified adjusted gross
income for such taxable year, over
``(ii) $80,000 (twice such amount in the case
of a joint return), bears to
``(B) $10,000 (twice such amount in the case of a
joint return).
``(2) Modified adjusted gross income.--For purposes of this
subsection, the term `modified adjusted gross income' means the
adjusted gross income of the taxpayer for the taxable year
increased by any amount excluded from gross income under
section 911, 931, or 933.
``(d) Other Limitations.--
``(1) Credit allowed only for 5 taxable years.--An election
to have this section apply may not be made for any taxable year
if such an election (by the taxpayer or any other individual)
is in effect with respect to such student for any 5 prior
taxable years.
``(2) Credit allowed only for first 5 years of postsecondary
education.--
``(A) In general.--No credit shall be allowed under
subsection (a) for a taxable year with respect to the
qualified tuition and related expenses of an eligible
student if the student has completed (before the
beginning of such taxable year) the first 5 years of
postsecondary education at an eligible educational
institution.
``(B) Fifth year limitations.--In the case of an
eligible student with respect to whom an election has
been in effect for 4 preceding taxable years for
purposes of the fifth taxable year--
``(i) the amount of the credit allowed under
this section for the taxable year shall not
exceed an amount equal to 50 percent of the
credit otherwise determined with respect to
such student under this section (without regard
to this subparagraph), and
``(ii) the amount of the credit determined
under subsection (b) and allowable under
subpart C shall not exceed an amount equal to
40 percent of the amount determined with
respect to such student under clause (i).
``(e) Definitions.--For purposes of this section--
``(1) Eligible student.-- The term `eligible student' means,
with respect to any academic period, a student who--
``(A) meets the requirements of section 484(a)(1) of
the Higher Education Act of 1965 (20 U.S.C.
1091(a)(1)), as in effect on August 5, 1997, and
``(B) is carrying at least \1/2\ the normal full-time
work load for the course of study the student is
pursuing.
``(2) Qualified tuition and related expenses.--
``(A) In general.--The term `qualified tuition and
related expenses' means tuition, fees, and course
materials, required for enrollment or attendance of--
``(i) the taxpayer,
``(ii) the taxpayer's spouse, or
``(iii) any dependent of the taxpayer,
at an eligible educational institution for courses of
instruction of such individual at such institution.
``(B) Exception for education involving sports,
etc.--Such term does not include expenses with respect
to any course or other education involving sports,
games, or hobbies, unless such course or other
education is part of the individual's degree program.
``(C) Exception for nonacademic fees.--Such term does
not include student activity fees, athletic fees,
insurance expenses, or other expenses unrelated to an
individual's academic course of instruction.
``(3) Eligible educational institution.--The term `eligible
educational institution' means an institution--
``(A) which is described in section 481 of the Higher
Education Act of 1965 (20 U.S.C. 1088), as in effect on
August 5, 1997, and
``(B) which is eligible to participate in a program
under title IV of such Act.
``(f) Special Rules.--
``(1) Identification requirements.--
``(A) Student.--No credit shall be allowed under
subsection (a) to a taxpayer with respect to the
qualified tuition and related expenses of an individual
unless the taxpayer includes the name and taxpayer
identification number of such individual on the return
of tax for the taxable year, and such taxpayer
identification number was issued on or before the due
date for filing such return.
``(B) Taxpayer.--No credit shall be allowed under
this section if the identifying number of the taxpayer
was issued after the due date for filing the return for
the taxable year.
``(C) Institution.--No credit shall be allowed under
this section unless the taxpayer includes the employer
identification number of any institution to which
qualified tuition and related expenses were paid with
respect to the individual.
``(2) Adjustment for certain scholarships, etc.--The amount
of qualified tuition and related expenses otherwise taken into
account under subsection (a) with respect to an individual for
an academic period shall be reduced (before the application of
subsection (c)) by the sum of any amounts paid for the benefit
of such individual which are allocable to such period as--
``(A) a qualified scholarship which is excludable
from gross income under section 117,
``(B) an educational assistance allowance under
chapter 30, 31, 32, 34, or 35 of title 38, United
States Code, or under chapter 1606 of title 10, United
States Code, and
``(C) a payment (other than a gift, bequest, devise,
or inheritance within the meaning of section 102(a))
for such individual's educational expenses, or
attributable to such individual's enrollment at an
eligible educational institution, which is excludable
from gross income under any law of the United States.
``(3) Treatment of expenses paid by dependent.--If an
individual is a dependent of another taxpayer for a taxable
year beginning in the calendar year in which such individuals
taxable year begins--
``(A) no credit shall be allowed under subsection (a)
to such individual for such individual's taxable year,
and
``(B) qualified tuition and related expenses paid by
such individual during such individual's taxable year
shall be treated for purposes of this section as paid
by such other taxpayer.
``(4) Treatment of certain prepayments.--If qualified tuition
and related expenses are paid by the taxpayer during a taxable
year for an academic period which begins during the first 3
months following such taxable year, such academic period shall
be treated for purposes of this section as beginning during
such taxable year.
``(5) Denial of double benefit.--No credit shall be allowed
under this section for any amount for which a deduction is
allowed under any other provision of this chapter.
``(6) No credit for married individuals filing separate
returns.--If the taxpayer is a married individual (within the
meaning of section 7703), this section shall apply only if the
taxpayer and the taxpayer's spouse file a joint return for the
taxable year.
``(7) Nonresident aliens.--If the taxpayer is a nonresident
alien individual for any portion of the taxable year, this
section shall apply only if such individual is treated as a
resident alien of the United States for purposes of this
chapter by reason of an election under subsection (g) or (h) of
section 6013.
``(8) Restrictions on taxpayers who improperly claimed credit
in prior year.--
``(A) Taxpayers making prior fraudulent or reckless
claims.--
``(i) In general.--No credit shall be allowed
under this section for any taxable year in the
disallowance period.
``(ii) Disallowance period.--For purposes of
clause (i), the disallowance period is--
``(I) the period of 10 taxable years
after the most recent taxable year for
which there was a final determination
that the taxpayer's claim of credit
under this section was due to fraud,
and
``(II) the period of 2 taxable years
after the most recent taxable year for
which there was a final determination
that the taxpayer's claim of credit
under this section was due to reckless
or intentional disregard of rules and
regulations (but not due to fraud).
``(B) Taxpayers making improper prior claims.--In the
case of a taxpayer who is denied credit under this
section for any taxable year as a result of the
deficiency procedures under subchapter B of chapter 63,
no credit shall be allowed under this section for any
subsequent taxable year unless the taxpayer provides
such information as the Secretary may require to
demonstrate eligibility for such credit.
``(g) Inflation Adjustment.--
``(1) In general.--In the case of a taxable year beginning
after 2018, the $80,000 amount in subsection (c)(1)(A)(ii)
shall each be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(c)(2)(A) for the calendar year in which the
taxable year begins, determined by substituting
`calendar year 2017' for `calendar year 2016' in clause
(ii) thereof.
``(2) Rounding.--If any amount as adjusted under paragraph
(1) is not a multiple of $1,000, such amount shall be rounded
to the next lowest multiple of $1,000.
``(h) Regulations.--The Secretary may prescribe such regulations or
other guidance as may be necessary or appropriate to carry out this
section, including regulations providing for a recapture of the credit
allowed under this section in cases where there is a refund in a
subsequent taxable year of any amount which was taken into account in
determining the amount of such credit.''.
(b) Conforming Amendments.--
(1) Section 72(t)(7)(B) is amended by striking ``section
25A(g)(2)'' and inserting ``section 25A(f)(2)''.
(2) Section 529(c)(3)(B)(v)(I) is amended by striking
``section 25A(g)(2)'' and inserting ``section 25A(f)(2)''.
(3) Section 529(e)(3)(B)(i) is amended by striking ``section
25A(b)(3)'' and inserting ``section 25A(d)''.
(4) Section 530(d)(2)(C) is amended--
(A) by striking ``section 25A(g)(2)'' in clause
(i)(I) and inserting ``section 25A(f)(2)'', and
(B) by striking ``Hope and lifetime learning
credits'' in the heading and inserting ``American
opportunity tax credit''.
(5) Section 530(d)(4)(B)(iii) is amended by striking
``section 25A(g)(2)'' and inserting ``section 25A(d)(4)(B)''.
(6) Section 6050S(e) is amended by striking ``subsection
(g)(2)'' and inserting ``subsection (f)(2)''.
(7) Section 6211(b)(4)(A) is amended by striking ``subsection
(i)(6)'' and inserting ``subsection (b)''.
(8) Section 6213(g)(2)(J) is amended by striking ``TIN
required under section 25A(g)(1)'' and inserting ``TIN, and
employer identification number, required under section
25A(f)(1)''.
(9) Section 6213(g)(2)(Q) is amended to read as follows:
``(Q) an omission of information required by section
25A(f)(8)(B) or an entry on the return claiming the
credit determined under section 25A(a) for a taxable
year for which the credit is disallowed under section
25A(f)(8)(A).''.
(10) Section 1004(c) of division B of the American Recovery
and Reinvestment Tax Act of 2009 is amended--
(A) in paragraph (1)--
(i) by striking ``section 25A(i)(6)'' each
place it appears and inserting ``section
25A(b)'', and
(ii) by striking ``with respect to taxable
years beginning after 2008 and before 2018''
each place it appears and inserting ``with
respect to each taxable year'',
(B) in paragraph (2), by striking ``Section
25A(i)(6)'' and inserting ``Section 25A(b)'', and
(C) in paragraph (3)(C), by striking ``subsection
(i)(6)'' and inserting ``subsection (b)''.
(11) The table of sections for subpart A of part IV of
subchapter A of chapter 1 is amended by striking the item
relating to section 25A and inserting the following new item:
``Sec. 25A. American opportunity tax credit.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1202. CONSOLIDATION OF EDUCATION SAVINGS RULES.
(a) No New Contributions to Coverdell Education Savings Account.--
Section 530(b)(1)(A) is amended to read as follows:
``(A) Except in the case of rollover contributions,
no contribution will be accepted after December 31,
2017.''.
(b) Limited Distribution Allowed for Elementary and Secondary
Tuition.--
(1) In general.--Section 529(c) is amended by adding at the
end the following new paragraph:
``(7) Treatment of elementary and secondary tuition.--Any
reference in this subsection to the term `qualified higher
education expense' shall include a reference to expenses for
tuition in connection with enrollment at an elementary or
secondary school.''.
(2) Limitation.--Section 529(e)(3)(A) is amended by adding at
the end the following: ``The amount of cash distributions from
all qualified tuition programs described in subsection
(b)(1)(A)(ii) with respect to a beneficiary during any taxable
year, shall, in the aggregate, include not more than $10,000 in
expenses for tuition incurred during the taxable year in
connection with the enrollment or attendance of the beneficiary
as an elementary or secondary school student at a public,
private, or religious school.''.
(c) Rollovers to Qualified Tuition Programs Permitted.--Section
530(d)(5) is amended by inserting ``, or into (by purchase or
contribution) a qualified tuition program (as defined in section
529),'' after ``into another Coverdell education savings account''.
(d) Distributions From Qualified Tuition Programs for Certain
Expenses Associated With Registered Apprenticeship Programs.--Section
529(e)(3) is amended by adding at the end the following new
subparagraph:
``(C) Certain expenses associated with registered
apprenticeship programs.--The term `qualified higher
education expenses' shall include books, supplies, and
equipment required for the enrollment or attendance of
a designated beneficiary in an apprenticeship program
registered and certified with the Secretary of Labor
under section 1 of the National Apprenticeship Act (29
U.S.C. 50).''.
(e) Unborn Children Allowed as Account Beneficiaries.--Section 529(e)
is amended by adding at the end the following new paragraph:
``(6) Treatment of unborn children.--
``(A) In general.--Nothing shall prevent an unborn
child from being treated as a designated beneficiary or
an individual under this section.
``(B) Unborn child.--For purposes of this paragraph--
``(i) In general.--The term `unborn child'
means a child in utero.
``(ii) Child in utero.--The term `child in
utero' means a member of the species homo
sapiens, at any stage of development, who is
carried in the womb.''.
(f) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
contributions made after December 31, 2017.
(2) Rollovers to qualified tuition programs.--The amendments
made by subsection (b) shall apply to distributions after
December 31, 2017.
SEC. 1203. REFORMS TO DISCHARGE OF CERTAIN STUDENT LOAN INDEBTEDNESS.
(a) Treatment of Student Loans Discharged on Account of Death or
Disability.--Section 108(f) is amended by adding at the end the
following new paragraph:
``(5) Discharges on account of death or disability.--
``(A) In general.--In the case of an individual,
gross income does not include any amount which (but for
this subsection) would be includible in gross income by
reasons of the discharge (in whole or in part) of any
loan described in subparagraph (B) if such discharge
was--
``(i) pursuant to subsection (a) or (d) of
section 437 of the Higher Education Act of 1965
or the parallel benefit under part D of title
IV of such Act (relating to the repayment of
loan liability),
``(ii) pursuant to section 464(c)(1)(F) of
such Act, or
``(iii) otherwise discharged on account of
the death or total and permanent disability of
the student.
``(B) Loans described.--A loan is described in this
subparagraph if such loan is--
``(i) a student loan (as defined in paragraph
(2)), or
``(ii) a private education loan (as defined
in section 140(7) of the Consumer Credit
Protection Act (15 U.S.C. 1650(7))).''.
(b) Exclusion From Gross Income for Payments Made Under Indian Health
Service Loan Repayment Program.--
(1) In general.--Section 108(f)(4) is amended by inserting
``under section 108 of the Indian Health Care Improvement
Act,'' after ``338I of such Act,''.
(2) Clerical amendment.--The heading for section 108(f)(4) is
amended by striking ``and certain'' and inserting ``, indian
health service loan repayment program, and certain''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)(1)
shall apply to discharges of indebtedness after December 31,
2017.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to amounts received in taxable years beginning
after December 31, 2017.
SEC. 1204. REPEAL OF OTHER PROVISIONS RELATING TO EDUCATION.
(a) In General.--Subchapter B of chapter 1 is amended--
(1) in part VII by striking sections 221 and 222 (and by
striking the items relating to such sections in the table of
sections for such part),
(2) in part VII by striking sections 135 and 127 (and by
striking the items relating to such sections in the table of
sections for such part), and
(3) by striking subsection (d) of section 117.
(b) Conforming Amendment Relating to Section 221.--
(1) Section 62(a) is amended by striking paragraph (17).
(2) Section 74(d) is amended by striking ``221,''.
(3) Section 86(b)(2)(A) is amended by striking ``221,''.
(4) Section 219(g)(3)(A)(ii) is amended by striking ``221,''.
(5) Section 163(h)(2) is amended by striking subparagraph
(F).
(6) Section 6050S(a) is amended--
(A) by inserting ``or'' at the end of paragraph (1),
(B) by striking ``or'' at the end of paragraph (2),
and
(C) by striking paragraph (3).
(7) Section 6050S(e) is amended by striking all that follows
``thereof)'' and inserting a period.
(c) Conforming Amendments Related to Section 222.--
(1) Section 62(a) is amended by striking paragraph (18).
(2) Section 74(d)(2)(B) is amended by striking ``222,''.
(3) Section 86(b)(2)(A) is amended by striking ``222,''.
(4) Section 219(g)(3)(A)(ii) is amended by striking ``222,''.
(d) Conforming Amendments Relating to Section 127.--
(1) Section 125(f)(1) is amended by striking ``127,''.
(2) Section 132(j)(8) is amended by striking ``which are not
excludable from gross income under section 127''.
(3) Section 414(n)(3)(C) is amended by striking ``127,''.
(4) Section 414(t)(2) is amended by striking ``127,''.
(5) Section 3121(a)(18) is amended by striking ``127,''.
(6) Section 3231(e) is amended by striking paragraph (6).
(7) Section 3306(b)(13) is amended by ``127,''.
(8) Section 3401(a)(18) is amended by striking ``127,''.
(9) Section 6039D(d)(1) is amended by striking ``, 127''.
(e) Conforming Amendments Relating to Section 117(d).--
(1) Section 117(c)(1) is amended--
(A) by striking ``subsections (a) and (d)'' and
inserting ``subsection (a)'', and
(B) by striking ``or qualified tuition reduction''.
(2) Section 414(n)(3)(C) is amended by striking ``117(d),''.
(3) Section 414(t)(2) is amended by striking ``117(d),''.
(f) Conforming Amendments Related to Section 135.--
(1) Section 74(d)(2)(B) is amended by striking ``135,''.
(2) Section 86(b)(2)(A) is amended by striking ``135,''.
(3) Section 219(g)(3)(A)(ii) is amended by striking ``135,''.
(g) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2017.
(2) Amendments relating to section 117(d).--The amendments
made by subsections (a)(3) and (e) shall apply to amounts paid
or incurred after December 31, 2017.
SEC. 1205. ROLLOVERS BETWEEN QUALIFIED TUITION PROGRAMS AND QUALIFIED
ABLE PROGRAMS.
(a) Rollovers From Qualified Tuition Programs to Qualified ABLE
Programs.--Section 529(c)(3)(C)(i) is amended by striking ``or'' at the
end of subclause (I), by striking the period at the end of subclause
(II) and inserting ``, or'', and by adding at the end the following new
subclause:
``(III) to an ABLE account (as
defined in section 529A(e)(6)) of the
designated beneficiary or a member of
the family of the designated
beneficiary.
Subclause (III) shall not apply to so much of a
distribution which, when added to all other
contributions made to the ABLE account for the
taxable year, exceeds the limitation under
section 529A(b)(2)(B).''.
(b) Effective Date.--The amendments made by this section shall apply
to distributions after December 31, 2017.
Subtitle D--Simplification and Reform of Deductions
SEC. 1301. REPEAL OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.
(a) In General.--Part 1 of subchapter B of chapter 1 is amended by
striking section 68 (and the item relating to such section in the table
of sections for such part).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1302. MORTGAGE INTEREST.
(a) Modification of Limitations.--
(1) In general.--Section 163(h)(3) is amended to read as
follows:
``(3) Qualified residence interest.--For purposes of this
subsection--
``(A) In general.--The term `qualified residence
interest' means any interest which is paid or accrued
during the taxable year on indebtedness which--
``(i) is incurred in acquiring, constructing,
or substantially improving any qualified
residence (determined as of the time the
interest is accrued) of the taxpayer, and
``(ii) is secured by such residence.
Such term also includes interest on any indebtedness
secured by such residence resulting from the
refinancing of indebtedness meeting the requirements of
the preceding sentence (or this sentence); but only to
the extent the amount of the indebtedness resulting
from such refinancing does not exceed the amount of the
refinanced indebtedness.
``(B) Limitation.--The aggregate amount of
indebtedness taken into account under subparagraph (A)
for any period shall not exceed $500,000 (half of such
amount in the case of a married individual filing a
separate return).
``(C) Treatment of indebtedness incurred on or before
november 2, 2017.--
``(i) In general.--In the case of any pre-
November 2, 2017, indebtedness, this paragraph
shall apply as in effect immediately before the
enactment of the Tax Cuts and Jobs Act.
``(ii) Pre-november 2, 2017, indebtedness.--
For purposes of this subparagraph, the term
`pre-November 2, 2017, indebtedness' means--
``(I) any principal residence
acquisition indebtedness which was
incurred on or before November 2, 2017,
or
``(II) any principal residence
acquisition indebtedness which is
incurred after November 2, 2017, to
refinance indebtedness described in
clause (i) (or refinanced indebtedness
meeting the requirements of this
clause) to the extent (immediately
after the refinancing) the principal
amount of the indebtedness resulting
from the refinancing does not exceed
the principal amount of the refinanced
indebtedness (immediately before the
refinancing).
``(iii) Limitation on period of
refinancing.--clause (ii)(II) shall not apply
to any indebtedness after--
``(I) the expiration of the term of
the original indebtedness, or
``(II) if the principal of such
original indebtedness is not amortized
over its term, the expiration of the
term of the 1st refinancing of such
indebtedness (or if earlier, the date
which is 30 years after the date of
such 1st refinancing).
``(iv) Binding contract exception.--In the
case of a taxpayer who enters into a written
binding contract before November 2, 2017, to
close on the purchase of a principal residence
before January 1, 2018, and who purchases such
residence before April 1, 2018, subparagraphs
(A) and (B) shall be applied by substituting
`April 1, 2018' for `November 2, 2017'.''.
(2) Conforming amendments.--
(A) Section 108(h)(2) is by striking ``for
`$1,000,000 ($500,000' in clause (ii) thereof'' and
inserting ``for `$500,000 ($250,000' in paragraph
(2)(A), and `$1,000,000' for `$500,000' in paragraph
(2)(B), thereof''.
(B) Section 163(h) is amended by striking
subparagraphs (E) and (F) in paragraph (4).
(b) Taxpayers Limited to 1 Qualified Residence.--Section
163(h)(4)(A)(i) is amended to read as follows:
``(i) In general.--The term `qualified
residence' means the principal residence
(within the meaning of section 121) of the
taxpayer.''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to interest paid or accrued in taxable years beginning
after December 31, 2017, with respect to indebtedness incurred
before, on, or after such date.
(2) Treatment of grandfathered indebtedness.--For application
of the amendments made by this section to grandfathered
indebtedness, see paragraph (3)(C) of section 163(h) of the
Internal Revenue Code of 1986, as amended by this section.
SEC. 1303. REPEAL OF DEDUCTION FOR CERTAIN TAXES NOT PAID OR ACCRUED IN
A TRADE OR BUSINESS.
(a) In General.--Section 164(b)(5) is amended to read as follows:
``(5) Limitation in case of individuals.--In the case of a
taxpayer other than a corporation--
``(A) foreign real property taxes (other than taxes
which are paid or accrued in carrying on a trade or
business or an activity described in section 212) shall
not be taken into account under subsection (a)(1),
``(B) the aggregate amount of taxes (other than taxes
which are paid or accrued in carrying on a trade or
business or an activity described in section 212) taken
into account under subsection (a)(1) for any taxable
year shall not exceed $10,000 ($5,000 in the case of a
married individual filing a separate return),
``(C) subsection (a)(2) shall only apply to taxes
which are paid or accrued in carrying on a trade or
business or an activity described in section 212, and
``(D) subsection (a)(3) shall not apply to State and
local taxes.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1304. REPEAL OF DEDUCTION FOR PERSONAL CASUALTY LOSSES.
(a) In General.--Section 165(c) is amended by inserting ``and'' at
the end of paragraph (1), by striking ``; and'' at the end of paragraph
(2) and inserting a period, and by striking paragraph (3).
(b) Conforming Amendments.--
(1) Section 165(h) is amended to read as follows:
``(h) Special Rule Where Personal Casualty Gains Exceed Personal
Casualty Losses.--
``(1) In general.--If the personal casualty gains for any
taxable year exceed the personal casualty losses for such
taxable year--
``(A) all such gains shall be treated as gains from
sales or exchanges of capital assets, and
``(B) all such losses shall be treated as losses from
sales or exchanges of capital assets.
``(2) Definitions of personal casualty gain and personal
casualty loss.--For purposes of this subsection--
``(A) Personal casualty loss.--The term `personal
casualty loss' means any loss of property not connected
with a trade or business or a transaction entered into
for profit, if such loss arises from fire, storm,
shipwreck, or other casualty, or from theft.
``(B) Personal casualty gain.--The term `personal
casualty gain' means the recognized gain from any
involuntary conversion of property which is described
in subparagraph (A) arising from fire, storm,
shipwreck, or other casualty, or from theft.''.
(2) Section 165 is amended by striking subsection (k).
(3)(A) Section 165(l)(1) is amended by striking ``a loss
described in subsection (c)(3)'' and inserting ``an ordinary
loss described in subsection (c)(2)''.
(B) Section 165(l) is amended--
(i) by striking paragraph (5),
(ii) by redesignating paragraphs (2), (3), and (4) as
paragraphs (3), (4), and (5), respectively, and
(iii) by inserting after paragraph (1) the following
new paragraph:
``(2) Limitations.--
``(A) Deposit may not be federally insured.--No
election may be made under paragraph (1) with respect
to any loss on a deposit in a qualified financial
institution if part or all of such deposit is insured
under Federal law.
``(B) Dollar limitation.--With respect to each
financial institution, the aggregate amount of losses
attributable to deposits in such financial institution
to which an election under paragraph (1) may be made by
the taxpayer for any taxable year shall not exceed
$20,000 ($10,000 in the case of a separate return by a
married individual). The limitation of the preceding
sentence shall be reduced by the amount of any
insurance proceeds under any State law which can
reasonably be expected to be received with respect to
losses on deposits in such institution.''.
(4) Section 172(b)(1)(E)(ii), prior to amendment under title
III, is amended by striking subclause (I) and by redesignating
subclauses (II) and (III) as subclauses (I) and (II),
respectively.
(5) Section 172(d)(4)(C) is amended by striking ``paragraph
(2) or (3) of section 165(c)'' and inserting ``section
165(c)(2)''.
(6) Section 274(f) is amended by striking ``Casualty
Losses,'' in the heading thereof.
(7) Section 280A(b) is amended by striking ``Casualty
Losses,'' in the heading thereof.
(8) Section 873(b), as amended by the preceding provisions of
this Act, is amended by striking paragraph (1) and by
redesignating paragraphs (2) and (3) as paragraphs (1) and (2),
respectively.
(9) Section 504(b) of the Disaster Tax Relief and Airport and
Airway Extension Act of 2017 is amended by adding at the end
the following new paragraph:
``(4) Coordination with tax reform.--This subsection shall be
applied without regard to the amendments made by section 1304
of the Tax Cuts and Jobs Act.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1305. LIMITATION ON WAGERING LOSSES.
(a) In General.--Section 165(d) is amended by adding at the end the
following: ``For purposes of the preceding sentence, the term `losses
from wagering transactions' includes any deduction otherwise allowable
under this chapter incurred in carrying on any wagering transaction.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1306. CHARITABLE CONTRIBUTIONS.
(a) Increased Limitation for Cash Contributions.--Section 170(b)(1)
is amended by redesignating subparagraph (G) as subparagraph (H) and by
inserting after subparagraph (F) the following new subparagraph:
``(G) Increased limitation for cash contributions.--
``(i) In general.--In the case of any
contribution of cash to an organization
described in subparagraph (A), the total amount
of such contributions which may be taken into
account under subsection (a) for any taxable
year shall not exceed 60 percent of the
taxpayer's contribution base for such year.
``(ii) Carryover.--If the aggregate amount of
contributions described in clause (i) exceeds
the applicable limitation under clause (i),
such excess shall be treated (in a manner
consistent with the rules of subsection (d)(1))
as a charitable contribution to which clause
(i) applies in each of the 5 succeeding years
in order of time.
``(iii) Coordination with subparagraphs (A)
and (B).--
``(I) In general.--Contributions
taken into account under this
subparagraph shall not be taken into
account under subparagraph (A).
``(II) Limitation reduction.--
Subparagraphs (A) and (B) shall be
applied by reducing (but not below
zero) the aggregate contribution
limitation allowed for the taxable year
under each such subparagraph by the
aggregate contributions allowed under
this subparagraph for such taxable
year.''.
(b) Denial of Deduction for College Athletic Event Seating Rights.--
Section 170(l)(1) is amended to read as follows:
``(1) In general.--No deduction shall be allowed under this
section for any amount described in paragraph (2).''.
(c) Charitable Mileage Rate Adjusted for Inflation.--Section 170(i)
is amended by striking ``shall be 14 cents per mile'' and inserting
``shall be a rate which takes into account the variable cost of
operating an automobile''.
(d) Repeal of Substantiation Exception in Case of Contributions
Reported by Donee.--Section 170(f)(8) is amended by striking
subparagraph (D) and by redesignating subparagraph (E) as subparagraph
(D).
(e) Effective Date.--The amendments made by this section shall apply
to contributions made in taxable years beginning after December 31,
2017.
SEC. 1307. REPEAL OF DEDUCTION FOR TAX PREPARATION EXPENSES.
(a) In General.--Section 212 is amended by adding ``or'' at the end
of paragraph (1), by striking ``; or'' at the end of paragraph (2) and
inserting a period, and by striking paragraph (3).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1308. REPEAL OF MEDICAL EXPENSE DEDUCTION.
(a) In General.--Part VII of subchapter B is amended by striking by
striking section 213 (and by striking the item relating to such section
in the table of sections for such subpart).
(b) Conforming Amendments.--
(1)(A) Section 105(f) is amended to read as follows:
``(f) Medical Care.--For purposes of this section--
``(1) In general.--The term `medical care' means amounts
paid--
``(A) for the diagnosis, cure, mitigation, treatment,
or prevention of disease, or for the purpose of
affecting any structure or function of the body,
``(B) for transportation primarily for and essential
to medical care referred to in subparagraph (A),
``(C) for qualified long-term care services (as
defined in section 7702B(c)), or
``(D) for insurance (including amounts paid as
premiums under part B of title XVIII of the Social
Security Act, relating to supplementary medical
insurance for the aged) covering medical care referred
to in subparagraphs (A) and (B) or for any qualified
long-term care insurance contract (as defined in
section 7702B(b)).
In the case of a qualified long-term care insurance contract
(as defined in section 7702B(b)), only eligible long-term care
premiums (as defined in paragraph (7)) shall be taken into
account under subparagraph (D).
``(2) Amounts paid for certain lodging away from home treated
as paid for medical care.--Amounts paid for lodging (not lavish
or extravagant under the circumstances) while away from home
primarily for and essential to medical care referred to in
paragraph (1)(A) shall be treated as amounts paid for medical
care if--
``(A) the medical care referred to in paragraph
(1)(A) is provided by a physician in a licensed
hospital (or in a medical care facility which is
related to, or the equivalent of, a licensed hospital),
and
``(B) there is no significant element of personal
pleasure, recreation, or vacation in the travel away
from home.
The amount taken into account under the preceding sentence
shall not exceed $50 for each night for each individual.
``(3) Physician.--The term `physician' has the meaning given
to such term by section 1861(r) of the Social Security Act (42
U.S.C. 1395x(r)).
``(4) Contracts covering other than medical care.--In the
case of an insurance contract under which amounts are payable
for other than medical care referred to in subparagraphs (A),
(B) and (C) of paragraph (1)--
``(A) no amount shall be treated as paid for
insurance to which paragraph (1)(D) applies unless the
charge for such insurance is either separately stated
in the contract, or furnished to the policyholder by
the insurance company in a separate statement,
``(B) the amount taken into account as the amount
paid for such insurance shall not exceed such charge,
and
``(C) no amount shall be treated as paid for such
insurance if the amount specified in the contract (or
furnished to the policyholder by the insurance company
in a separate statement) as the charge for such
insurance is unreasonably large in relation to the
total charges under the contract.
``(5) Certain pre-paid contracts.--Subject to the limitations
of paragraph (4), premiums paid during the taxable year by a
taxpayer before he attains the age of 65 for insurance covering
medical care (within the meaning of subparagraphs (A), (B), and
(C) of paragraph (1)) for the taxpayer, his spouse, or a
dependent after the taxpayer attains the age of 65 shall be
treated as expenses paid during the taxable year for insurance
which constitutes medical care if premiums for such insurance
are payable (on a level payment basis) under the contract for a
period of 10 years or more or until the year in which the
taxpayer attains the age of 65 (but in no case for a period of
less than 5 years).
``(6) Cosmetic surgery.--
``(A) In general.--The term `medical care' does not
include cosmetic surgery or other similar procedures,
unless the surgery or procedure is necessary to
ameliorate a deformity arising from, or directly
related to, a congenital abnormality, a personal injury
resulting from an accident or trauma, or disfiguring
disease.
``(B) Cosmetic surgery defined .--For purposes of
this paragraph, the term `cosmetic surgery' means any
procedure which is directed at improving the patient's
appearance and does not meaningfully promote the proper
function of the body or prevent or treat illness or
disease.
``(7) Eligible long-term care premiums.--
``(A) In general.--For purposes of this section, the
term `eligible long-term care premiums' means the
amount paid during a taxable year for any qualified
long-term care insurance contract (as defined in
section 7702B(b)) covering an individual, to the extent
such amount does not exceed the limitation determined
under the following table:
------------------------------------------------------------------------
``In the case of an individual with
an attained age before the close of The limitation is:
the taxable year of:
------------------------------------------------------------------------
40 or less $200
More than 40 but not more than 50 $375
More than 50 but not more than 60 $750
More than 60 but not more than 70 $2,000
More than 70 $2,500
------------------------------------------------------------------------
``(B) Indexing.--
``(i) In general.--In the case of any taxable
year beginning after 1997, each dollar amount
in subparagraph (A) shall be increased by the
medical care cost adjustment of such amount for
such calendar year. Any increase determined
under the preceding sentence shall be rounded
to the nearest multiple of $10.
``(ii) Medical care cost adjustment.--For
purposes of clause (i), the medical care cost
adjustment for any calendar year is the
adjustment prescribed by the Secretary, in
consultation with the Secretary of Health and
Human Services, for purposes of such clause. To
the extent that CPI (as defined section 1(c)),
or any component thereof, is taken into account
in determining such adjustment, such adjustment
shall be determined by taking into account C-
CPI-U (as so defined), or the corresponding
component thereof, in lieu of such CPI (or
component thereof), but only with respect to
the portion of such adjustment which relates to
periods after December 31, 2017.
``(8) Certain payments to relatives treated as not paid for
medical care.--An amount paid for a qualified long-term care
service (as defined in section 7702B(c)) provided to an
individual shall be treated as not paid for medical care if
such service is provided--
``(A) by the spouse of the individual or by a
relative (directly or through a partnership,
corporation, or other entity) unless the service is
provided by a licensed professional with respect to
such service, or
``(B) by a corporation or partnership which is
related (within the meaning of section 267(b) or
707(b)) to the individual.
For purposes of this paragraph, the term `relative' means an
individual bearing a relationship to the individual which is
described in any of subparagraphs (A) through (G) of section
7706(d)(2). This paragraph shall not apply for purposes of
subsection (b) with respect to reimbursements through
insurance.''.
(B) Section 72(t)(2)(D)(i)(III) is amended by striking
``section 213(d)(1)(D)'' and inserting ``section
105(f)(1)(D)''.
(C) Section 104(a) is amended by striking ``section
213(d)(1)'' in the last sentence and inserting ``section
105(f)(1)''.
(D) Section 105(b) is amended by striking ``section 213(d)''
and inserting ``section 105(f)''.
(E) Section 139D is amended by striking ``section 213'' and
inserting ``section 223''.
(F) Section 162(l)(2) is amended by striking ``section
213(d)(10)'' and inserting ``section 105(f)(7)''.
(G) Section 220(d)(2)(A) is amended by striking ``section
213(d)'' and inserting ``section 105(f)''.
(H) Section 223(d)(2)(A) is amended by striking ``section
213(d)'' and inserting ``section 105(f)''.
(I) Section 419A(f)(2) is amended by striking ``section
213(d)'' and inserting ``section 105(f)''.
(J) Section 501(c)(26)(A) is amended by striking ``section
213(d)'' and inserting ``section 105(f)''.
(K) Section 2503(e) is amended by striking ``section 213(d)''
and inserting ``section 105(f)''.
(L) Section 4980B(c)(4)(B)(i)(I) is amended by striking
``section 213(d)'' and inserting ``section 105(f)''.
(M) Section 6041(f) is amended by striking ``section 213(d)''
and inserting ``section 105(f)''.
(N) Section 7702B(a)(2) is amended by striking ``section
213(d)'' and inserting ``section 105(f)''.
(O) Section 7702B(a)(4) is amended by striking ``section
213(d)(1)(D)'' and inserting ``section 105(f)(1)(D)''.
(P) Section 7702B(d)(5) is amended by striking ``section
213(d)(10)'' and inserting ``section 105(f)(7)''.
(Q) Section 9832(d)(3) is amended by striking ``section
213(d)'' and inserting ``section 105(f)''.
(2) Section 72(t)(2)(B) is amended to read as follows:
``(B) Medical expenses.--Distributions made to an
individual (other than distributions described in
subparagraph (A), (C), or (D) to the extent such
distributions do not exceed the excess of--
``(i) the expenses paid by the taxpayer
during the taxable year, not compensated for by
insurance or otherwise, for medical care (as
defined in 105(f)) of the taxpayer, his spouse,
or a dependent (as defined in section 7706,
determined without regard to subsections
(b)(1), (b)(2), and (d)(1)(B) thereof), over
``(ii) 10 percent of the taxpayer's adjusted
gross income.''.
(3) Section 162(l) is amended by striking paragraph (3).
(4) Section 402(l) is amended by striking paragraph (7) and
redesignating paragraph (8) as paragraph (7).
(5) Section 220(f) is amended by striking paragraph (6).
(6) Section 223(f) is amended by striking paragraph (6).
(7) Section 7702B(e) is amended by striking paragraph (2).
(8) Section 7706(f)(7), as redesignated by this Act, is
amended by striking ``sections 105(b), 132(h)(2)(B), and
213(d)(5)'' and inserting ``sections 105(b) and 132(h)(2)(B)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1309. REPEAL OF DEDUCTION FOR ALIMONY PAYMENTS.
(a) In General.--Part VII of subchapter B is amended by striking by
striking section 215 (and by striking the item relating to such section
in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Corresponding repeal of provisions providing for
inclusion of alimony in gross income.--
(A) Subsection (a) of section 61 is amended by
striking paragraph (8) and by redesignating paragraphs
(9) through (15) as paragraphs (8) through (14),
respectively.
(B) Part II of subchapter B of chapter 1 is amended
by striking section 71 (and by striking the item
relating to such section in the table of sections for
such part).
(C) Subpart F of part I of subchapter J of chapter 1
is amended by striking section 682 (and by striking the
item relating to such section in the table of sections
for such subpart).
(2) Related to repeal of section 215.--
(A) Section 62(a) is amended by striking paragraph
(10).
(B) Section 3402(m)(1) is amended by striking
``(other than paragraph (10) thereof)''.
(3) Related to repeal of section 71.--
(A) Section 121(d)(3) is amended--
(i) by striking ``(as defined in section
71(b)(2))'' in subparagraph (B), and
(ii) by adding at the end the following new
subparagraph:
``(C) Divorce or separation instrument.--For purposes
of this paragraph, the term `divorce or separation
instrument' means--
``(i) a decree of divorce or separate
maintenance or a written instrument incident to
such a decree,
``(ii) a written separation agreement, or
``(iii) a decree (not described in clause
(i)) requiring a spouse to make payments for
the support or maintenance of the other
spouse.''.
(B) Section 220(f)(7) is amended by striking
``subparagraph (A) of section 71(b)(2)'' and inserting
``clause (i) of section 121(d)(3)(C)''.
(C) Section 223(f)(7) is amended by striking
``subparagraph (A) of section 71(b)(2)'' and inserting
``clause (i) of section 121(d)(3)(C)''.
(D) Section 382(l)(3)(B)(iii) is amended by striking
``section 71(b)(2)'' and inserting ``section
121(d)(3)(C)''.
(E) Section 408(d)(6) is amended by striking
``subparagraph (A) of section 71(b)(2)'' and inserting
``clause (i) of section 121(d)(3)(C)''.
(c) Effective Date.--The amendments made by this section shall apply
to--
(1) any divorce or separation instrument (as defined in
section 71(b)(2) of the Internal Revenue Code of 1986 as in
effect before the date of the enactment of this Act) executed
after December 31, 2017, and
(2) any divorce or separation instrument (as so defined)
executed on or before such date and modified after such date if
the modification expressly provides that the amendments made by
this section apply to such modification.
SEC. 1310. REPEAL OF DEDUCTION FOR MOVING EXPENSES.
(a) In General.--Part VII of subchapter B is amended by striking by
striking section 217 (and by striking the item relating to such section
in the table of sections for such subpart).
(b) Retention of Moving Expenses for Members of Armed Forces.--
Section 134(b) is amended by adding at the end the following new
paragraph:
``(7) Moving expenses.--The term `qualified military benefit'
includes any benefit described in section 217(g) (as in effect
before the enactment of the Tax Cuts And Jobs Act).''.
(c) Conforming Amendments.--
(1) Section 62(a) is amended by striking paragraph (15).
(2) Section 274(m)(3) is amended by striking ``(other than
section 217)''.
(3) Section 3121(a) is amended by striking paragraph (11).
(4) Section 3306(b) is amended by striking paragraph (9).
(5) Section 3401(a) is amended by striking paragraph (15).
(6) Section 7872(f) is amended by striking paragraph (11).
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1311. TERMINATION OF DEDUCTION AND EXCLUSIONS FOR CONTRIBUTIONS TO
MEDICAL SAVINGS ACCOUNTS.
(a) Termination of Income Tax Deduction.--Section 220 is amended by
adding at the end the following new subsection:
``(k) Termination.--No deduction shall be allowed under subsection
(a) with respect to any taxable year beginning after December 31,
2017.''.
(b) Termination of Exclusion for Employer-Provided Contributions.--
Section 106 is amended by striking subsection (b).
(c) Conforming Amendments.--
(1) Section 62(a) is amended by striking paragraph (16).
(2) Section 106(d) is amended by striking paragraph (2), by
redesignating paragraph (3) as paragraph (6), and by inserting
after paragraph (1) the following new paragraphs:
``(2) No constructive receipt.--No amount shall be included
in the gross income of any employee solely because the employee
may choose between the contributions referred to in paragraph
(1) and employer contributions to another health plan of the
employer.
``(3) Special rule for deduction of employer contributions.--
Any employer contribution to a health savings account (as so
defined), if otherwise allowable as a deduction under this
chapter, shall be allowed only for the taxable year in which
paid.
``(4) Employer health savings account contribution required
to be shown on return.--Every individual required to file a
return under section 6012 for the taxable year shall include on
such return the aggregate amount contributed by employers to
the health savings accounts (as so defined) of such individual
or such individual's spouse for such taxable year.
``(5) Health savings account contributions not part of cobra
coverage.--Paragraph (1) shall not apply for purposes of
section 4980B.''.
(3) Section 223(b)(4) is amended by striking subparagraph
(A), by redesignating subparagraphs (B) and (C) as
subparagraphs (A) and (B), respectively, and by striking the
second sentence thereof.
(4) Section 223(b)(5) is amended by striking ``under
paragraph (3))'' and all that follows through ``shall be
divided equally between them'' and inserting the following:
``under paragraph (3)) shall be divided equally between the
spouses''.
(5) Section 223(c) is amended by striking paragraph (5).
(6) Section 3231(e) is amended by striking paragraph (10).
(7) Section 3306(b) is amended by striking paragraph (17).
(8) Section 3401(a) is amended by striking paragraph (21).
(9) Chapter 43 is amended by striking section 4980E (and by
striking the item relating to such section in the table of
sections for such chapter).
(10) Section 4980G is amended to read as follows:
``SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS
ACCOUNT CONTRIBUTIONS.
``(a) In General.--In the case of an employer who makes a
contribution to the health savings account of any employee during a
calendar year, there is hereby imposed a tax on the failure of such
employer to meet the requirements of subsection (d) for such calendar
year.
``(b) Amount of Tax.--The amount of the tax imposed by subsection (a)
on any failure for any calendar year is the amount equal to 35 percent
of the aggregate amount contributed by the employer to health savings
accounts of employees for taxable years of such employees ending with
or within such calendar year.
``(c) Waiver by Secretary.--In the case of a failure which is due to
reasonable cause and not to willful neglect, the Secretary may waive
part or all of the tax imposed by subsection (a) to the extent that the
payment of such tax would be excessive relative to the failure
involved.
``(d) Employer Required To Make Comparable Health Savings Account
Contributions for All Participating Employees.--
``(1) In general.--An employer meets the requirements of this
subsection for any calendar year if the employer makes
available comparable contributions to the health savings
accounts of all comparable participating employees for each
coverage period during such calendar year.
``(2) Comparable contributions.--
``(A) In general.--For purposes of paragraph (1), the
term `comparable contributions' means contributions--
``(i) which are the same amount, or
``(ii) which are the same percentage of the
annual deductible limit under the high
deductible health plan covering the employees.
``(B) Part-year employees.--In the case of an
employee who is employed by the employer for only a
portion of the calendar year, a contribution to the
health savings account of such employee shall be
treated as comparable if it is an amount which bears
the same ratio to the comparable amount (determined
without regard to this subparagraph) as such portion
bears to the entire calendar year.
``(3) Comparable participating employees.--
``(A) In general.--For purposes of paragraph (1), the
term `comparable participating employees' means all
employees--
``(i) who are eligible individuals covered
under any high deductible health plan of the
employer, and
``(ii) who have the same category of
coverage.
``(B) Categories of coverage.--For purposes of
subparagraph (B), the categories of coverage are self-
only and family coverage.
``(4) Part-time employees.--
``(A) In general .--Paragraph (3) shall be applied
separately with respect to part-time employees and
other employees.
``(B) Part-time employee.--For purposes of
subparagraph (A), the term `part-time employee' means
any employee who is customarily employed for fewer than
30 hours per week.
``(5) Special rule for non-highly compensated employees.--For
purposes of applying this section to a contribution to a health
savings account of an employee who is not a highly compensated
employee (as defined in section 414(q)), highly compensated
employees shall not be treated as comparable participating
employees.
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as 1 employer.
``(f) Definitions.--Terms used in this section which are also used in
section 223 have the respective meanings given such terms in section
223.
``(g) Regulations.--The Secretary shall issue regulations to carry
out the purposes of this section.''.
(11) Section 6051(a) is amended by striking paragraph (11).
(12) Section 6051(a)(14)(A) is amended by striking
``paragraphs (11) and (12)'' and inserting ``paragraph (12)''.
(d) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1312. DENIAL OF DEDUCTION FOR EXPENSES ATTRIBUTABLE TO THE TRADE
OR BUSINESS OF BEING AN EMPLOYEE.
(a) In General.--Part IX of subchapter B of chapter 1 is amended by
inserting after the item relating to section 262 the following new
item:
``SEC. 262A. EXPENSES ATTRIBUTABLE TO BEING AN EMPLOYEE.
``(a) In General.--Except as otherwise provided in this section, no
deduction shall be allowed with respect to any trade or business of the
taxpayer which consists of the performance of services by the taxpayer
as an employee.
``(b) Exception for Above-the-line Deductions.--Subsection (a) shall
not apply to any deduction allowable (determined without regard to
subsection (a)) in determining adjusted gross income.''.
(b) Repeal of Certain Above-the-line Trade and Business Deductions of
Employees.--
(1) In general.--Section 62(a)(2) is amended--
(A) by striking subparagraphs (B), (C), and (D), and
(B) by redesignating subparagraph (E) as subparagraph
(B).
(2) Conforming amendments.--
(A) Section 62 is amended by striking subsections (b)
and (d) and by redesignating subsections (c) and (e) as
subsections (b) and (c), respectively.
(B) Section 62(a)(20) is amended by striking
``subsection (e)'' and inserting ``subsection (c)''.
(c) Continued Exclusion of Working Condition Fringe Benefits.--
Section 132(d) is amended by inserting ``(determined without regard to
section 262A)'' after ``section 162''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle E--Simplification and Reform of Exclusions and Taxable
Compensation
SEC. 1401. LIMITATION ON EXCLUSION FOR EMPLOYER-PROVIDED HOUSING.
(a) In General.--Section 119 is amended by adding at the end the
following new subsection:
``(e) Limitation on Exclusion of Lodging.--
``(1) In general.--The aggregate amount excluded from gross
income of the taxpayer under subsections (a) and (d) with
respect to lodging for any taxable year shall not exceed
$50,000 (half such amount in the case of a married individual
filing a separate return).
``(2) Limitation to 1 home.--Subsections (a) and (d)
(separately and in combination) shall not apply with respect to
more than 1 residence of the taxpayer at any given time. In the
case of a joint return, the preceding sentence shall apply
separately to each spouse for any period during which each
spouse resides separate from the other spouse in a residence
which is provided in connection with the employment of each
spouse, respectively.
``(3) Limitation for highly compensated employees.--
``(A) Reduced for excess compensation.--In the case
of an individual whose compensation for the taxable
year exceeds the amount in effect under section
414(q)(1)(B)(i) for the calendar in which such taxable
year begins, the $50,000 amount under paragraph (1)
shall be reduced (but not below zero) by an amount
equal to 50 percent of such excess. For purposes of the
preceding sentence, the term `compensation' means wages
(as defined in section 3121(a) (without regard to the
contribution and benefit base limitation in section
3121(a)(1)).
``(B) Exclusion denied for 5-percent owners.--In the
case of an individual who is a 5-percent owner (as
defined in section 416(i)(1)(B)(i)) of the employer at
any time during the taxable year, the amount under
paragraph (1) shall be zero.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1402. EXCLUSION OF GAIN FROM SALE OF A PRINCIPAL RESIDENCE.
(a) Requirement That Residence Be Principal Residence for 5 Years
During 8-year Period.--Subsection (a) of section 121 is amended--
(1) by striking ``5-year period'' and inserting ``8-year
period'', and
(2) by striking ``2 years'' and inserting ``5 years''.
(b) Application to Only 1 Sale or Exchange Every 5 Years.--Paragraph
(3) of section 121(b) is amended to read as follows:
``(3) Application to only 1 sale or exchange every 5 years.--
Subsection (a) shall not apply to any sale or exchange by the
taxpayer if, during the 5-year period ending on the date of
such sale or exchange, there was any other sale or exchange by
the taxpayer to which subsection (a) applied.''.
(c) Phaseout Based on Modified Adjusted Gross Income.--Section 121 is
amended by adding at the end the following new subsection:
``(h) Phaseout Based on Modified Adjusted Gross Income.--
``(1) In general.--If the average modified adjusted gross
income of the taxpayer for the taxable year and the 2 preceding
taxable years exceeds $250,000 (twice such amount in the case
of a joint return), the amount which would (but for this
subsection) be excluded from gross income under subsection (a)
for such taxable year shall be reduced (but not below zero) by
the amount of such excess.
``(2) Modified adjusted gross income.--For purposes of this
subsection, the term `modified adjusted gross income' means,
with respect to any taxable year, adjusted gross income
determined after application of this section (but without
regard to subsection (b)(1) and this subsection).
``(3) Special rule for joint returns.--In the case of a joint
return, the average modified adjusted gross income of the
taxpayer shall be determined without regard to any taxable year
with respect to which the taxpayer did not file a joint
return.''.
(d) Conforming Amendments.--
(1) The following provisions of section 121 are each amended
by striking ``5-year period'' each place it appears therein and
inserting ``8-year period'':
(A) Subsection (b)(5)(C)(ii)(I).
(B) Subsection (c)(1)(B)(i)(I).
(C) Subsection (d)(7)(B).
(D) Subparagraphs (A) and (B) of subsection (d)(9).
(E) Subsection (d)(10).
(F) Subsection (d)(12)(A).
(2) Section 121(c)(1)(B)(ii) is amended by striking ``2
years'' and inserting ``5 years'':
(e) Effective Date.--The amendments made by this section shall apply
to sales and exchanges after December 31, 2017.
SEC. 1403. REPEAL OF EXCLUSION, ETC., FOR EMPLOYEE ACHIEVEMENT AWARDS.
(a) In General.--Section 74 is amended by striking subsection (c).
(b) Repeal of Limitation on Deduction.--Section 274 is amended by
striking subsection (j).
(c) Conforming Amendments.--
(1) Section 102(c)(2) is amended by striking the first
sentence.
(2) Section 414(n)(3)(C) is amended by striking ``274(j),''.
(3) Section 414(t)(2) is amended by striking ``274(j),''.
(4) Section 3121(a)(20) is amended by striking ``74(c)''.
(5) Section 3231(e)(5) is amended by striking ``74(c),''.
(6) Section 3306(b)(16) is amended by striking ``74(c),''.
(7) Section 3401(a)(19) is amended by striking ``74(c),''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1404. SUNSET OF EXCLUSION FOR DEPENDENT CARE ASSISTANCE PROGRAMS.
(a) In General.--Section 129 is amended by adding at the end the
following new subsection:
``(f) Termination.--Subsection (a) shall not apply to taxable years
beginning after December 31, 2022.''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.
SEC. 1405. REPEAL OF EXCLUSION FOR QUALIFIED MOVING EXPENSE
REIMBURSEMENT.
(a) In General.--Section 132(a) is amended by striking paragraph (6).
(b) Conforming Amendments.--
(1) Section 82 is amended by striking ``Except as provided in
section 132(a)(6), there'' and inserting ``There''.
(2) Section 132 is amended by striking subsection (g).
(3) Section 132(l) is amended by striking by striking
``subsections (e) and (g)'' and inserting ``subsection (e)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1406. REPEAL OF EXCLUSION FOR ADOPTION ASSISTANCE PROGRAMS.
(a) In General.--Part III of subchapter B of chapter 1 is amended by
striking section 137 (and by striking the item relating to such section
in the table of sections for such part).
(b) Conforming Amendments.--
(1) Sections 414(n)(3)(C), 414(t)(2), 74(d)(2)(B),
86(b)(2)(A), 219(g)(3)(A)(ii) are each amended by striking ``,
137''.
(2) Section 1016(a), as amended by the preceding provision of
this Act, is amended by striking paragraph (26).
(3) Section 6039D(d)(1), as amended by the preceding
provisions of this Act, is amended--
(A) by striking ``, or 137'', and
(B) by inserting ``or'' before ``125''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle F--Simplification and Reform of Savings, Pensions, Retirement
SEC. 1501. REPEAL OF SPECIAL RULE PERMITTING RECHARACTERIZATION OF ROTH
IRA CONTRIBUTIONS AS TRADITIONAL IRA CONTRIBUTIONS.
(a) In General.--Section 408A(d) is amended by striking paragraph (6)
and by redesignating paragraph (7) as paragraph (6).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1502. REDUCTION IN MINIMUM AGE FOR ALLOWABLE IN-SERVICE
DISTRIBUTIONS.
(a) In General.--Section 401(a)(36) is amended by striking ``age 62''
and inserting ``age 59 \1/2\''.
(b) Application to Governmental Section 457(b) Plans.--Clause (i) of
section 457(d)(1)(A) is amended by inserting ``(in the case of a plan
maintained by an employer described in subsection (e)(1)(A), age 59 \1/
2\)'' before the comma at the end.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2017.
SEC. 1503. MODIFICATION OF RULES GOVERNING HARDSHIP DISTRIBUTIONS.
(a) In General.--Not later than 1 year after the date of the
enactment of this Act, the Secretary of the Treasury shall modify
Treasury Regulation section 1.401(k)-1(d)(3)(iv)(E) to--
(1) delete the 6-month prohibition on contributions imposed
by paragraph (2) thereof, and
(2) make any other modifications necessary to carry out the
purposes of section 401(k)(2)(B)(i)(IV) of the Internal Revenue
Code of 1986.
(b) Effective Date.--The revised regulations under this section shall
apply to plan years beginning after December 31, 2017.
SEC. 1504. MODIFICATION OF RULES RELATING TO HARDSHIP WITHDRAWALS FROM
CASH OR DEFERRED ARRANGEMENTS.
(a) In General.--Section 401(k) is amended by adding at the end the
following:
``(14) Special rules relating to hardship withdrawals.--For
purposes of paragraph (2)(B)(i)(IV)--
``(A) Amounts which may be withdrawn.--The following
amounts may be distributed upon hardship of the
employee:
``(i) Contributions to a profit-sharing or
stock bonus plan to which section 402(e)(3)
applies.
``(ii) Qualified nonelective contributions
(as defined in subsection (m)(4)(C)).
``(iii) Qualified matching contributions
described in paragraph (3)(D)(ii)(I).
``(iv) Earnings on any contributions
described in clause (i), (ii), or (iii).
``(B) No requirement to take available loan.--A
distribution shall not be treated as failing to be made
upon the hardship of an employee solely because the
employee does not take any available loan under the
plan.".''.
(b) Conforming Amendment.--Section 401(k)(2)(B)(i)(IV) is amended to
read as follows:
``(IV) subject to the provisions of
paragraph (14), upon hardship of the
employee, or".''.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2017.
SEC. 1505. EXTENDED ROLLOVER PERIOD FOR THE ROLLOVER OF PLAN LOAN
OFFSET AMOUNTS IN CERTAIN CASES.
(a) In General.--Paragraph (3) of section 402(c) is amended by adding
at the end the following new subparagraph:
``(C) Rollover of certain plan loan offset amounts.--
``(i) In general.--In the case of a qualified
plan loan offset amount, paragraph (1) shall
not apply to any transfer of such amount made
after the due date (including extensions) for
filing the return of tax for the taxable year
in which such amount is treated as distributed
from a qualified employer plan.
``(ii) Qualified plan loan offset amount.--
For purposes of this subparagraph, the term
`qualified plan loan offset amount' means a
plan loan offset amount which is treated as
distributed from a qualified employer plan to a
participant or beneficiary solely by reason
of--
``(I) the termination of the
qualified employer plan, or
``(II) the failure to meet the
repayment terms of the loan from such
plan because of the separation from
service of the participant (whether due
to layoff, cessation of business,
termination of employment, or
otherwise).
``(iii) Plan loan offset amount.--For
purposes of clause (ii), the term `plan loan
offset amount' means the amount by which the
participant's accrued benefit under the plan is
reduced in order to repay a loan from the plan.
``(iv) Limitation.--This subparagraph shall
not apply to any plan loan offset amount unless
such plan loan offset amount relates to a loan
to which section 72(p)(1) does not apply by
reason of section 72(p)(2).
``(v) Qualified employer plan.--For purposes
of this subsection, the term `qualified
employer plan' has the meaning given such term
by section 72(p)(4).''.
(b) Conforming Amendment.--Subparagraph (A) of section 402(c)(3) is
amended by striking ``subparagraph (B)'' and inserting ``subparagraphs
(B) and (C)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 1506. MODIFICATION OF NONDISCRIMINATION RULES TO PROTECT OLDER,
LONGER SERVICE PARTICIPANTS.
(a) In General.--Section 401 is amended--
(1) by redesignating subsection (o) as subsection (p), and
(2) by inserting after subsection (n) the following new
subsection:
``(o) Special Rules for Applying Nondiscrimination Rules to Protect
Older, Longer Service and Grandfathered Participants.--
``(1) Testing of defined benefit plans with closed classes of
participants.--
``(A) Benefits, rights, or features provided to
closed classes.--A defined benefit plan which provides
benefits, rights, or features to a closed class of
participants shall not fail to satisfy the requirements
of subsection (a)(4) by reason of the composition of
such closed class or the benefits, rights, or features
provided to such closed class, if--
``(i) for the plan year as of which the class
closes and the 2 succeeding plan years, such
benefits, rights, and features satisfy the
requirements of subsection (a)(4) (without
regard to this subparagraph but taking into
account the rules of subparagraph (I)),
``(ii) after the date as of which the class
was closed, any plan amendment which modifies
the closed class or the benefits, rights, and
features provided to such closed class does not
discriminate significantly in favor of highly
compensated employees, and
``(iii) the class was closed before April 5,
2017, or the plan is described in subparagraph
(C).
``(B) Aggregate testing with defined contribution
plans permitted on a benefits basis.--
``(i) In general.--For purposes of
determining compliance with subsection (a)(4)
and section 410(b), a defined benefit plan
described in clause (iii) may be aggregated and
tested on a benefits basis with 1 or more
defined contribution plans, including with the
portion of 1 or more defined contribution plans
which--
``(I) provides matching contributions
(as defined in subsection (m)(4)(A)),
``(II) provides annuity contracts
described in section 403(b) which are
purchased with matching contributions
or nonelective contributions, or
``(III) consists of an employee stock
ownership plan (within the meaning of
section 4975(e)(7)) or a tax credit
employee stock ownership plan (within
the meaning of section 409(a)).
``(ii) Special rules for matching
contributions.--For purposes of clause (i), if
a defined benefit plan is aggregated with a
portion of a defined contribution plan
providing matching contributions--
``(I) such defined benefit plan must
also be aggregated with any portion of
such defined contribution plan which
provides elective deferrals described
in subparagraph (A) or (C) of section
402(g)(3), and
``(II) such matching contributions
shall be treated in the same manner as
nonelective contributions, including
for purposes of applying the rules of
subsection (l).
``(iii) Plans described.--A defined benefit
plan is described in this clause if--
``(I) the plan provides benefits to a
closed class of participants,
``(II) for the plan year as of which
the class closes and the 2 succeeding
plan years, the plan satisfies the
requirements of section 410(b) and
subsection (a)(4) (without regard to
this subparagraph but taking into
account the rules of subparagraph (I)),
``(III) after the date as of which
the class was closed, any plan
amendment which modifies the closed
class or the benefits provided to such
closed class does not discriminate
significantly in favor of highly
compensated employees, and
``(IV) the class was closed before
April 5, 2017, or the plan is described
in subparagraph (C).
``(C) Plans described.--A plan is described in this
subparagraph if, taking into account any predecessor
plan--
``(i) such plan has been in effect for at
least 5 years as of the date the class is
closed, and
``(ii) during the 5-year period preceding the
date the class is closed, there has not been a
substantial increase in the coverage or value
of the benefits, rights, or features described
in subparagraph (A) or in the coverage or
benefits under the plan described in
subparagraph (B)(iii) (whichever is
applicable).
``(D) Determination of substantial increase for
benefits, rights, and features.--In applying
subparagraph (C)(ii) for purposes of subparagraph
(A)(iii), a plan shall be treated as having had a
substantial increase in coverage or value of the
benefits, rights, or features described in subparagraph
(A) during the applicable 5-year period only if, during
such period--
``(i) the number of participants covered by
such benefits, rights, or features on the date
such period ends is more than 50 percent
greater than the number of such participants on
the first day of the plan year in which such
period began, or
``(ii) such benefits, rights, and features
have been modified by 1 or more plan amendments
in such a way that, as of the date the class is
closed, the value of such benefits, rights, and
features to the closed class as a whole is
substantially greater than the value as of the
first day of such 5-year period, solely as a
result of such amendments.
``(E) Determination of substantial increase for
aggregate testing on benefits basis.--In applying
subparagraph (C)(ii) for purposes of subparagraph
(B)(iii)(IV), a plan shall be treated as having had a
substantial increase in coverage or benefits during the
applicable 5-year period only if, during such period--
``(i) the number of participants benefitting
under the plan on the date such period ends is
more than 50 percent greater than the number of
such participants on the first day of the plan
year in which such period began, or
``(ii) the average benefit provided to such
participants on the date such period ends is
more than 50 percent greater than the average
benefit provided on the first day of the plan
year in which such period began.
``(F) Certain employees disregarded.--For purposes of
subparagraphs (D) and (E), any increase in coverage or
value or in coverage or benefits, whichever is
applicable, which is attributable to such coverage and
value or coverage and benefits provided to employees--
``(i) who became participants as a result of
a merger, acquisition, or similar event which
occurred during the 7-year period preceding the
date the class is closed, or
``(ii) who became participants by reason of a
merger of the plan with another plan which had
been in effect for at least 5 years as of the
date of the merger,
shall be disregarded, except that clause (ii) shall
apply for purposes of subparagraph (D) only if, under
the merger, the benefits, rights, or features under 1
plan are conformed to the benefits, rights, or features
of the other plan prospectively.
``(G) Rules relating to average benefit.--For
purposes of subparagraph (E)--
``(i) the average benefit provided to
participants under the plan will be treated as
having remained the same between the 2 dates
described in subparagraph (E)(ii) if the
benefit formula applicable to such participants
has not changed between such dates, and
``(ii) if the benefit formula applicable to 1
or more participants under the plan has changed
between such 2 dates, then the average benefit
under the plan shall be considered to have
increased by more than 50 percent only if--
``(I) the total amount determined
under section 430(b)(1)(A)(i) for all
participants benefitting under the plan
for the plan year in which the 5-year
period described in subparagraph (E)
ends, exceeds
``(II) the total amount determined
under section 430(b)(1)(A)(i) for all
such participants for such plan year,
by using the benefit formula in effect
for each such participant for the first
plan year in such 5-year period, by
more than 50 percent.
In the case of a CSEC plan (as defined in
section 414(y)), the normal cost of the plan
(as determined under section 433(j)(1)(B))
shall be used in lieu of the amount determined
under section 430(b)(1)(A)(i).
``(H) Treatment as single plan.--For purposes of
subparagraphs (E) and (G), a plan described in section
413(c) shall be treated as a single plan rather than as
separate plans maintained by each participating
employer.
``(I) Special rules.--For purposes of subparagraphs
(A)(i) and (B)(iii)(II), the following rules shall
apply:
``(i) In applying section 410(b)(6)(C), the
closing of the class of participants shall not
be treated as a significant change in coverage
under section 410(b)(6)(C)(i)(II).
``(ii) 2 or more plans shall not fail to be
eligible to be aggregated and treated as a
single plan solely by reason of having
different plan years.
``(iii) Changes in the employee population
shall be disregarded to the extent attributable
to individuals who become employees or cease to
be employees, after the date the class is
closed, by reason of a merger, acquisition,
divestiture, or similar event.
``(iv) Aggregation and all other testing
methodologies otherwise applicable under
subsection (a)(4) and section 410(b) may be
taken into account.
The rule of clause (ii) shall also apply for purposes
of determining whether plans to which subparagraph
(B)(i) applies may be aggregated and treated as 1 plan
for purposes of determining whether such plans meet the
requirements of subsection (a)(4) and section 410(b).
``(J) Spun-off plans.--For purposes of this
paragraph, if a portion of a defined benefit plan
described in subparagraph (A) or (B)(iii) is spun off
to another employer and the spun-off plan continues to
satisfy the requirements of--
``(i) subparagraph (A)(i) or (B)(iii)(II),
whichever is applicable, if the original plan
was still within the 3-year period described in
such subparagraph at the time of the spin off,
and
``(ii) subparagraph (A)(ii) or (B)(iii)(III),
whichever is applicable,
the treatment under subparagraph (A) or (B) of the
spun-off plan shall continue with respect to such other
employer.
``(2) Testing of defined contribution plans.--
``(A) Testing on a benefits basis.--A defined
contribution plan shall be permitted to be tested on a
benefits basis if--
``(i) such defined contribution plan provides
make-whole contributions to a closed class of
participants whose accruals under a defined
benefit plan have been reduced or eliminated,
``(ii) for the plan year of the defined
contribution plan as of which the class
eligible to receive such make-whole
contributions closes and the 2 succeeding plan
years, such closed class of participants
satisfies the requirements of section
410(b)(2)(A)(i) (determined by applying the
rules of paragraph (1)(I)),
``(iii) after the date as of which the class
was closed, any plan amendment to the defined
contribution plan which modifies the closed
class or the allocations, benefits, rights, and
features provided to such closed class does not
discriminate significantly in favor of highly
compensated employees, and
``(iv) the class was closed before April 5,
2017, or the defined benefit plan under clause
(i) is described in paragraph (1)(C) (as
applied for purposes of paragraph
(1)(B)(iii)(IV)).
``(B) Aggregation with plans including matching
contributions.--
``(i) In general.--With respect to 1 or more
defined contribution plans described in
subparagraph (A), for purposes of determining
compliance with subsection (a)(4) and section
410(b), the portion of such plans which
provides make-whole contributions or other
nonelective contributions may be aggregated and
tested on a benefits basis with the portion of
1 or more other defined contribution plans
which--
``(I) provides matching contributions
(as defined in subsection (m)(4)(A)),
``(II) provides annuity contracts
described in section 403(b) which are
purchased with matching contributions
or nonelective contributions, or
``(III) consists of an employee stock
ownership plan (within the meaning of
section 4975(e)(7)) or a tax credit
employee stock ownership plan (within
the meaning of section 409(a)).
``(ii) Special rules for matching
contributions.--Rules similar to the rules of
paragraph (1)(B)(ii) shall apply for purposes
of clause (i).
``(C) Special rules for testing defined contribution
plan features providing matching contributions to
certain older, longer service participants.--In the
case of a defined contribution plan which provides
benefits, rights, or features to a closed class of
participants whose accruals under a defined benefit
plan have been reduced or eliminated, the plan shall
not fail to satisfy the requirements of subsection
(a)(4) solely by reason of the composition of the
closed class or the benefits, rights, or features
provided to such closed class if the defined
contribution plan and defined benefit plan otherwise
meet the requirements of subparagraph (A) but for the
fact that the make-whole contributions under the
defined contribution plan are made in whole or in part
through matching contributions.
``(D) Spun-off plans.--For purposes of this
paragraph, if a portion of a defined contribution plan
described in subparagraph (A) or (C) is spun off to
another employer, the treatment under subparagraph (A)
or (C) of the spun-off plan shall continue with respect
to the other employer if such plan continues to comply
with the requirements of clauses (ii) (if the original
plan was still within the 3-year period described in
such clause at the time of the spin off) and (iii) of
subparagraph (A), as determined for purposes of
subparagraph (A) or (C), whichever is applicable.
``(3) Definitions.--For purposes of this subsection--
``(A) Make-whole contributions.--Except as otherwise
provided in paragraph (2)(C), the term `make-whole
contributions' means nonelective allocations for each
employee in the class which are reasonably calculated,
in a consistent manner, to replace some or all of the
retirement benefits which the employee would have
received under the defined benefit plan and any other
plan or qualified cash or deferred arrangement under
subsection (k)(2) if no change had been made to such
defined benefit plan and such other plan or
arrangement. For purposes of the preceding sentence,
consistency shall not be required with respect to
employees who were subject to different benefit
formulas under the defined benefit plan.
``(B) References to closed class of participants.--
References to a closed class of participants and
similar references to a closed class shall include
arrangements under which 1 or more classes of
participants are closed, except that 1 or more classes
of participants closed on different dates shall not be
aggregated for purposes of determining the date any
such class was closed.
``(C) Highly compensated employee.--The term `highly
compensated employee' has the meaning given such term
in section 414(q).".''.
(b) Participation Requirements.--Paragraph (26) of section 401(a) is
amended by adding at the end the following new subparagraph:
``(I) Protected participants.--
``(i) In general.--A plan shall be deemed to
satisfy the requirements of subparagraph (A)
if--
``(I) the plan is amended--
``(aa) to cease all benefit
accruals, or
``(bb) to provide future
benefit accruals only to a
closed class of participants,
``(II) the plan satisfies
subparagraph (A) (without regard to
this subparagraph) as of the effective
date of the amendment, and
``(III) the amendment was adopted
before April 5, 2017, or the plan is
described in clause (ii).
``(ii) Plans described.--A plan is described
in this clause if the plan would be described
in subsection (o)(1)(C), as applied for
purposes of subsection (o)(1)(B)(iii)(IV) and
by treating the effective date of the amendment
as the date the class was closed for purposes
of subsection (o)(1)(C).
``(iii) Special rules.--For purposes of
clause (i)(II), in applying section
410(b)(6)(C), the amendments described in
clause (i) shall not be treated as a
significant change in coverage under section
410(b)(6)(C)(i)(II).
``(iv) Spun-off plans.--For purposes of this
subparagraph, if a portion of a plan described
in clause (i) is spun off to another employer,
the treatment under clause (i) of the spun-off
plan shall continue with respect to the other
employer.''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall take effect on the date
of the enactment of this Act, without regard to whether any
plan modifications referred to in such amendments are adopted
or effective before, on, or after such date of enactment.
(2) Special rules.--
(A) Election of earlier application.--At the election
of the plan sponsor, the amendments made by this
section shall apply to plan years beginning after
December 31, 2013.
(B) Closed classes of participants.--For purposes of
paragraphs (1)(A)(iii), (1)(B)(iii)(IV), and (2)(A)(iv)
of section 401(o) of the Internal Revenue Code of 1986
(as added by this section), a closed class of
participants shall be treated as being closed before
April 5, 2017, if the plan sponsor's intention to
create such closed class is reflected in formal written
documents and communicated to participants before such
date.
(C) Certain post-enactment plan amendments.--A plan
shall not be treated as failing to be eligible for the
application of section 401(o)(1)(A), 401(o)(1)(B)(iii),
or 401(a)(26) of such Code (as added by this section)
to such plan solely because in the case of--
(i) such section 401(o)(1)(A), the plan was
amended before the date of the enactment of
this Act to eliminate 1 or more benefits,
rights, or features, and is further amended
after such date of enactment to provide such
previously eliminated benefits, rights, or
features to a closed class of participants, or
(ii) such section 401(o)(1)(B)(iii) or
section 401(a)(26), the plan was amended before
the date of the enactment of this Act to cease
all benefit accruals, and is further amended
after such date of enactment to provide benefit
accruals to a closed class of participants. Any
such section shall only apply if the plan
otherwise meets the requirements of such
section and in applying such section, the date
the class of participants is closed shall be
the effective date of the later amendment.
Subtitle G--Estate, Gift, and Generation-skipping Transfer Taxes
SEC. 1601. INCREASE IN CREDIT AGAINST ESTATE, GIFT, AND GENERATION-
SKIPPING TRANSFER TAX.
(a) In General.--Section 2010(c)(3) is amended by striking
``$5,000,000'' and inserting ``$10,000,000''.
(b) Effective Date.--The amendments made by this section shall apply
to estates of decedents dying, generation-skipping transfers, and gifts
made, after December 31, 2017.
SEC. 1602. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.
(a) Estate Tax Repeal.--
(1) In general.--Subchapter C of chapter 11 is amended by
adding at the end the following new section:
``SEC. 2210. TERMINATION.
``(a) In General.--Except as provided in subsection (b), this chapter
shall not apply to the estates of decedents dying after December 31,
2024.
``(b) Certain Distributions From Qualified Domestic Trusts.--In
applying section 2056A with respect to the surviving spouse of a
decedent dying on or before December 31, 2024--
``(1) section 2056A(b)(1)(A) shall not apply to distributions
made after the 10-year period beginning on such date, and
``(2) section 2056A(b)(1)(B) shall not apply after such
date.''.
(2) Conforming amendments.--Section 1014(b) is amended--
(A) in paragraph (6), by striking ``was includible in
determining'' and all that follows through the end and
inserting ``was includible (or would have been
includible without regard to section 2210) in
determining the value of the decedent's gross estate
under chapter 11 of subtitle B'' ,
(B) in paragraph (9), by striking ``required to be
included'' through ``Code of 1939'' and inserting
``required to be included (or would have been required
to be included without regard to section 2210) in
determining the value of the decedent's gross estate
under chapter 11 of subtitle B'', and
(C) in paragraph (10), by striking ``Property
includible in the gross estate'' and inserting
``Property includible (or which would have been
includible without regard to section 2210) in the gross
estate''.
(3) Clerical amendment.--The table of sections for subchapter
C of chapter 11 is amended by adding at the end the following
new item:
``Sec. 2210. Termination.''.
(b) Generation-skipping Transfer Tax Repeal.--
(1) In general.--Subchapter G of chapter 13 of subtitle B of
such Code is amended by adding at the end the following new
section:
``SEC. 2664. TERMINATION.
``This chapter shall not apply to generation-skipping transfers after
December 31, 2024.''.
(2) Clerical amendment.--The table of sections for subchapter
G of chapter 13 of such Code is amended by adding at the end
the following new item:
``Sec. 2664. Termination.''.
(c) Conforming Amendments Related to Gift Tax.--
(1) Computation of gift tax.--Section 2502 is amended by
adding at the end the following new subsection:
``(d) Gifts Made After 2024.--
``(1) In general.--In the case of a gift made after December
31, 2024, subsection (a) shall be applied by substituting
`subsection (d)(2)' for `section 2001(c)' and `such subsection'
for `such section'.
``(2) Rate schedule.--
``If the amount with respect to which The tentative tax is:
the tentative tax to be computed is:.
Not over $10,000....................... 18% of such amount.
Over $10,000 but not over $20,000...... $1,800, plus 20% of the excess
over $10,000.
Over $20,000 but not over $40,000...... $3,800, plus 22% of the excess
over $20,000.
Over $40,000 but not over $60,000...... $8,200, plus 24% of the excess
over $40,000.
Over $60,000 but not over $80,000...... $13,000, plus 26% of the excess
over $60,000.
Over $80,000 but not over $100,000..... $18,200, plus 28% of the excess
over $80,000.
Over $100,000 but not over $150,000.... $23,800, plus 30% of the excess
over $100,000.
Over $150,000 but not over $250,000.... $38,800, plus 32% of the excess
of $150,000.
Over $250,000 but not over $500,000.... $70,800, plus 34% of the excess
over $250,000.
Over $500,000.......................... $155,800, plus 35% of the
excess of $500,000.''.
(2) Lifetime gift exemption.--Section 2505 is amended by
adding at the end the following new subsection:
``(d) Gifts Made After 2024.--
``(1) In general.--In the case of a gift made after December
31, 2024, subsection (a)(1) shall be applied by substituting
`the amount of the tentative tax which would be determined
under the rate schedule set forth in section 2502(a)(2) if the
amount with respect to which such tentative tax is to be
computed were $10,000,000' for `the applicable credit amount in
effect under section 2010(c) which would apply if the donor
died as of the end of the calendar year'.
``(2) Inflation adjustment.--
``(A) In general.--In the case of any calendar year
after 2024, the dollar amount in subsection (a)(1)
(after application of this subsection) shall be
increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(c)(2)(A) of such
calendar year by substituting `calendar year
2011' for `calendar year 2016' in clause (ii)
thereof.
``(B) Rounding.--If any amount as adjusted under
paragraph (1) is not a multiple of $10,000, such amount
shall be rounded to the nearest multiple of $10,000.''.
(3) Other conforming amendments related to gift tax.--Section
2801 is amended by adding at the end the following new
subsection:
``(g) Gifts Received After 2024.--In the case of a gift received
after December 31, 2024, subsection (a)(1) shall be applied by
substituting `section 2502(a)(2)' for `section 2001(c) as in effect on
the date of such receipt'.''.
(d) Effective Date.--The amendments made by this section shall apply
to estates of decedents dying, generation-skipping transfers, and gifts
made, after December 31, 2024.
TITLE II--ALTERNATIVE MINIMUM TAX REPEAL
SEC. 2001. REPEAL OF ALTERNATIVE MINIMUM TAX.
(a) In General.--Subchapter A of chapter 1 is amended by striking
part VI (and by striking the item relating to such part in the table of
parts for subchapter A).
(b) Credit for Prior Year Minimum Tax Liability.--
(1) Limitation.--Subsection (c) of section 53 is amended to
read as follows:
``(c) Limitation.--The credit allowable under subsection (a) shall
not exceed the regular tax liability of the taxpayer reduced by the sum
of the credits allowed under subparts A, B, and D.''.
(2) Credits treated as refundable.--Section 53 is amended by
adding at the end the following new subsection:
``(e) Portion of Credit Treated as Refundable.--
``(1) In general.--In the case of any taxable year beginning
in 2019, 2020, 2021, or 2022, the limitation under subsection
(c) shall be increased by the AMT refundable credit amount for
such year.
``(2) AMT refundable credit amount.--For purposes of
paragraph (1), the AMT refundable credit amount is an amount
equal to 50 percent (100 percent in the case of a taxable year
beginning in 2022) of the excess (if any) of--
``(A) the minimum tax credit determined under
subsection (b) for the taxable year, over
``(B) the minimum tax credit allowed under subsection
(a) for such year (before the application of this
subsection for such year).
``(3) Credit refundable.--For purposes of this title (other
than this section), the credit allowed by reason of this
subsection shall be treated as a credit allowed under subpart C
(and not this subpart).
``(4) Short taxable years.--In the case of any taxable year
of less than 365 days, the AMT refundable credit amount
determined under paragraph (2) with respect to such taxable
year shall be the amount which bears the same ratio to such
amount determined without regard to this paragraph as the
number of days in such taxable year bears to 365.''.
(3) Treatment of references.--Section 53(d) is amended by
adding at the end the following new paragraph:
``(3) AMT term references.--Any references in this subsection
to section 55, 56, or 57 shall be treated as a reference to
such section as in effect before its repeal by the Tax Cuts and
Jobs Act.''.
(c) Conforming Amendments Related to AMT Repeal.--
(1) Section 2(d) is amended by striking ``sections 1 and 55''
and inserting ``section 1''.
(2) Section 5(a) is amended by striking paragraph (4).
(3) Section 11(d) is amended by striking ``the taxes imposed
by subsection (a) and section 55'' and inserting ``the tax
imposed by subsection (a)''.
(4) Section 12 is amended by striking paragraph (7).
(5) Section 26(a) is amended to read as follows:
``(a) Limitation Based on Amount of Tax.--The aggregate amount of
credits allowed by this subpart for the taxable year shall not exceed
the taxpayer's regular tax liability for the taxable year.''.
(6) Section 26(b)(2) is amended by striking subparagraph (A).
(7) Section 26 is amended by striking subsection (c).
(8) Section 38(c) is amended--
(A) by striking paragraphs (1) through (5),
(B) by redesignating paragraph (6) as paragraph (2),
(C) by inserting before paragraph (2) (as so
redesignated) the following new paragraph:
``(1) In general.--The credit allowed under subsection (a)
for any taxable year shall not exceed the excess (if any) of--
``(A) the sum of--
``(i) so much of the regular tax liability as
does not exceed $25,000, plus
``(ii) 75 percent of so much of the regular
tax liability as exceeds $25,000, over
``(B) the sum of the credits allowable under subparts
A and B of this part.'', and
(D) by striking ``subparagraph (B) of paragraph (1)''
each place it appears in paragraph (2) (as so
redesignated) and inserting ``clauses (i) and (ii) of
paragraph (1)(A)''.
(9) Section 39(a) is amended--
(A) by striking ``or the eligible small business
credits'' in paragraph (3)(A), and
(B) by striking paragraph (4).
(10) Section 45D(g)(4)(B) is amended by striking ``or for
purposes of section 55''.
(11) Section 54(c)(1) is amended to read as follows:
``(1) regular tax liability (as defined in section 26(b)),
over''.
(12) Section 54A(c)(1)(A) is amended to read as follows:
``(A) regular tax liability (as defined in section
26(b)), over''.
(13) Section 148(b)(3) is amended to read as follows:
``(3) Tax-exempt bonds not treated as investment property.--
The term `investment property' does not include any tax-exempt
bond.''.
(14) Section 168(k)(2) is amended by striking subparagraph
(G).
(15) Section 168(k) is amended by striking paragraph (4).
(16) Section 168(k)(5) is amended by striking subparagraph
(E).
(17) Section 168(m)(2)(B)(i) is amended by striking
``(determined without regard to paragraph (4) thereof)''.
(18) Section 168(m)(2) is amended by striking subparagraph
(D).
(19) Section 173 is amended by striking subsection (b).
(20) Section 263(c) is amended by striking ``section 59(e) or
291'' and inserting ``section 291''.
(21) Section 263A(c) is amended by striking paragraph (6) and
by redesignating paragraph (7) (as amended) as paragraph (6).
(22) Section 382(l) is amended by striking paragraph (7) and
by redesignating paragraph (8) as paragraph (7).
(23) Section 443 is amended by striking subsection (d) and by
redesignating subsection (e) as subsection (d).
(24) Section 616 is amended by striking subsection (e).
(25) Section 617 is amended by striking subsection (i).
(26) Section 641(c) is amended--
(A) in paragraph (2) by striking subparagraph (B) and
by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively, and
(B) in paragraph (3), by striking ``paragraph
(2)(C)'' and inserting ``paragraph (2)(B)''.
(27) Subsections (b) and (c) of section 666 are each amended
by striking ``(other than the tax imposed by section 55)''.
(28) Section 848 is amended by striking subsection (i).
(29) Section 860E(a) is amended by striking paragraph (4).
(30) Section 871(b)(1) is amended by striking ``or 55''.
(31) Section 882(a)(1) is amended by striking ``55,''.
(32) Section 897(a) is amended to read as follows:
``(a) Treatment as Effectively Connected With United States Trade or
Business.--For purposes of this title, gain or loss of a nonresident
alien individual or a foreign corporation from the disposition of a
United States real property interest shall be taken into account--
``(1) in the case of a nonresident alien individual, under
section 871(b)(1), or
``(2) in the case of a foreign corporation, under section
882(a)(1),
as if the taxpayer were engaged in a trade or business within the
United States during the taxable year and as if such gain or loss were
effectively connected with such trade or business.''.
(33) Section 904(k) is amended to read as follows:
``(k) Cross Reference.--For increase of limitation under subsection
(a) for taxes paid with respect to amounts received which were included
in the gross income of the taxpayer for a prior taxable year as a
United States shareholder with respect to a controlled foreign
corporation, see section 960(b).''.
(34) Section 911(f) is amended to read as follows:
``(f) Determination of Tax Liability.--
``(1) In general.--If, for any taxable year, any amount is
excluded from gross income of a taxpayer under subsection (a),
then, notwithstanding section 1, if such taxpayer has taxable
income for such taxable year, the tax imposed by section 1 for
such taxable year shall be equal to the excess (if any) of--
``(A) the tax which would be imposed by section 1 for
such taxable year if the taxpayer's taxable income were
increased by the amount excluded under subsection (a)
for such taxable year, over
``(B) the tax which would be imposed by section 1 for
such taxable year if the taxpayer's taxable income were
equal to the amount excluded under subsection (a) for
such taxable year.
For purposes of this paragraph, the amount excluded under
subsection (a) shall be reduced by the aggregate amount of any
deductions or exclusions disallowed under subsection (d)(6)
with respect to such excluded amount.
``(2) Treatment of capital gain excess.--
``(A) In general.--In applying section 1(h) for
purposes of determining the tax under paragraph (1)(A)
for any taxable year in which, without regard to this
subsection, the taxpayer's net capital gain exceeds
taxable income (hereafter in this subparagraph referred
to as the capital gain excess)--
``(i) the taxpayer's net capital gain
(determined without regard to section 1(h)(11))
shall be reduced (but not below zero) by such
capital gain excess,
``(ii) the taxpayer's qualified dividend
income shall be reduced by so much of such
capital gain excess as exceeds the taxpayer's
net capital gain (determined without regard to
section 1(h)(11) and the reduction under clause
(i)), and
``(iii) adjusted net capital gain,
unrecaptured section 1250 gain, and 28-percent
rate gain shall each be determined after
increasing the amount described in section
1(h)(4)(B) by such capital gain excess.
``(B) Definitions.--Terms used in this paragraph
which are also used in section 1(h) shall have the
respective meanings given such terms by section
1(h).''.
(35) Section 962(a)(1) is amended--
(A) by striking ``sections 1 and 55'' and inserting
``section 1'', and
(B) by striking ``sections 11 and 55'' and inserting
``section 11''.
(36) Section 1016(a) is amended by striking paragraph (20).
(37) Section 1202(a)(4) is amended by inserting ``and'' at
the end of subparagraph (A), by striking ``, and'' and
inserting a period at the end of subparagraph (B), and by
striking subparagraph (C).
(38) Section 1374(b)(3)(B) is amended by striking the last
sentence thereof.
(39) Section 1561(a) is amended--
(A) by inserting ``and'' at the end of paragraph (1),
by striking ``, and'' at the end of paragraph (2) and
inserting a period, and by striking paragraph (3), and
(B) by striking the last sentence.
(40) Section 6015(d)(2)(B) is amended by striking ``or 55''.
(41) Section 6211(b)(4)(A) is amended by striking``,
168(k)(4)''.
(42) Section 6425(c)(1)(A) is amended to read as follows:
``(A) the tax imposed under section 11 or subchapter
L of chapter 1, whichever is applicable, over''.
(43) Section 6654(d)(2) is amended--
(A) in clause (i) of subparagraph (B), by striking
``, alternative minimum taxable income,'', and
(B) in clause (i) of subparagraph (C), by striking
``, alternative minimum taxable income,''.
(44) Section 6655(e)(2)(B)(i) is amended by striking ``The
taxable income and alternative minimum taxable income shall''
and inserting ``Taxable income shall''.
(45) Section 6655(g)(1)(A) is amended by adding ``plus'' at
the end of clause (i), by striking clause (ii), and by
redesignating clause (iii) as clause (ii).
(46) Section 6662(e)(3)(C) is amended by striking ``the
regular tax (as defined in section 55(c))'' and inserting ``the
regular tax liability (as defined in section 26(b))''.
(d) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2017.
(2) Prior elections with respect to certain tax
preferences.--So much of the amendment made by subsection (a)
as relates to the repeal of section 59(e) of the Internal
Revenue Code of 1986 shall apply to amounts paid or incurred
after December 31, 2017.
(3) Treatment of net operating loss carrybacks.--For purposes
of section 56(d) of the Internal Revenue Code of 1986 (as in
effect before its repeal), the amount of any net operating loss
which may be carried back from a taxable year beginning after
December 31, 2017, to taxable years beginning before January 1,
2018, shall be determined without regard to any adjustments
under section 56(d)(2)(A) of such Code (as so in effect).
TITLE III--BUSINESS TAX REFORM
Subtitle A--Tax Rates
SEC. 3001. REDUCTION IN CORPORATE TAX RATE.
(a) In General.--Section 11(b) is amended to read as follows:
``(b) Amount of Tax.--
``(1) In general.--Except as otherwise provided in this
subsection, the amount of the tax imposed by subsection (a)
shall be 20 percent of taxable income.
``(2) Special rule for personal service corporations.--
``(A) In general.--In the case of a personal service
corporation (as defined in section 448(d)(2)), the
amount of the tax imposed by subsection (a) shall be 25
percent of taxable income.
``(B) References to corporate rate.--Any reference to
the rate imposed under this section or to the highest
rate in effect under this section (or any similar
reference) shall be determined without regard to the
rate imposed with respect to personal service
corporations (as so defined).''.
(b) Conforming Amendments.--
(1)(A) Part I of subchapter P of chapter 1 is amended by
striking section 1201 (and by striking the item relating to
such section in the table of sections for such part).
(B) Section 12 is amended by striking paragraph (4).
(C) Section 527(b) is amended--
(i) by striking paragraph (2), and
(ii) by striking all that precedes ``is hereby
imposed'' and inserting:
``(b) Tax Imposed.--A tax''.
(D) Section 594(a) is amended by striking ``taxes imposed by
section 11 or 1201(a)'' and inserting ``tax imposed by section
11''.
(E) Section 691(c)(4) is amended by striking ``1201,''.
(F) Section 801(a) is amended--
(i) by striking paragraph (2), and
(ii) by striking all that precedes ``is hereby
imposed'' and inserting:
``(a) Tax Imposed.--A tax''.
(G) Section 831(e) is amended by striking paragraph (1) and
by redesignating paragraphs (2) and (3) as paragraphs (1) and
(2), respectively.
(H) Sections 832(c)(5) and 834(b)(1)(D) are each amended by
striking ``sec. 1201 and following,''.
(I) Section 852(b)(3)(A) is amended by striking ``section
1201(a)'' and inserting ``section 11(b)(1)''.
(J) Section 857(b)(3) is amended--
(i) by striking subparagraph (A) and redesignating
subparagraphs (B) through (F) as subparagraphs (A)
through (E), respectively,
(ii) in subparagraph (C), as so redesignated--
(I) by striking ``subparagraph (A)(ii)'' in
clause (i) thereof and inserting ``paragraph
(1)'',
(II) by striking ``the tax imposed by
subparagraph (A)(ii)'' in clauses (ii) and (iv)
thereof and inserting ``the tax imposed by
paragraph (1) on undistributed capital gain'',
(iii) in subparagraph (E), as so redesignated, by
striking ``subparagraph (B) or (D)'' and inserting
``subparagraph (A) or (C)'', and
(iv) by adding at the end the following new
subparagraph:
``(F) Undistributed capital gain.--For purposes of
this paragraph, the term `undistributed capital gain'
means the excess of the net capital gain over the
deduction for dividends paid (as defined in section
561) determined with reference to capital gain
dividends only.''.
(K) Section 882(a)(1) is amended by striking ``, or
1201(a)''.
(L) Section 1374(b) is amended by striking paragraph (4).
(M) Section 1381(b) is amended by striking ``taxes imposed by
section 11 or 1201'' and inserting ``tax imposed by section
11''.
(N) Section 6655(g)(1)(A)(i) is amended by striking ``or
1201(a),''.
(O) Section 7518(g)(6)(A) is amended by striking ``or
1201(a)''.
(2) Section 1445(e)(1) is amended by striking ``35 percent
(or, to the extent provided in regulations, 20 percent)'' and
inserting ``20 percent''.
(3) Section 1445(e)(2) is amended by striking ``35 percent''
and inserting ``20 percent''.
(4) Section 1445(e)(6) is amended by striking ``35 percent
(or, to the extent provided in regulations, 20 percent)'' and
inserting ``20 percent''.
(5)(A) Part I of subchapter B of chapter 5 is amended by
striking section 1551 (and by striking the item relating to
such section in the table of sections for such part).
(B) Section 12 is amended by striking paragraph (6).
(C) Section 535(c)(5) is amended to read as follows:
``(5) Cross reference.--For limitation on credit provided in
paragraph (2) or (3) in the case of certain controlled
corporations, see section 1561.''.
(6)(A) Section 1561, as amended by the preceding provisions
of this Act, is amended to read as follows:
``SEC. 1561. LIMITATION ON ACCUMULATED EARNINGS CREDIT IN THE CASE OF
CERTAIN CONTROLLED CORPORATIONS.
``(a) In General.--The component members of a controlled group of
corporations on a December 31 shall, for their taxable years which
include such December 31, be limited for purposes of this subtitle to
one $250,000 ($150,000 if any component member is a corporation
described in section 535(c)(2)(B)) amount for purposes of computing the
accumulated earnings credit under section 535(c)(2) and (3). Such
amount shall be divided equally among the component members of such
group on such December 31 unless the Secretary prescribes regulations
permitting an unequal allocation of such amount.
``(b) Certain Short Taxable Years.--If a corporation has a short
taxable year which does not include a December 31 and is a component
member of a controlled group of corporations with respect to such
taxable year, then for purposes of this subtitle, the amount to be used
in computing the accumulated earnings credit under section 535(c)(2)
and (3) of such corporation for such taxable year shall be the amount
specified in subsection (a) with respect to such group, divided by the
number of corporations which are component members of such group on the
last day of such taxable year. For purposes of the preceding sentence,
section 1563(b) shall be applied as if such last day were substituted
for December 31.''.
(B) The table of sections for part II of subchapter B of
chapter 5 is amended by striking the item relating to section
1561 and inserting the following new item:
``Sec. 1561. Limitation on accumulated earnings credit in the case of
certain controlled corporations.''.
(7) Section 7518(g)(6)(A) is amended--
(A) by striking ``With respect to the portion'' and
inserting ``In the case of a taxpayer other than a
corporation, with respect to the portion'', and
(B) by striking ``(34 percent in the case of a
corporation)''.
(c) Reduction in Dividend Received Deductions to Reflect Lower
Corporate Income Tax Rates.--
(1) Dividends received by corporations.--
(A) In general.--Section 243(a)(1) is amended by
striking ``70 percent'' and inserting ``50 percent''.
(B) Dividends from 20-percent owned corporations.--
Section 243(c)(1) is amended--
(i) by striking ``80 percent'' and inserting
``65 percent'', and
(ii) by striking ``70 percent'' and inserting
``50 percent''.
(C) Conforming amendment.--The heading for section
243(c) is amended by striking ``Retention of 80-percent
Dividend Received Deduction'' and inserting ``Increased
Percentage''.
(2) Dividends received from fsc.--Section 245(c)(1)(B) is
amended--
(A) by striking ``70 percent'' and inserting ``50
percent'', and
(B) by striking ``80 percent'' and inserting ``65
percent''.
(3) Limitation on aggregate amount of deductions.--Section
246(b)(3) is amended--
(A) by striking ``80 percent'' in subparagraph (A)
and inserting ``65 percent'', and
(B) by striking ``70 percent'' in subparagraph (B)
and inserting ``50 percent''.
(4) Reduction in deduction where portfolio stock is debt-
financed.--Section 246A(a)(1) is amended--
(A) by striking ``70 percent'' and inserting ``50
percent'', and
(B) by striking ``80 percent'' and inserting ``65
percent''.
(5) Income from sources within the united states.--Section
861(a)(2) is amended--
(A) by striking ``100/70th'' and inserting ``100/
50th'' in subparagraph (B), and
(B) in the flush sentence at the end--
(i) by striking ``100/80th'' and inserting
``100/65th'', and
(ii) by striking ``100/70th'' and inserting
``100/50th''.
(d) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2017.
(2) Certain conforming amendments.--The amendments made by
paragraphs (2), (3), and (4) of subsection (b) shall apply to
distributions after December 31, 2017.
(e) Normalization Requirements.--
(1) In general.--A normalization method of accounting shall
not be treated as being used with respect to any public utility
property for purposes of section 167 or 168 of the Internal
Revenue Code of 1986 if the taxpayer, in computing its cost of
service for ratemaking purposes and reflecting operating
results in its regulated books of account, reduces the excess
tax reserve more rapidly or to a greater extent than such
reserve would be reduced under the average rate assumption
method.
(2) Alternative method for certain taxpayers.--If, as of the
first day of the taxable year that includes the date of
enactment of this Act--
(A) the taxpayer was required by a regulatory agency
to compute depreciation for public utility property on
the basis of an average life or composite rate method,
and
(B) the taxpayer's books and underlying records did
not contain the vintage account data necessary to apply
the average rate assumption method,
the taxpayer will be treated as using a normalization method of
accounting if, with respect to such jurisdiction, the taxpayer
uses the alternative method for public utility property that is
subject to the regulatory authority of that jurisdiction.
(3) Definitions.--For purposes of this subsection--
(A) Excess tax reserve.--The term ``excess tax
reserve'' means the excess of--
(i) the reserve for deferred taxes (as
described in section 168(i)(9)(A)(ii) of the
Internal Revenue Code of 1986 as in effect on
the day before the date of the enactment of
this Act), over
(ii) the amount which would be the balance in
such reserve if the amount of such reserve were
determined by assuming that the corporate rate
reductions provided in this Act were in effect
for all prior periods.
(B) Average rate assumption method.--The average rate
assumption method is the method under which the excess
in the reserve for deferred taxes is reduced over the
remaining lives of the property as used in its
regulated books of account which gave rise to the
reserve for deferred taxes. Under such method, if
timing differences for the property reverse, the amount
of the adjustment to the reserve for the deferred taxes
is calculated by multiplying--
(i) the ratio of the aggregate deferred taxes
for the property to the aggregate timing
differences for the property as of the
beginning of the period in question, by
(ii) the amount of the timing differences
which reverse during such period.
(C) Alternative method.--The ``alternative method''
is the method in which the taxpayer--
(i) computes the excess tax reserve on all
public utility property included in the plant
account on the basis of the weighted average
life or composite rate used to compute
depreciation for regulatory purposes, and
(ii) reduces the excess tax reserve ratably
over the remaining regulatory life of the
property.
(4) Tax increased for normalization violation.--If, for any
taxable year ending after the date of the enactment of this
Act, the taxpayer does not use a normalization method of
accounting, the taxpayer's tax for the taxable year shall be
increased by the amount by which it reduces its excess tax
reserve more rapidly than permitted under a normalization
method of accounting.
Subtitle B--Cost Recovery
SEC. 3101. INCREASED EXPENSING.
(a) 100 Percent Expensing.--Section 168(k)(1)(A) is amended by
striking ``50 percent'' and inserting ``100 percent''.
(b) Extension Through January 1, 2023.--Section 168(k)(2) is
amended--
(1) in subparagraph (A)(iii), by striking ``January 1, 2020''
and inserting ``January 1, 2023'',
(2) in subparagraph (B)(i)(II), by striking ``January 1,
2021'' and inserting ``January 1, 2024'',
(3) in subparagraph (B)(i)(III), by striking ``January 1,
2020'' and inserting ``January 1, 2023'',
(4) in subparagraph (B)(ii), by striking ``January 1, 2020''
in each place it appears and inserting ``January 1, 2023'', and
(5) in subparagraph (E)(i), by striking ``January 1, 2020''
and replacing it with ``January 1, 2023''.
(c) Application to Used Property.--
(1) In general.--Section 168(k)(2)(A)(ii) is amended to read
as follows:
``(ii) the original use of which begins with
the taxpayer or the acquisition of which by the
taxpayer meets the requirements of clause (ii)
of subparagraph (E), and''.
(2) Acquisition requirements.--Section 168(k)(2)(E)(ii) is
amended to read as follows:
``(ii) Acquisition requirements.--An
acquisition of property meets the requirements
of this clause if--
``(I) such property was not used by
the taxpayer at any time prior to such
acquisition, and
``(II) the acquisition of such
property meets the requirements of
paragraphs (2)(A), (2)(B), (2)(C), and
(3) of section 179(d).'',
(3) Anti-abuse rules.--Section 168(k)(2)(E) is further
amended by amending clause (iii)(I) to read as follows:
``(I) property is used by a lessor of
such property and such use is the
lessor's first use of such property,''.
(d) Exception for Certain Trades and Businesses Not Subject to
Limitation on Interest Expense.--Section 168(k)(2), as amended by
section 2001, is amended by inserting after subparagraph (F) the
following new subparagraph:
``(G) Exception for property of certain businesses
not subject to limitation on interest expense.--The
term `qualified property' shall not include any
property used in--
``(i) a trade or business described in
subparagraph (B) or (C) of section 163(j)(7),
or
``(ii) a trade or business that has had floor
plan financing indebtedness (as defined in
paragraph (9) of section 163(j)), if the floor
plan financing interest related to such
indebtedness was taken into account under
paragraph (1)(C) of such section.''.
(e) Coordination With Section 280F.--Section 168(k)(2)(F) is
amended--
(1) by striking ``$8,000'' in clauses (i) and (iii) and
inserting ``$16,000'', and
(2) in clause (iii)--
(A) by striking ``placed in service by the taxpayer
after December 31, 2017'' and inserting ``acquired by
the taxpayer before September 28, 2017, and placed in
service by the taxpayer after September 27, 2017'', and
(B) by redesignating subclauses (I) and (II) as
subclauses (II) and (III) respectively, and inserting
before clause (II), as so redesignated, the following
new subclause:
``(I) in the case of a passenger
automobile placed in service before
January 1, 2018, `$8,000',''.
(f) Conforming Amendments.--
(1) Section 168(k)(2)(B)(i)(III), as amended, is amended by
inserting ``binding'' before ``contract''.
(2) Section 168(k)(5) is amended by--
(A) by striking ``January 1, 2020'' in subparagraph
(A) and inserting ``January 1, 2023'',
(B) by striking ``50 percent'' in subparagraph (A)(i)
and inserting ``100 percent'', and
(C) by striking subparagraph (F).
(3) Section 168(k)(6) is amended to read as follows:
``(6) Phase down.--In the case of qualified property acquired
by the taxpayer before September 28, 2017, and placed in
service by the taxpayer after September 27, 2017, paragraph
(1)(A) shall be applied by substituting for `100 percent'--
``(A) `50 percent' in the case of--
``(i) property placed in service before
January 1, 2018, and
``(ii) property described in subparagraph (B)
or (C) of paragraph (2) which is placed in
service in 2018,
``(B) `40 percent' in the case of--
``(i) property placed in service in 2018
(other than property described in subparagraph
(B) or (C) of paragraph (2)), and
``(ii) property described in subparagraph (B)
or (C) of paragraph (2) which is placed in
service in 2019, and
``(C) `30 percent' in the case of--
``(i) property placed in service in 2019
(other than property described in subparagraph
(B) or (C) of paragraph (2)), and
``(ii) property described in subparagraph (B)
or (C) of paragraph (2) which is placed in
service in 2020.''.
(4) The heading of section 168(k) is amended by striking
``Special Allowance for Certain Property Acquired After
December 31, 2007, and Before January 1, 2020'' and inserting
``Full Expensing of Certain Property''.
(5) Section 460(c)(6)(B)(ii) is amended by striking ``January
1, 2020 (January 1, 2021 in the case of property described in
section 168(k)(2)(B))'' and inserting ``January 1, 2023
(January 1, 2024 in the case of property described in section
168(k)(2)(B))''.
(g) Effective Date.--
(1) In general.--Except at provided by paragraph (2), the
amendments made by this section shall apply to property which--
(A) is acquired after September 27, 2017, and
(B) is placed in service after such date.
For purposes of the preceding sentence, property shall not be
treated as acquired after the date on which a written binding
contract is entered into for such acquisition.
(2) Specified plants.--The amendments made by subsection
(f)(2) shall apply to specified plants planted or grafted after
September 27, 2017.
(3) Transition rule.--In the case of any taxpayer's first
taxable year ending after September 27, 2017, the taxpayer may
elect (at such time and in such form and manner as the
Secretary of the Treasury, or his designee, may provide) to
apply section 168 of the Internal Revenue Code of 1986 without
regard to the amendments made by this section.
(4) Limitation on net operating loss carrybacks attributable
to full expensing.--In the case of any taxable year which
includes any portion of the period beginning on September 28,
2017, and ending on December 31, 2017, the amount of any net
operating loss for such taxable year which may be treated as a
net operating loss carryback (including any such carryback
attributable to any specified liability loss under section
172(b)(1)(C), any corporate equity reduction interest loss
under section 172(b)(1)(D), any eligible loss under section
172(b)(1)(E), and any farming loss under section 172(b)(1)(F))
shall be determined without regard to the amendments made by
this section. For purposes of this paragraph, terms which are
used in section 172 of the Internal Revenue Code of 1986
(determined without regard to the amendments made by section
3302) shall have the same meaning as when used in such section.
Subtitle C--Small Business Reforms
SEC. 3201. EXPANSION OF SECTION 179 EXPENSING.
(a) Increased Dollar Limitations.--
(1) In general.--Section 179(b) is amended--
(A) by inserting ``($5,000,000, in the case of
taxable years beginning before January 1, 2023)'' after
``$500,000'' in paragraph (1), and
(B) by inserting ``($20,000,000, in the case of
taxable years beginning before January 1, 2023)'' after
``$2,000,000'' in paragraph (2).
(2) Inflation adjustment.--Section 179(b)(6) is amended to
read as follows:
``(6) Inflation adjustment.--
``(A) In general.--In the case of a taxable year
beginning after 2015 (2018 in the case of the
$5,000,000 and $20,000,000 amounts in subsection (b)),
each dollar amount in subsection (b) shall be increased
by an amount equal to such dollar amount multiplied
by--
``(i) in the case of the $500,000 and
$2,000,000 amounts in subsection (b), the cost-
of-living adjustment determined under section
1(c)(2) for the calendar year in which the
taxable year begins, determined by substituting
`calendar year 2014' for `calendar year 2016'
in subparagraph (A)(ii) thereof, and
``(ii) in the case of the $5,000,000 and
$20,000,000 amounts in subsection (b), the
cost-of-living adjustment determined under
section 1(c)(2) for the calendar year in which
the taxable year begins, determined by
substituting `calendar year 2017' for `calendar
year 2016' in subparagraph (A)(ii) thereof.
``(B) Rounding.--The amount of any increase under
subparagraph (A) shall be rounded to the nearest
multiple of $10,000 ($100,000 in the case of the
$5,000,000 and $20,000,000 amounts in subsection
(b)).''.
(b) Application to Qualified Energy Efficient Heating and Air-
conditioning Property.--
(1) In general.--Section 179(f)(2) is amended by striking
``and'' at the end of subparagraph (B), by striking the period
at the end of subparagraph (C) and inserting ``, and'', and by
adding at the end the following new subparagraph:
``(D) qualified energy efficient heating and air-
conditioning property.''.
(2) Qualified energy efficient heating and air-conditioning
property.--Section 179(f) is amended by adding at the end the
following new paragraph:
``(3) Qualified energy efficient heating and air-conditioning
property.--For purposes of this subsection--
``(A) In general.--The term `qualified energy
efficient heating and air-conditioning property' means
any section 1250 property--
``(i) with respect to which depreciation (or
amortization in lieu of depreciation) is
allowable,
``(ii) which is installed as part of a
building's heating, cooling, ventilation, or
hot water system, and
``(iii) which is within the scope of Standard
90.1-2007 or any successor standard.
``(B) Standard 90.1-2007.--The term `Standard 90.1-
2007' means Standard 90.1-2007 of the American Society
of Heating, Refrigerating and Air-Conditioning
Engineers and the Illuminating Engineering Society of
North America (as in effect on the day before the date
of the adoption of Standard 90.1-2010 of such
Societies).''.
(c) Effective Date.--
(1) Increased dollar limitations.--The amendments made by
subsection (a) shall apply to taxable years beginning after
December 31, 2017.
(2) Application to qualified energy efficient heating and
air-conditioning property.--The amendments made by subsection
(b) shall apply to property acquired and placed in service
after November 2, 2017. For purposes of the preceding sentence,
property shall not be treated as acquired after the date on
which a written binding contract is entered into for such
acquisition.
SEC. 3202. SMALL BUSINESS ACCOUNTING METHOD REFORM AND SIMPLIFICATION.
(a) Modification of Limitation on Cash Method of Accounting.--
(1) Increased limitation.--So much of section 448(c) as
precedes paragraph (2) is amended to read as follows:
``(c) Gross Receipts Test.--For purposes of this section--
``(1) In general.--A corporation or partnership meets the
gross receipts test of this subsection for any taxable year if
the average annual gross receipts of such entity for the 3-
taxable-year period ending with the taxable year which precedes
such taxable year does not exceed $25,000,000.''.
(2) Application of exception on annual basis.--Section
448(b)(3) is amended to read as follows:
``(3) Entities which meet gross receipts test.--Paragraphs
(1) and (2) of subsection (a) shall not apply to any
corporation or partnership for any taxable year if such entity
(or any predecessor) meets the gross receipts test of
subsection (c) for such taxable year.''.
(3) Inflation adjustment.--Section 448(c) is amended by
adding at the end the following new paragraph:
``(4) Adjustment for inflation.--In the case of any taxable
year beginning after December 31, 2018, the dollar amount in
paragraph (1) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(c)(2) for the calendar year in which the
taxable year begins, by substituting `calendar year
2017' for `calendar year 2016' in subparagraph (A)(ii)
thereof.
If any amount as increased under the preceding sentence is not
a multiple of $1,000,000, such amount shall be rounded to the
nearest multiple of $1,000,000.''.
(4) Coordination with section 481.--Section 448(d)(7) is
amended to read as follows:
``(7) Coordination with section 481.--Any change in method of
accounting made pursuant to this section shall be treated for
purposes of section 481 as initiated by the taxpayer and made
with the consent of the Secretary.''.
(5) Application of exception to corporations engaged in
farming.--
(A) In general.--Section 447(c) is amended--
(i) by inserting ``for any taxable year''
after ``not being a corporation'' in the matter
preceding paragraph (1), and
(ii) by amending paragraph (2) to read as
follows:
``(2) a corporation which meets the gross receipts test of
section 448(c) for such taxable year.''.
(B) Coordination with section 481.--Section 447(f) is
amended to read as follows:
``(f) Coordination With Section 481.--Any change in method of
accounting made pursuant to this section shall be treated for purposes
of section 481 as initiated by the taxpayer and made with the consent
of the Secretary.''.
(C) Conforming amendments.--Section 447 is amended--
(i) by striking subsections (d), (e), (h),
and (i), and
(ii) by redesignating subsections (f) and (g)
(as amended by subparagraph (B)) as subsections
(d) and (e), respectively.
(b) Exemption From UNICAP Requirements.--
(1) In general.--Section 263A is amended by redesignating
subsection (i) as subsection (j) and by inserting after
subsection (h) the following new subsection:
``(i) Exemption for Certain Small Businesses.--
``(1) In general.--In the case of any taxpayer (other than a
tax shelter prohibited from using the cash receipts and
disbursements method of accounting under section 448(a)(3))
which meets the gross receipts test of section 448(c) for any
taxable year, this section shall not apply with respect to such
taxpayer for such taxable year.
``(2) Application of gross receipts test to individuals,
etc.-- In the case of any taxpayer which is not a corporation
or a partnership, the gross receipts test of section 448(c)
shall be applied in the same manner as if each trade or
business of such taxpayer were a corporation or partnership.
``(3) Coordination with section 481.--Any change in method of
accounting made pursuant to this subsection shall be treated
for purposes of section 481 as initiated by the taxpayer and
made with the consent of the Secretary.''.
(2) Conforming amendment.--Section 263A(b)(2) is amended to
read as follows:
``(2) Property acquired for resale.--Real or personal
property described in section 1221(a)(1) which is acquired by
the taxpayer for resale.''.
(c) Exemption From Inventories.--Section 471 is amended by
redesignating subsection (c) as subsection (d) and by inserting after
subsection (b) the following new subsection:
``(c) Exemption for Certain Small Businesses.--
``(1) In general.--In the case of any taxpayer (other than a
tax shelter prohibited from using the cash receipts and
disbursements method of accounting under section 448(a)(3))
which meets the gross receipts test of section 448(c) for any
taxable year--
``(A) subsection (a) shall not apply with respect to
such taxpayer for such taxable year, and
``(B) the taxpayer's method of accounting for
inventory for such taxable year shall not be treated as
failing to clearly reflect income if such method
either--
``(i) treats inventory as non-incidental
materials and supplies, or
``(ii) conforms to such taxpayer's method of
accounting reflected in an applicable financial
statement of the taxpayer with respect to such
taxable year or, if the taxpayer does not have
any applicable financial statement with respect
to such taxable year, the books and records of
the taxpayer prepared in accordance with the
taxpayer's accounting procedures.
``(2) Applicable financial statement.--For purposes of this
subsection, the term `applicable financial statement' means--
``(A) a financial statement which is certified as
being prepared in accordance with generally accepted
accounting principles and which is--
``(i) a 10-K (or successor form), or annual
statement to shareholders, required to be filed
by the taxpayer with the United States
Securities and Exchange Commission,
``(ii) an audited financial statement of the
taxpayer which is used for--
``(I) credit purposes,
``(II) reporting to shareholders,
partners, or other proprietors, or to
beneficiaries, or
``(III) any other substantial nontax
purpose,
but only if there is no statement of the
taxpayer described in clause (i), or
``(iii) filed by the taxpayer with any other
Federal or State agency for nontax purposes,
but only if there is no statement of the
taxpayer described in clause (i) or (ii), or
``(B) a financial statement of the taxpayer which--
``(i) is used for a purpose described in
subclause (I), (II), or (III) of subparagraph
(A)(ii), or
``(ii) filed by the taxpayer with any
regulatory or governmental body (whether
domestic or foreign) specified by the
Secretary,
but only if there is no statement of the taxpayer
described in subparagraph (A).
``(3) Application of gross receipts test to individuals,
etc.--In the case of any taxpayer which is not a corporation or
a partnership, the gross receipts test of section 448(c) shall
be applied in the same manner as if each trade or business of
such taxpayer were a corporation or partnership.
``(4) Coordination with section 481.--Any change in method of
accounting made pursuant to this subsection shall be treated
for purposes of section 481 as initiated by the taxpayer and
made with the consent of the Secretary.''.
(d) Exemption From Percentage Completion for Long-term Contracts.--
(1) In general.--Section 460(e)(1)(B) is amended--
(A) by inserting ``(other than a tax shelter
prohibited from using the cash receipts and
disbursements method of accounting under section
448(a)(3))'' after ``taxpayer'' in the matter preceding
clause (i), and
(B) by amending clause (ii) to read as follows:
``(ii) who meets the gross receipts test of
section 448(c) for the taxable year in which
such contract is entered into.''.
(2) Conforming amendments.--Section 460(e) is amended by
striking paragraphs (2) and (3), by redesignating paragraphs
(4), (5), and (6) as paragraphs (3), (4), and (5),
respectively, and by inserting after paragraph (1) the
following new paragraph:
``(2) Rules related to gross receipts test.--
``(A) Application of gross receipts test to
individuals, etc.-- For purposes of paragraph
(1)(B)(ii), in the case of any taxpayer which is not a
corporation or a partnership, the gross receipts test
of section 448(c) shall be applied in the same manner
as if each trade or business of such taxpayer were a
corporation or partnership.
``(B) Coordination with section 481.--Any change in
method of accounting made pursuant to paragraph
(1)(B)(ii) shall be treated as initiated by the
taxpayer and made with the consent of the Secretary.
Such change shall be effected on a cut-off basis for
all similarly classified contracts entered into on or
after the year of change.''.
(e) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2017.
(2) Preservation of suspense account rules with respect to
any existing suspense accounts.--So much of the amendments made
by subsection (a)(5)(C) as relate to section 447(i) of the
Internal Revenue Code of 1986 shall not apply with respect to
any suspense account established under such section before the
date of the enactment of this Act.
(3) Exemption from percentage completion for long-term
contracts.--The amendments made by subsection (d) shall apply
to contracts entered into after December 31, 2017, in taxable
years ending after such date.
SEC. 3203. SMALL BUSINESS EXCEPTION FROM LIMITATION ON DEDUCTION OF
BUSINESS INTEREST.
(a) In General.--Section 163(j)(2), as amended by section 3301, is
amended to read as follows:
``(2) Exemption for certain small businesses.--In the case of
any taxpayer (other than a tax shelter prohibited from using
the cash receipts and disbursements method of accounting under
section 448(a)(3)) which meets the gross receipts test of
section 448(c) for any taxable year, paragraph (1) shall not
apply to such taxpayer for such taxable year. In the case of
any taxpayer which is not a corporation or a partnership, the
gross receipts test of section 448(c) shall be applied in the
same manner as if such taxpayer were a corporation or
partnership.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3204. MODIFICATION OF TREATMENT OF S CORPORATION CONVERSIONS TO C
CORPORATIONS.
(a) Adjustments Attributable to Conversion From S Corporation to C
Corporation.--Section 481 is amended by adding at the end the following
new subsection:
``(d) Adjustments Attributable to Conversion From S Corporation to C
Corporation.--
``(1) In general.--In the case of an eligible terminated S
corporation, any adjustment required by subsection (a)(2) which
is attributable to such corporation's revocation described in
paragraph (2)(A)(ii) shall be taken into account ratably during
the 6-taxable year period beginning with the year of change.
``(2) Eligible terminated s corporation.--For purposes of
this subsection, the term `eligible terminated S corporation'
means any C corporation--
``(A) which--
``(i) was an S corporation on the day before
the date of the enactment of the Tax Cuts and
Jobs Act, and
``(ii) during the 2-year period beginning on
the date of such enactment makes a revocation
of its election under section 1362(a), and
``(B) the owners of the stock of which, determined on
the date such revocation is made, are the same owners
(and in identical proportions) as on the date of such
enactment.''.
(b) Cash Distributions Following Post-termination Transition Period
From S Corporation Status.--Section 1371 is amended by adding at the
end the following new subsection:
``(f) Cash Distributions Following Post-termination Transition
Period.--In the case of a distribution of money by an eligible
terminated S corporation (as defined in section 481(d)) after the post-
termination transition period, the accumulated adjustments account
shall be allocated to such distribution, and the distribution shall be
chargeable to accumulated earnings and profits, in the same ratio as
the amount of such accumulated adjustments account bears to the amount
of such accumulated earnings and profits.''.
Subtitle D--Reform of Business-related Exclusions, Deductions, etc.
SEC. 3301. INTEREST.
(a) In General.--Section 163(j) is amended to read as follows:
``(j) Limitation on Business Interest.--
``(1) In general.--In the case of any taxpayer for any
taxable year, the amount allowed as a deduction under this
chapter for business interest shall not exceed the sum of--
``(A) the business interest income of such taxpayer
for such taxable year,
``(B) 30 percent of the adjusted taxable income of
such taxpayer for such taxable year, plus
``(C) the floor plan financing interest of such
taxpayer for such taxable year.
The amount determined under subparagraph (B) (after any
increases in such amount under paragraph (3)(A)(iii)) shall not
be less than zero.
``(2) Exemption for certain small businesses.--For exemption
for certain small businesses, see the amendment made by section
3203 of the Tax Cuts and Jobs Act.
``(3) Application to partnerships, etc.--
``(A) In general.--In the case of any partnership--
``(i) this subsection shall be applied at the
partnership level and any deduction for
business interest shall be taken into account
in determining the non-separately stated
taxable income or loss of the partnership,
``(ii) the adjusted taxable income of each
partner of such partnership shall be determined
without regard to such partner's distributive
share of the non-separately stated taxable
income or loss of such partnership, and
``(iii) the amount determined under paragraph
(1)(B) with respect to each partner of such
partnership shall be increased by such
partner's distributive share of such
partnership's excess amount.
``(B) Excess amount.--The term `excess amount' means,
with respect to any partnership, the excess (if any)
of--
``(i) 30 percent of the adjusted taxable
income of the partnership, over
``(ii) the amount (if any) by which the
business interest of the partnership, reduced
by floor plan financing interest, exceeds the
business interest income of the partnership.
``(C) Application to s corporations.--Rules similar
to the rules of subparagraphs (A) and (B) shall apply
with respect to any S corporation and its shareholders.
``(4) Business interest.--For purposes of this subsection,
the term `business interest' means any interest paid or accrued
on indebtedness properly allocable to a trade or business. Such
term shall not include investment interest (within the meaning
of subsection (d)).
``(5) Business interest income.--For purposes of this
subsection, the term `business interest income' means the
amount of interest includible in the gross income of the
taxpayer for the taxable year which is properly allocable to a
trade or business. Such term shall not include investment
income (within the meaning of subsection (d)).
``(6) Adjusted taxable income.--For purposes of this
subsection, the term `adjusted taxable income' means the
taxable income of the taxpayer--
``(A) computed without regard to--
``(i) any item of income, gain, deduction, or
loss which is not properly allocable to a trade
or business,
``(ii) any business interest or business
interest income,
``(iii) the amount of any net operating loss
deduction under section 172, and
``(iv) any deduction allowable for
depreciation, amortization, or depletion, and
``(B) computed with such other adjustments as the
Secretary may provide.
``(7) Trade or business.--For purposes of this subsection,
the term `trade or business' shall not include--
``(A) the trade or business of performing services as
an employee,
``(B) a real property trade or business (as such term
is defined in section 469(c)(7)(C)), or
``(C) the trade or business of the furnishing or sale
of--
``(i) electrical energy, water, or sewage
disposal services,
``(ii) gas or steam through a local
distribution system, or
``(iii) transportation of gas or steam by
pipeline,
if the rates for such furnishing or sale, as the case
may be, have been established or approved by a State or
political subdivision thereof, by any agency or
instrumentality of the United States, or by a public
service or public utility commission or other similar
body of any State or political subdivision thereof.
``(8) Carryforward of disallowed interest.--For carryforward
of interest disallowed under paragraph (1), see subsection (o).
``(9) Floor plan financing interest defined.--For purposes of
this subsection--
``(A) In general.--The term `floor plan financing
interest' means interest paid or accrued on floor plan
financing indebtedness.
``(B) Floor plan financing indebtedness.--The term
`floor plan financing indebtedness' means
indebtedness--
``(i) used to finance the acquisition of
motor vehicles held for sale to retail
customers, and
``(ii) secured by the inventory so acquired.
``(C) Motor vehicle.--The term `motor vehicle' means
a motor vehicle that is any of the following:
``(i) An automobile.
``(ii) A truck.
``(iii) A recreational vehicle.
``(iv) A motorcycle.
``(v) A boat.
``(vi) Farm machinery or equipment.
``(vii) Construction machinery or
equipment.''.
(b) Carryforward of Disallowed Business Interest.--Section 163, after
amendment by section 4302(a) and before amendment by section 4302(b),
is amended by inserting after subsection (n) the following new
subsection:
``(o) Carryforward of Disallowed Business Interest.--The amount of
any business interest not allowed as a deduction for any taxable year
by reason of subsection (j) shall be treated as business interest paid
or accrued in the succeeding taxable year. Business interest paid or
accrued in any taxable year (determined without regard to the preceding
sentence) shall not be carried past the 5th taxable year following such
taxable year, determined by treating business interest as allowed as a
deduction on a first-in, first-out basis.''.
(c) Treatment of Carryforward of Disallowed Business Interest in
Certain Corporate Acquisitions.--
(1) In general.--Section 381(c) is amended by inserting after
paragraph (19) the following new paragraph:
``(20) Carryforward of disallowed interest.--The carryover of
disallowed interest described in section 163(o) to taxable
years ending after the date of distribution or transfer.''.
(2) Application of limitation.--Section 382(d) is amended by
adding at the end the following new paragraph:
``(3) Application to carryforward of disallowed interest.--
The term `pre-change loss' shall include any carryover of
disallowed interest described in section 163(o) under rules
similar to the rules of paragraph (1).''.
(3) Conforming amendment.--Section 382(k)(1) is amended by
inserting after the first sentence the following: ``Such term
shall include any corporation entitled to use a carryforward of
disallowed interest described in section 381(c)(20).''
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3302. MODIFICATION OF NET OPERATING LOSS DEDUCTION.
(a) Indefinite Carryforward of Net Operating Losses.--Section
172(b)(1)(A)(ii) is amended by striking ``to each of the 20 taxable
years'' and inserting ``to each taxable year''.
(b) Repeal of Net Operating Loss Carrybacks Other Than 1-year
Carryback of Eligible Disaster Losses.--
(1) In general.--Section 172(b)(1)(A)(i) is amended to read
as follows:
``(i) in the case of any portion of a net
operating loss for the taxable year which is an
eligible disaster loss with respect to the
taxpayer, shall be a net operating loss
carryback to the taxable year preceding the
taxable year of such loss, and''.
(2) Conforming amendments.--
(A) Section 172(b)(1) is amended by striking
subparagraphs (B) through (F) and inserting the
following:
``(B) Eligible disaster loss.--
``(i) In general.--For purposes of
subparagraph (A)(i), the term `eligible
disaster loss' means--
``(I) in the case of a taxpayer which
is a small business, net operating
losses attributable to federally
declared disasters (as defined by
section 165(i)(5)), and
``(II) in the case of a taxpayer
engaged in the trade or business of
farming, net operating losses
attributable to such federally declared
disasters.
``(ii) Small business.--For purposes of this
subparagraph, the term `small business' means a
corporation or partnership which meets the
gross receipts test of section 448(c)
(determined by substituting `$5,000,000' for
`$25,000,000' each place it appears therein)
for the taxable year in which the loss arose
(or, in the case of a sole proprietorship,
which would meet such test if such
proprietorship were a corporation).
``(iii) Trade or business of farming.--For
purposes of this subparagraph, the trade or
business of farming shall include the trade or
business of--
``(I) operating a nursery or sod
farm, or
``(II) the raising or harvesting of
trees bearing fruit, nuts, or other
crops, or ornamental trees.
For purposes of subclause (II), an evergreen
tree which is more than 6 years old at the time
severed from the roots shall not be treated as
an ornamental tree.''.
(B) Section 172 is amended by striking subsections
(f), (g), and (h).
(c) Limitation of Net Operating Loss to 90 Percent of Taxable
Income.--
(1) In general.--Section 172(a) is amended to read as
follows:
``(a) Deduction Allowed.--There shall be allowed as a deduction for
the taxable year an amount equal to the lesser of--
``(1) the aggregate of the net operating loss carryovers to
such year, plus the net operating loss carrybacks to such year,
or
``(2) 90 percent of taxable income computed without regard to
the deduction allowable under this section.
For purposes of this subtitle, the term `net operating loss deduction'
means the deduction allowed by this subsection.''.
(2) Coordination of limitation with carrybacks and
carryovers.--Section 172(b)(2) is amended by striking ``shall
be computed--'' and all that follows and inserting ``shall--
``(A) be computed with the modifications specified in
subsection (d) other than paragraphs (1), (4), and (5)
thereof, and by determining the amount of the net
operating loss deduction without regard to the net
operating loss for the loss year or for any taxable
year thereafter,
``(B) not be considered to be less than zero, and
``(C) not exceed the amount determined under
subsection (a)(2) for such prior taxable year.''.
(3) Conforming amendment.--Section 172(d)(6) is amended by
striking ``and'' at the end of subparagraph (A), by striking
the period at the end of subparagraph (B) and inserting ``;
and'', and by adding at the end the following new subparagraph:
``(C) subsection (a)(2) shall be applied by
substituting `real estate investment trust taxable
income (as defined in section 857(b)(2) but without
regard to the deduction for dividends paid (as defined
in section 561))' for `taxable income'.''.
(d) Annual Increase of Indefinite Carryover Amounts.--Section 172(b)
is amended by redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new paragraph:
``(3) Annual increase of indefinite carryover amounts.--For
purposes of paragraph (2)--
``(A) the amount of any indefinite net operating loss
which is carried to the next succeeding taxable year
after the loss year (within the meaning of paragraph
(2)) shall be increased by an amount equal to--
``(i) the amount of the loss which may be so
carried over to such succeeding taxable year
(determined without regard to this paragraph),
multiplied by
``(ii) the sum of--
``(I) the annual Federal short-term
rate (determined under section 1274(d))
for the last month ending before the
beginning of such taxable year, plus
``(II) 4 percentage points, and
``(B) the amount of any indefinite net operating loss
which is carried to any succeeding taxable year (after
such next succeeding taxable year) shall be an amount
equal to--
``(i) the excess of--
``(I) the amount of the loss carried
to the prior taxable year (after any
increase under this paragraph with
respect to such amount), over
``(II) the amount by which such loss
was reduced under paragraph (2) by
reason of the taxable income for such
prior taxable year, multiplied by
``(ii) a percentage equal to 100 percent plus
the percentage determined under subparagraph
(A)(ii) with respect to such succeeding taxable
year.
For purposes of the preceding sentence, the term
`indefinite net operating loss' means any net operating
loss arising in a taxable year beginning after December
31, 2017.''.
(e) Effective Date.--
(1) Carryforwards and carrybacks.--The amendments made by
subsections (a) and (b) shall apply to net operating losses
arising in taxable years beginning after December 31, 2017.
(2) Net operating loss limited to 90 percent of taxable
income.--The amendments made by subsection (c) shall apply to
taxable years beginning after December 31, 2017.
(3) Annual increase in carryover amounts.--The amendments
made by subsection (d) shall apply to amounts carried to
taxable years beginning after December 31, 2017.
(4) Special rule for net disaster losses.--Notwithstanding
paragraph (1), the amendments made by subsection (b) shall not
apply to the portion of the net operating loss for any taxable
year which is a net disaster loss to which section 504(b) of
the Disaster Tax Relief and Airport and Airway Extension Act of
2017 applies.
SEC. 3303. LIKE-KIND EXCHANGES OF REAL PROPERTY.
(a) In General.--Section 1031(a)(1) is amended by striking
``property'' each place it appears and inserting ``real property''.
(b) Conforming Amendments.--
(1) Paragraph (2) of section 1031(a) is amended to read as
follows:
``(2) Exception for real property held for sale.--This
subsection shall not apply to any exchange of real property
held primarily for sale.''.
(2) Section 1031 is amended by striking subsections (e) and
(i).
(3) Section 1031, as amended by paragraph (2), is amended by
inserting after subsection (d) the following new subsection:
``(e) Application to Certain Partnerships.--For purposes of this
section, an interest in a partnership which has in effect a valid
election under section 761(a) to be excluded from the application of
all of subchapter K shall be treated as an interest in each of the
assets of such partnership and not as an interest in a partnership.''.
(4) Section 1031(h) is amended to read as follows:
``(h) Special Rules for Foreign Real Property.--Real property located
in the United States and real property located outside the United
States are not property of a like kind.''.
(5) The heading of section 1031 is amended by striking
``property'' and inserting ``real property''.
(6) The table of sections for part III of subchapter O of
chapter 1 is amended by striking the item relating to section
1031 and inserting the following new item:
``Sec. 1031. Exchange of real property held for productive use or
investment.''.
(c) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
exchanges completed after December 31, 2017.
(2) Transition rule.--The amendments made by this section
shall not apply to any exchange if--
(A) the property disposed of by the taxpayer in the
exchange is disposed of on or before December 31 2017,
or
(B) the property received by the taxpayer in the
exchange is received on or before December 31, 2017.
SEC. 3304. REVISION OF TREATMENT OF CONTRIBUTIONS TO CAPITAL.
(a) Inclusion of Contributions to Capital.--Part II of subchapter B
of chapter 1 is amended by inserting after section 75 the following new
section:
``SEC. 76. CONTRIBUTIONS TO CAPITAL.
``(a) In General.--Gross income includes any contribution to the
capital of any entity.
``(b) Treatment of Contributions in Exchange for Stock, etc.--
``(1) In general.--In the case of any contribution of money
or other property to a corporation in exchange for stock of
such corporation--
``(A) such contribution shall not be treated for
purposes of subsection (a) as a contribution to the
capital of such corporation (and shall not be
includible in the gross income of such corporation),
and
``(B) no gain or loss shall be recognized to such
corporation upon the issuance of such stock.
``(2) Treatment limited to value of stock.--For purposes of
this subsection, a contribution of money or other property to a
corporation shall be treated as being in exchange for stock of
such corporation only to the extent that the fair market value
of such money and other property does not exceed the fair
market value of such stock.
``(3) Application to entities other than corporations.--In
the case of any entity other than a corporation, rules similar
to the rules of paragraphs (1) and (2) shall apply in the case
of any contribution of money or other property to such entity
in exchange for any interest in such entity.
``(c) Treasury Stock Treated as Stock.--Any reference in this section
to stock shall be treated as including a reference to treasury
stock.''.
(b) Basis of Corporation in Contributed Property.--
(1) Contributions to capital.--Subsection (c) of section 362
is amended to read as follows:
``(c) Contributions to Capital.--If property other than money is
transferred to a corporation as a contribution to the capital of such
corporation (within the meaning of section 76) then the basis of such
property shall be the greater of--
``(1) the basis determined in the hands of the transferor,
increased by the amount of gain recognized to the transferor on
such transfer, or
``(2) the amount included in gross income by such corporation
under section 76 with respect to such contribution.''.
(2) Contributions in exchange for stock.--Paragraph (2) of
section 362(a) is amended by striking ``contribution to
capital'' and inserting ``contribution in exchange for stock of
such corporation (determined under rules similar to the rules
of paragraphs (2) and (3) of section 76(b))''.
(c) Conforming Amendments.--
(1) Section 108(e) is amended by striking paragraph (6).
(2) Part III of subchapter B of chapter 1 is amended by
striking section 118 (and by striking the item relating to such
section in the table of sections for such part).
(3) The table of sections for part II of subchapter B of
chapter 1 is amended by inserting after the item relating to
section 75 the following new item:
``Sec. 76. Contributions to capital.''.
(d) Effective Date.--The amendments made by this section shall apply
to contributions made, and transactions entered into, after the date of
the enactment of this Act.
SEC. 3305. REPEAL OF DEDUCTION FOR LOCAL LOBBYING EXPENSES.
(a) In General.--Section 162(e) is amended by striking paragraphs (2)
and (7) and by redesignating paragraphs (3), (4), (5), (6), and (8) as
paragraphs (2), (3), (4), (5), and (6), respectively.
(b) Conforming Amendment.--Section 6033(e)(1)(B)(ii) is amended by
striking ``section 162(e)(5)(B)(ii)'' and inserting ``section
162(e)(4)(B)(ii)''.
(c) Effective Date.--The amendments made by this section shall apply
to amounts paid or incurred after December 31, 2017.
SEC. 3306. REPEAL OF DEDUCTION FOR INCOME ATTRIBUTABLE TO DOMESTIC
PRODUCTION ACTIVITIES.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 199 (and by striking the item relating to such section
in the table of sections for such part).
(b) Conforming Amendments.--
(1) Sections 74(d)(2)(B), 86(b)(2)(A), 137(b)(3)(A),
219(g)(3)(A)(ii), and 246(b)(1) are each amended by striking
``199,''.
(2) Section 170(b)(2)(D), as amended by the preceding
provisions of this Act, is amended by striking clause (iv), by
redesignating clause (v) as clause (iv), and by inserting
``and'' at the end of clause (iii).
(3) Section 172(d) is amended by striking paragraph (7).
(4) Section 613(a) is amended by striking ``and without the
deduction under section 199''.
(5) Section 613A(d)(1) is amended by striking subparagraph
(B) and by redesignating subparagraphs (C), (D), and (E) as
subparagraphs (B), (C), and (D), respectively.
(6) Section 1402(a) is amended by adding ``and'' at the end
of paragraph (15) and by striking paragraph (16).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3307. ENTERTAINMENT, ETC. EXPENSES.
(a) Denial of Deduction.--Subsection (a) of section 274 is amended to
read as follows:
``(a) Entertainment, Amusement, Recreation, and Other Fringe Benefits
.--
``(1) In general.--No deduction otherwise allowable under
this chapter shall be allowed for amounts paid or incurred for
any of the following items:
``(A) Activity.--With respect to an activity which is
of a type generally considered to constitute
entertainment, amusement, or recreation.
``(B) Membership dues.--With respect to membership in
any club organized for business, pleasure, recreation
or other social purposes.
``(C) Amenity.--With respect to a de minimis fringe
(as defined in section 132(e)(1)) that is primarily
personal in nature and involving property or services
that are not directly related to the taxpayer's trade
or business.
``(D) Facility.--With respect to a facility or
portion thereof used in connection with an activity
referred to in subparagraph (A), membership dues or
similar amounts referred to in subparagraph (B), or an
amenity referred to in subparagraph (C).
``(E) Qualified transportation fringe and parking
facility.--Which is a qualified transportation fringe
(as defined in section 132(f)) or which is a parking
facility used in connection with qualified parking (as
defined in section 132(f)(5)(C)).
``(F) On-premises athletic facility.--Which is an on-
premises athletic facility as defined in section
132(j)(4)(B).
``(2) Special rules.--For purposes of applying paragraph (1),
an activity described in section 212 shall be treated as a
trade or business.
``(3) Regulations.--Under the regulations prescribed to carry
out this section, the Secretary shall include regulations--
``(A) defining entertainment, amenities, recreation,
amusement, and facilities for purposes of this
subsection,
``(B) providing for the appropriate allocation of
depreciation and other costs with respect to facilities
used for parking or for on-premises athletic
facilities, and
``(C) specifying arrangements a primary purpose of
which is the avoidance of this subsection.''.
(b) Exception for Certain Expenses Includible in Income of
Recipient.--
(1) Expenses treated as compensation.--Paragraph (2) of
section 274(e) is amended to read as follows:
``(2) Expenses treated as compensation.--Expenses for goods,
services, and facilities, to the extent that the expenses do
not exceed the amount of the expenses which are treated by the
taxpayer, with respect to the recipient of the entertainment,
amusement, or recreation, as compensation to an employee on the
taxpayer's return of tax under this chapter and as wages to
such employee for purposes of chapter 24 (relating to
withholding of income tax at source on wages).''.
(2) Expenses includible in income of persons who are not
employees.--Paragraph (9) of section 274(e) is amended by
striking ``to the extent that the expenses'' and inserting ``to
the extent that the expenses do not exceed the amount of the
expenses that''.
(c) Exceptions for Reimbursed Expenses.--Paragraph (3) of section
274(e) is amended to read as follows:
``(3) Reimbursed expenses.--
``(A) In general.--Expenses paid or incurred by the
taxpayer, in connection with the performance by him of
services for another person (whether or not such other
person is the taxpayer's employer), under a
reimbursement or other expense allowance arrangement
with such other person, but this paragraph shall
apply--
``(i) where the services are performed for an
employer, only if the employer has not treated
such expenses in the manner provided in
paragraph (2), or
``(ii) where the services are performed for a
person other than an employer, only if the
taxpayer accounts (to the extent provided by
subsection (d)) to such person.
``(B) Exception.--Except as provided by the
Secretary, subparagraph (A) shall not apply--
``(i) in the case of an arrangement in which
the person other than the employer is an entity
described in section 168(h)(2)(A), or
``(ii) to any other arrangement designated by
the Secretary as having the effect of avoiding
the limitation under subparagraph (A).''.
(d) 50 Percent Limitation on Meals and Entertainment Expenses.--
Subsection (n) of section 274 is amended to read as follows:
``(n) Limitation on Certain Expenses.--
``(1) In general.--The amount allowable as a deduction under
this chapter for any expense for food or beverages (pursuant to
subsection (e)(1)) or business meals (pursuant to subsection
(k)(1)) shall not exceed 50 percent of the amount of such
expense or item which would (but for this paragraph) be
allowable as a deduction under this chapter.
``(2) Exceptions.--Paragraph (1) shall not apply to any
expense if--
``(A) such expense is described in paragraph (2),
(3), (6), (7), or (8) of subsection (e),
``(B) in the case of an expense for food or
beverages, such expense is excludable from the gross
income of the recipient under section 132 by reason of
subsection (e) thereof (relating to de minimis fringes)
or under section 119 (relating to meals and lodging
furnished for convenience of employer), or
``(C) in the case of an employer who pays or
reimburses moving expenses of an employee, such
expenses are includible in the income of the employee
under section 82.
``(3) Special rule for individuals subject to federal hours
of service.--In the case of any expenses for food or beverages
consumed while away from home (within the meaning of section
162(a)(2)) by an individual during, or incident to, the period
of duty subject to the hours of service limitations of the
Department of Transportation, paragraph (1) shall be applied by
substituting `80 percent' for `50 percent'.''.
(e) Conforming Amendments.--
(1) Section 274(d) is amended--
(A) by striking paragraph (2) and redesignating
paragraphs (3) and (4) as paragraphs (2) and (3),
respectively, and
(B) in the flush material following paragraph (3) (as
so redesignated)--
(i) by striking ``, entertainment, amusement,
recreation, or'' in item (B), and
(ii) by striking ``(D) the business
relationship to the taxpayer of persons
entertained, using the facility or property, or
receiving the gift'' and inserting ``(D) the
business relationship to the taxpayer of the
person receiving the benefit''.
(2) Section 274(e) is amended by striking paragraph (4) and
redesignating paragraphs (5), (6), (7), (8), and (9) as
paragraphs (4), (5), (6), (7), and (8), respectively.
(3) Section 274(k)(2)(A) is amended by striking ``(4), (7),
(8), or (9)'' and inserting ``(6), (7), or (8)''.
(4) Section 274 is amended by striking subsection (l).
(5) Section 274(m)(1)(B)(ii) is amended by striking ``(4),
(7), (8), or (9)'' and inserting ``(6), (7), or (8)''.
(f) Effective Date.--The amendments made by this section shall apply
to amounts paid or incurred after December 31, 2017.
SEC. 3308. UNRELATED BUSINESS TAXABLE INCOME INCREASED BY AMOUNT OF
CERTAIN FRINGE BENEFIT EXPENSES FOR WHICH DEDUCTION
IS DISALLOWED.
(a) In General.--Section 512(a) is amended by adding at the end the
following new paragraph:
``(6) Increase in unrelated business taxable income by
disallowed fringe.--Unrelated business taxable income of an
organization shall be increased by any amount for which a
deduction is not allowable under this chapter by reason of
section 274 and which is paid or incurred by such organization
for any qualified transportation fringe (as defined in section
132(f)), any parking facility used in connection with qualified
parking (as defined in section 132(f)(5)(C)), or any on-
premises athletic facility (as defined in section
132(j)(4)(B)). The preceding sentence shall not apply to the
extent the amount paid or incurred is directly connected with
an unrelated trade or business which is regularly carried on by
the organization. The Secretary may issue such regulations or
other guidance as may be necessary or appropriate to carry out
the purposes of this paragraph, including regulations or other
guidance providing for the appropriate allocation of
depreciation and other costs with respect to facilities used
for parking or for on-premises athletic facilities.
''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid or incurred after December 31, 2017.
SEC. 3309. LIMITATION ON DEDUCTION FOR FDIC PREMIUMS.
(a) In General.--Section 162 is amended by redesignating subsection
(q) as subsection (r) and by inserting after subsection (p) the
following new subsection:
``(q) Disallowance of FDIC Premiums Paid by Certain Large Financial
Institutions.--
``(1) In general.--No deduction shall be allowed for the
applicable percentage of any FDIC premium paid or incurred by
the taxpayer.
``(2) Exception for small institutions.--Paragraph (1) shall
not apply to any taxpayer for any taxable year if the total
consolidated assets of such taxpayer (determined as of the
close of such taxable year) do not exceed $10,000,000,000.
``(3) Applicable percentage.--For purposes of this
subsection, the term `applicable percentage' means, with
respect to any taxpayer for any taxable year, the ratio
(expressed as a percentage but not greater than 100 percent)
which--
``(A) the excess of--
``(i) the total consolidated assets of such
taxpayer (determined as of the close of such
taxable year), over
``(ii) $10,000,000,000, bears to
``(B) $40,000,000,000.
``(4) FDIC premiums.--For purposes of this subsection, the
term `FDIC premium' means any assessment imposed under section
7(b) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)).
``(5) Total consolidated assets.--For purposes of this
subsection, the term `total consolidated assets' has the
meaning given such term under section 165 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act (12 U.S.C.
5365).
``(6) Aggregation rule.--
``(A) In general.--Members of an expanded affiliated
group shall be treated as a single taxpayer for
purposes of applying this subsection.
``(B) Expanded affiliated group.--For purposes of
this paragraph, the term `expanded affiliated group'
means an affiliated group as defined in section
1504(a), determined--
``(i) by substituting `more than 50 percent'
for `at least 80 percent' each place it
appears, and
``(ii) without regard to paragraphs (2) and
(3) of section 1504(b).
A partnership or any other entity (other than a
corporation) shall be treated as a member of an
expanded affiliated group if such entity is controlled
(within the meaning of section 954(d)(3)) by members of
such group (including any entity treated as a member of
such group by reason of this sentence).''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3310. REPEAL OF ROLLOVER OF PUBLICLY TRADED SECURITIES GAIN INTO
SPECIALIZED SMALL BUSINESS INVESTMENT COMPANIES.
(a) In General.--Part III of subchapter O of chapter 1 is amended by
striking section 1044 (and by striking the item relating to such
section in the table of sections of such part).
(b) Conforming Amendments.--Section 1016(a)(23) is amended--
(1) by striking ``1044,'', and
(2) by striking ``1044(d),''.
(c) Effective Date.--The amendments made by this section shall apply
to sales after December 31, 2017.
SEC. 3311. CERTAIN SELF-CREATED PROPERTY NOT TREATED AS A CAPITAL
ASSET.
(a) Patents, etc.--Section 1221(a)(3) is amended by inserting ``a
patent, invention, model or design (whether or not patented), a secret
formula or process,'' before ``a copyright''.
(b) Conforming Amendment.--Section 1231(b)(1)(C) is amended by
inserting ``a patent, invention, model or design (whether or not
patented), a secret formula or process,'' before ``a copyright''.
(c) Effective Date.--The amendments made by this section shall apply
to dispositions after December 31, 2017.
SEC. 3312. REPEAL OF SPECIAL RULE FOR SALE OR EXCHANGE OF PATENTS.
(a) In General.--Part IV of subchapter P of chapter 1 is amended by
striking section 1235 (and by striking the item relating to such
section in the table of sections of such part).
(b) Conforming Amendments.--
(1) Section 483(d) is amended by striking paragraph (4).
(2) Section 901(l)(5) is amended by striking ``without regard
to section 1235 or any similar rule'' and inserting ``without
regard to any provision which treats a disposition as a sale or
exchange of a capital asset held for more than 1 year or any
similar provision''.
(3) Section 1274(c)(3) is amended by striking subparagraph
(E) and redesignating subparagraph (F) as subparagraph (E).
(c) Effective Date.--The amendments made by this section shall apply
to dispositions after December 31, 2017.
SEC. 3313. REPEAL OF TECHNICAL TERMINATION OF PARTNERSHIPS.
(a) In General.--Paragraph (1) of section 708(b) is amended--
(1) by striking ``, or'' at the end of subparagraph (A) and
all that follows and inserting a period, and
(2) by striking ``only if--'' and all that follows through
``no part of any business'' and inserting the following: ``only
if no part of any business''.
(b) Effective Date.--The amendments made by this section shall apply
to partnership taxable years beginning after December 31, 2017.
SEC. 3314. RECHARACTERIZATION OF CERTAIN GAINS IN THE CASE OF
PARTNERSHIP PROFITS INTERESTS HELD IN CONNECTION
WITH PERFORMANCE OF INVESTMENT SERVICES.
(a) In General.--Part IV of subchapter O of chapter 1 is amended--
(1) by redesignating section 1061 as section 1062, and
(2) by inserting after section 1060 the following new
section:
``SEC. 1061. PARTNERSHIP INTERESTS HELD IN CONNECTION WITH PERFORMANCE
OF SERVICES.
``(a) In General.--If one or more applicable partnership interests
are held by a taxpayer at any time during the taxable year, the excess
(if any) of--
``(1) the taxpayer's net long-term capital gain with respect
to such interests for such taxable year, over
``(2) the taxpayer's net long-term capital gain with respect
to such interests for such taxable year computed by applying
paragraphs (3) and (4) of sections 1222 by substituting `3
years' for `1 year',
shall be treated as short-term capital gain.
``(b) Special Rule.--To the extent provided by the Secretary,
subsection (a) shall not apply to income or gain attributable to any
asset not held for portfolio investment on behalf of third party
investors.
``(c) Applicable Partnership Interest.--For purposes of this
section--
``(1) In general.--Except as provided in this paragraph or
paragraph (4), the term `applicable partnership interest' means
any interest in a partnership which, directly or indirectly, is
transferred to (or is held by) the taxpayer in connection with
the performance of substantial services by the taxpayer, or any
other related person, in any applicable trade or business. The
previous sentence shall not apply to an interest held by a
person who is employed by another entity that is conducting a
trade or business (other than an applicable trade or business)
and only provides services to such other entity.
``(2) Applicable trade or business.--The term `applicable
trade or business' means any activity conducted on a regular,
continuous, and substantial basis which, regardless of whether
the activity is conducted in one or more entities, consists, in
whole or in part, of--
``(A) raising or returning capital, and
``(B) either--
``(i) investing in (or disposing of)
specified assets (or identifying specified
assets for such investing or disposition), or
``(ii) developing specified assets.
``(3) Specified asset.--The term `specified asset' means
securities (as defined in section 475(c)(2) without regard to
the last sentence thereof), commodities (as defined in section
475(e)(2)), real estate held for rental or investment, cash or
cash equivalents, options or derivative contracts with respect
to any of the foregoing, and an interest in a partnership to
the extent of the partnership's proportionate interest in any
of the foregoing.
``(4) Exceptions.--The term `applicable partnership interest'
shall not include--
``(A) any interest in a partnership directly or
indirectly held by a corporation, or
``(B) any capital interest in the partnership which
provides the taxpayer with a right to share in
partnership capital commensurate with--
``(i) the amount of capital contributed
(determined at the time of receipt of such
partnership interest), or
``(ii) the value of such interest subject to
tax under section 83 upon the receipt or
vesting of such interest.
``(5) Third party investor.--The term `third party investor'
means a person who--
``(A) holds an interest in the partnership which does
not constitute property held in connection with an
applicable trade or business; and
``(B) is not (and has not been) actively engaged, and
is (and was) not related to a person so engaged, in
(directly or indirectly) providing substantial services
described in paragraph (1) for such partnership or any
applicable trade or business.
``(d) Transfer of Applicable Partnership Interest to Related
Person.--
``(1) In general.--If a taxpayer transfers any applicable
partnership interest, directly or indirectly, to a person
related to the taxpayer, the taxpayer shall include in gross
income (as short term capital gain) the excess (if any) of--
``(A) so much of the taxpayer's long-term capital
gains with respect to such interest for such taxable
year attributable to the sale or exchange of any asset
held for not more than 3 years as is allocable to such
interest, over
``(B) any amount treated as short term capital gain
under subsection (a) with respect to the transfer of
such interest.
``(2) Related person.--For purposes of this paragraph, a
person is related to the taxpayer if--
``(A) the person is a member of the taxpayer's family
within the meaning of section 318(a)(1), or
``(B) the person performed a service within the
current calendar year or the preceding three calendar
years in any applicable trade or business in which or
for which the taxpayer performed a service.
``(e) Reporting.--The Secretary shall require such reporting (at the
time and in the manner prescribed by the Secretary) as is necessary to
carry out the purposes of this section.
``(f) Regulations.--The Secretary shall issue such regulations or
other guidance as is necessary or appropriate to carry out the purposes
of this section''.
(b) Coordination With Section 83.--Subsection (e) of section 83 is
amended by striking ``or'' at the end of paragraph (4), by striking the
period at the end of paragraph (5) and inserting ``, or'', and by
adding at the end the following new paragraph:
``(6) a transfer of an applicable partnership interest to
which section 1061 applies.''.
(c) Clerical Amendment.--The table of sections for part IV of
subchapter O of chapter 1 is amended by striking the item relating to
1061 and inserting the following new items:
``Sec. 1061. Partnership interests held in connection with performance
of services.
``Sec. 1062. Cross references.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3315. AMORTIZATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.
(a) In General.--Section 174 is amended to read as follows:
``SEC. 174. AMORTIZATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.
``(a) In General.--In the case of a taxpayer's specified research or
experimental expenditures for any taxable year--
``(1) except as provided in paragraph (2), no deduction shall
be allowed for such expenditures, and
``(2) the taxpayer shall--
``(A) charge such expenditures to capital account,
and
``(B) be allowed an amortization deduction of such
expenditures ratably over the 5-year period (15-year
period in the case of any specified research or
experimental expenditures which are attributable to
foreign research (within the meaning of section
41(d)(4)(F))) beginning with the midpoint of the
taxable year in which such expenditures are paid or
incurred.
``(b) Specified Research or Experimental Expenditures.--For purposes
of this section, the term `specified research or experimental
expenditures' means, with respect to any taxable year, research or
experimental expenditures which are paid or incurred by the taxpayer
during such taxable year in connection with the taxpayer's trade or
business.
``(c) Special Rules.--
``(1) Land and other property.--This section shall not apply
to any expenditure for the acquisition or improvement of land,
or for the acquisition or improvement of property to be used in
connection with the research or experimentation and of a
character which is subject to the allowance under section 167
(relating to allowance for depreciation, etc.) or section 611
(relating to allowance for depletion); but for purposes of this
section allowances under section 167, and allowances under
section 611, shall be considered as expenditures.
``(2) Exploration expenditures.--This section shall not apply
to any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality of any
deposit of ore or other mineral (including oil and gas).
``(3) Software development.--For purposes of this section,
any amount paid or incurred in connection with the development
of any software shall be treated as a research or experimental
expenditure.
``(d) Treatment Upon Disposition, Retirement, or Abandonment.--If any
property with respect to which specified research or experimental
expenditures are paid or incurred is disposed, retired, or abandoned
during the period during which such expenditures are allowed as an
amortization deduction under this section, no deduction shall be
allowed with respect to such expenditures on account of such
disposition, retirement, or abandonment and such amortization deduction
shall continue with respect to such expenditures.''.
(b) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by striking the item relating to
section 174 and inserting the following new item:
``Sec. 174. Amortization of research and experimental expenditures.''.
(c) Effective Date.--The amendments made by this section shall apply
to amounts paid or incurred in taxable years beginning after December
31, 2022.
SEC. 3316. UNIFORM TREATMENT OF EXPENSES IN CONTINGENCY FEE CASES.
(a) In General.--Section 162, as amended by the preceding provisions
of this Act, is amended by redesignating subsection (r) as subsection
(s) and by inserting after subsection (q) the following new subsection:
``(r) Expenses in Contingency Fee Cases.--No deduction shall be
allowed under subsection (a) to a taxpayer for any expense--
``(1) paid or incurred in the course of the trade or business
of practicing law, and
``(2) resulting from a case for which the taxpayer is
compensated primarily on a contingent basis,
until such time as such contingency is resolved.''.
(b) Effective Date.--The amendment made by this section shall apply
to expenses and costs paid or incurred in taxable years beginning after
the date of the enactment of this Act.
Subtitle E--Reform of Business Credits
SEC. 3401. REPEAL OF CREDIT FOR CLINICAL TESTING EXPENSES FOR CERTAIN
DRUGS FOR RARE DISEASES OR CONDITIONS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1 is
amended by striking section 45C (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Section 38(b) is amended by striking paragraph (12).
(2) Section 280C is amended by striking subsection (b).
(3) Section 6501(m) is amended by striking ``45C(d)(4),''.
(c) Effective Date.--The amendments made by this section shall apply
to amounts paid or incurred in taxable years beginning after December
31, 2017.
SEC. 3402. REPEAL OF EMPLOYER-PROVIDED CHILD CARE CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1 is
amended by striking section 45F (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Section 38(b) is amended by striking paragraph (15).
(2) Section 1016(a) is amended by striking paragraph (28).
(c) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 2017.
(2) Basis adjustments.--The amendment made by subsection
(b)(2) shall apply to credits determined for taxable years
beginning after December 31, 2017.
SEC. 3403. REPEAL OF REHABILITATION CREDIT.
(a) In General.--Subpart E of part IV of subchapter A of chapter 1 is
amended by striking section 47 (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Section 170(f)(14)(A) is amended by inserting ``(as in
effect before its repeal by the Tax Cuts and Jobs Act)'' after
``section 47''.
(2) Section 170(h)(4) is amended--
(A) by striking ``(as defined in section
47(c)(3)(B))'' in subparagraph (C)(ii), and
(B) by adding at the end the following new
subparagraph:
``(D) Registered historic district.--The term
`registered historic district' means--
``(i) any district listed in the National
Register, and
``(ii) any district--
``(I) which is designated under a
statute of the appropriate State or
local government, if such statute is
certified by the Secretary of the
Interior to the Secretary as containing
criteria which will substantially
achieve the purpose of preserving and
rehabilitating buildings of historic
significance to the district, and
``(II) which is certified by the
Secretary of the Interior to the
Secretary as meeting substantially all
of the requirements for the listing of
districts in the National Register.''.
(3) Section 469(i)(3) is amended by striking subparagraph
(B).
(4) Section 469(i)(6)(B) is amended--
(A) by striking ``in the case of--'' and all that
follows and inserting ``in the case of any credit
determined under section 42 for any taxable year.'',
and
(B) by striking ``, rehabilitation credit,'' in the
heading thereof.
(5) Section 469(k)(1) is amended by striking ``, or any
rehabilitation credit determined under section 47,''.
(c) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to amounts paid or
incurred after December 31, 2017.
(2) Transition rule.--In the case of qualified rehabilitation
expenditures (within the meaning of section 47 of the Internal
Revenue Code of 1986 as in effect before its repeal) with
respect to any building--
(A) owned or leased (as permitted by section 47 of
the Internal Revenue Code of 1986 as in effect before
its repeal) by the taxpayer at all times after December
31, 2017, and
(B) with respect to which the 24-month period
selected by the taxpayer under section 47(c)(1)(C) of
such Code begins not later than the end of the 180-day
period beginning on the date of the enactment of this
Act,
the amendments made by this section shall apply to such
expenditures paid or incurred after the end of the taxable year
in which the 24-month period referred to in subparagraph (B)
ends.
SEC. 3404. REPEAL OF WORK OPPORTUNITY TAX CREDIT.
(a) In General.--Subpart F of part IV of subchapter A of chapter 1 is
amended by striking section 51 (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Clerical Amendment.--The heading of such subpart F (and the item
relating to such subpart in the table of subparts for part IV of
subchapter A of chapter 1) are each amended by striking ``Rules for
Computing Work Opportunity Credit'' and inserting ``Special Rules''.
(c) Effective Date.--The amendments made by this section shall apply
to amounts paid or incurred to individuals who begin work for the
employer after December 31, 2017.
SEC. 3405. REPEAL OF DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.
(a) In General.--Part VI of subchapter B of chapter 1 is amended by
striking section 196 (and by striking the item relating to such section
in the table of sections for such part).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3406. TERMINATION OF NEW MARKETS TAX CREDIT.
(a) In General.--Section 45D(f) is amended--
(1) by striking ``2019'' in paragraph (1)(G) and inserting
``2017'', and
(2) by striking ``2024'' in paragraph (3) and inserting
``2022''.
(b) Effective Date.--The amendments made by this section shall apply
to calendar years beginning after December 31, 2017.
SEC. 3407. REPEAL OF CREDIT FOR EXPENDITURES TO PROVIDE ACCESS TO
DISABLED INDIVIDUALS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1 is
amended by striking section 44 (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendment.--Section 38(b) is amended by striking
paragraph (7).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3408. MODIFICATION OF CREDIT FOR PORTION OF EMPLOYER SOCIAL
SECURITY TAXES PAID WITH RESPECT TO EMPLOYEE TIPS.
(a) Credit Determined With Respect to Minimum Wage as in Effect.--
Section 45B(b)(1)(B) is amended by striking ``as in effect on January
1, 2007, and''.
(b) Information Return Requirement.--Section 45B is amended by
redesignating subsections (c) and (d) as subsections (d) and (e),
respectively, and by inserting after subsection (b) the following new
subsection:
``(c) Information Return Requirement.--
``(1) In general.--No credit shall be determined under
subsection (a) with respect to any food or beverage
establishment of any taxpayer for any taxable year unless such
taxpayer has, with respect to the calendar year which ends in
or with such taxable year--
``(A) made a report to the Secretary showing the
information described in section 6053(c)(1) with
respect to such food or beverage establishment, and
``(B) furnished written statements to each employee
of such food or beverage establishment showing the
information described in section 6053(c)(2).
``(2) Allocation of 10 percent of gross receipts.--For
purposes of determining the information referred to in
subparagraphs (A) and (B), section 6053(c)(3)(A)(i) shall be
applied by substituting `10 percent' for `8 percent'. For
purposes of section 6053(c)(5), any reference to section
6053(c)(3)(B) contained therein shall be treated as including a
reference to this paragraph.
``(3) Food or beverage establishment.--For purposes of this
subsection, the term `food or beverage establishment' means any
trade or business (or portion thereof) which would be a large
food or beverage establishment (as defined in section
6053(c)(4)) if such section were applied without regard to
subparagraph (C) thereof.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle F--Energy Credits
SEC. 3501. MODIFICATIONS TO CREDIT FOR ELECTRICITY PRODUCED FROM
CERTAIN RENEWABLE RESOURCES.
(a) Termination of Inflation Adjustment.--Section 45(b)(2) is
amended--
(1) by striking ``The 1.5 cent amount'' and inserting the
following:
``(A) In general.--The 1.5 cent amount'', and
(2) by adding at the end the following new subparagraph:
``(B) Termination.--Subparagraph (A) shall not apply
with respect to any electricity or refined coal
produced at a facility the construction of which begins
after the date of the enactment of this
subparagraph.''.
(b) Special Rule for Determination of Beginning of Construction.--
Section 45(e) is amended by adding at the end the following new
paragraph:
``(12) Special rule for determining beginning of
construction.--For purposes of subsection (d), the construction
of any facility, modification, improvement, addition, or other
property shall not be treated as beginning before any date
unless there is a continuous program of construction which
begins before such date and ends on the date that such property
is placed in service.''.
(c) Effective Dates.--
(1) Termination of inflation adjustment.--The amendments made
by subsection (a) shall apply to taxable years ending after the
date of the enactment of this Act.
(2) Special rule for determination of beginning of
construction.--The amendment made by subsection (b) shall apply
to taxable years beginning before, on, or after the date of the
enactment of this Act.
SEC. 3502. MODIFICATION OF THE ENERGY INVESTMENT TAX CREDIT.
(a) Extension of Solar Energy Property.--Section 48(a)(3)(A)(ii) is
amended by striking ``periods ending before January 1, 2017'' and
inserting ``property the construction of which begins before January 1,
2022''.
(b) Extension of Qualified Fuel Cell Property.--Section 48(c)(1)(D)
is amended by striking ``for any period after December 31, 2016'' and
inserting ``the construction of which does not begin before January 1,
2022''.
(c) Extension of Qualified Microturbine Property.--Section
48(c)(2)(D) is amended by striking ``for any period after December 31,
2016'' and inserting ``the construction of which does not begin before
January 1, 2022''.
(d) Extension of Combined Heat and Power System Property.--Section
48(c)(3)(A)(iv) is amended by striking ``which is placed in service
before January 1, 2017'' and inserting ``the construction of which
begins before January 1, 2022''.
(e) Extension of Qualified Small Wind Energy Property.--Section
48(c)(4)(C) is amended by striking ``for any period after December 31,
2016'' and inserting ``the construction of which does not begin before
January 1, 2022''.
(f) Extension of Thermal Energy Property.--Section 48(a)(3)(A)(vii)
is amended by striking ``periods ending before January 1, 2017'' and
inserting ``property the construction of which begins before January 1,
2022''.
(g) Phaseout of 30 Percent Credit Rate for Fuel Cell and Small Wind
Energy Property.--Section 48(a) is amended by adding at the end the
following new paragraph:
``(7) Phaseout for qualified fuel cell property and qualified
small wind energy property.--
``(A) In general.--In the case of qualified fuel cell
property or qualified small wind energy property, the
construction of which begins before January 1, 2022,
the energy percentage determined under paragraph (2)
shall be equal to--
``(i) in the case of any property the
construction of which begins after December 31,
2019, and before January 1, 2021, 26 percent,
and
``(ii) in the case of any property the
construction of which begins after December 31,
2020, and before January 1, 2022, 22 percent.
``(B) Placed in service deadline.--In the case of any
qualified fuel cell property or qualified small wind
energy property, the construction of which begins
before January 1, 2022, and which is not placed in
service before January 1, 2024, the energy percentage
determined under paragraph (2) shall be equal to 10
percent.''.
(h) Phaseout for Fiber-optic Solar Energy Property.--Subparagraphs
(A) and (B) of section 48(a)(6) are each amended by inserting ``or
(3)(A)(ii)'' after ``paragraph (3)(A)(i)''.
(i) Termination of Solar Energy Property.--Section 48(a)(3)(A)(i) is
amended by inserting ``, the construction of which begins before
January 1, 2028, and'' after ``equipment''.
(j) Termination of Geothermal Energy Property.--Section
48(a)(3)(A)(iii) is amended by inserting ``, the construction of which
begins before January 1, 2028, and'' after ``equipment''.
(k) Special Rule for Determination of Beginning of Construction.--
Section 48(c) is amended by adding at the end the following new
paragraph:
``(5) Special rule for determining beginning of
construction.--The construction of any facility, modification,
improvement, addition, or other property shall not be treated
as beginning before any date unless there is a continuous
program of construction which begins before such date and ends
on the date that such property is placed in service.''.
(l) Effective Date.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
periods after December 31, 2016, under rules similar to the
rules of section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of the
Revenue Reconciliation Act of 1990).
(2) Extension of combined heat and power system property.--
The amendment made by subsection (d) shall apply to property
placed in service after December 31, 2016.
(3) Phaseouts and terminations.--The amendments made by
subsections (g), (h), (i), and (j) shall take effect on the
date of the enactment of this Act.
(4) Special rule for determination of beginning of
construction.--The amendment made by subsection (k) shall apply
to taxable years beginning before, on, or after the date of the
enactment of this Act.
SEC. 3503. EXTENSION AND PHASEOUT OF RESIDENTIAL ENERGY EFFICIENT
PROPERTY.
(a) Extension.--Section 25D(h) is amended by striking ``December 31,
2016 (December 31, 2021, in the case of any qualified solar electric
property expenditures and qualified solar water heating property
expenditures)'' and inserting ``December 31, 2021''.
(b) Phaseout.--
(1) In general.--Paragraphs (3), (4), and (5) of section
25D(a) are amended by striking ``30 percent'' each place it
appears and inserting ``the applicable percentage''.
(2) Conforming amendment.--Section 25D(g) of such Code is
amended by striking ``paragraphs (1) and (2) of''.
(c) Effective Date.--The amendments made by this section shall apply
to property placed in service after December 31, 2016.
SEC. 3504. REPEAL OF ENHANCED OIL RECOVERY CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1 is
amended by striking section 43 (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendments.--
(1) Section 38(b) is amended by striking paragraph (6).
(2) Section 6501(m) is amended by striking ``43,''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3505. REPEAL OF CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL
WELLS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1 is
amended by striking section 45I (and by striking the item relating to
such section in the table of sections for such subpart).
(b) Conforming Amendment.--Section 38(b) is amended by striking
paragraph (19).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3506. MODIFICATIONS OF CREDIT FOR PRODUCTION FROM ADVANCED NUCLEAR
POWER FACILITIES.
(a) Treatment of Unutilized Limitation Amounts.--Section 45J(b) is
amended--
(1) in paragraph (4), by inserting ``or any amendment to''
after ``enactment of''; and
(2) by adding at the end the following new paragraph:
``(5) Allocation of unutilized limitation.--
``(A) In general.--Any unutilized national megawatt
capacity limitation shall be allocated by the Secretary
under paragraph (3) as rapidly as is practicable after
December 31, 2020--
``(i) first to facilities placed in service
on or before such date to the extent that such
facilities did not receive an allocation equal
to their full nameplate capacity; and
``(ii) then to facilities placed in service
after such date in the order in which such
facilities are placed in service.
``(B) Unutilized national megawatt capacity
limitation.--The term `unutilized national megawatt
capacity limitation' means the excess (if any) of--
``(i) 6,000 megawatts, over
``(ii) the aggregate amount of national
megawatt capacity limitation allocated by the
Secretary before January 1, 2021, reduced by
any amount of such limitation which was
allocated to a facility which was not placed in
service before such date.
``(C) Coordination with other provisions.--In the
case of any unutilized national megawatt capacity
limitation allocated by the Secretary pursuant to this
paragraph--
``(i) such allocation shall be treated for
purposes of this section in the same manner as
an allocation of national megawatt capacity
limitation; and
``(ii) subsection (d)(1)(B) shall not apply
to any facility which receives such
allocation.''.
(b) Transfer of Credit by Certain Public Entities.--
(1) In general.--Section 45J is amended--
(A) by redesignating subsection (e) as subsection
(f); and
(B) by inserting after subsection (d) the following
new subsection:
``(e) Transfer of Credit by Certain Public Entities.--
``(1) In general.--If, with respect to a credit under
subsection (a) for any taxable year--
``(A) the taxpayer would be a qualified public
entity; and
``(B) such entity elects the application of this
paragraph for such taxable year with respect to all (or
any portion specified in such election) of such credit,
the eligible project partner specified in such election (and
not the qualified public entity) shall be treated as the
taxpayer for purposes of this title with respect to such credit
(or such portion thereof).
``(2) Definitions.--For purposes of this subsection--
``(A) Qualified public entity.--The term `qualified
public entity' means--
``(i) a Federal, State, or local government
entity, or any political subdivision, agency,
or instrumentality thereof;
``(ii) a mutual or cooperative electric
company described in section 501(c)(12) or
section 1381(a)(2); or
``(iii) a not-for-profit electric utility
which has or had received a loan or loan
guarantee under the Rural Electrification Act
of 1936.
``(B) Eligible project partner.--The term `eligible
project partner' means--
``(i) any person responsible for, or
participating in, the design or construction of
the advanced nuclear power facility to which
the credit under subsection (a) relates;
``(ii) any person who participates in the
provision of the nuclear steam supply system to
the advanced nuclear power facility to which
the credit under subsection (a) relates;
``(iii) any person who participates in the
provision of nuclear fuel to the advanced
nuclear power facility to which the credit
under subsection (a) relates; or
``(iv) any person who has an ownership
interest in such facility.
``(3) Special rules.--
``(A) Application to partnerships.--In the case of a
credit under subsection (a) which is determined at the
partnership level--
``(i) for purposes of paragraph (1)(A), a
qualified public entity shall be treated as the
taxpayer with respect to such entity's
distributive share of such credit; and
``(ii) the term `eligible project partner'
shall include any partner of the partnership.
``(B) Taxable year in which credit taken into
account.--In the case of any credit (or portion
thereof) with respect to which an election is made
under paragraph (1), such credit shall be taken into
account in the first taxable year of the eligible
project partner ending with, or after, the qualified
public entity's taxable year with respect to which the
credit was determined.
``(C) Treatment of transfer under private use
rules.--For purposes of section 141(b)(1), any benefit
derived by an eligible project partner in connection
with an election under this subsection shall not be
taken into account as a private business use.''.
(2) Special rule for proceeds of transfers for mutual or
cooperative electric companies.--Section 501(c)(12) of such
Code is amended by adding at the end the following new
subparagraph:
``(I) In the case of a mutual or cooperative electric
company described in this paragraph or an organization
described in section 1381(a)(2), income received or
accrued in connection with an election under section
45J(e)(1) shall be treated as an amount collected from
members for the sole purpose of meeting losses and
expenses.''.
(c) Effective Dates.--
(1) Treatment of unutilized limitation amounts.--The
amendment made by subsection (a) shall take effect on the date
of the enactment of this Act.
(2) Transfer of credit by certain public entities.--The
amendments made by subsection (b) shall apply to taxable years
beginning after the date of the enactment of this Act.
Subtitle G--Bond Reforms
SEC. 3601. TERMINATION OF PRIVATE ACTIVITY BONDS.
(a) In General.--Paragraph (1) of section 103(b) is amended--
(1) by striking ``which is not a qualified bond (within the
meaning of section 141)'', and
(2) by striking ``which is not a qualified bond'' in the
heading thereof.
(b) Conforming Amendments.--
(1) Subpart A of part IV of subchapter B of chapter 1 is
amended by striking sections 142, 143, 144, 145, 146, and 147
(and by striking each of the items relating to such sections in
the table of sections for such subpart).
(2) Section 25 is amended by adding at the end the following
new subsection:
``(j) Coordination With Repeal of Private Activity Bonds.--Any
reference to section 143, 144, or 146 shall be treated as a reference
to such section as in effect before its repeal by the Tax Cuts and Jobs
Act.''.
(3) Section 26(b)(2) is amended by striking subparagraph (D).
(4) Section 141(b) is amended by striking paragraphs (5) and
(9).
(5) Section 141(d) is amended by striking paragraph (5).
(6) Section 141 is amended by striking subsection (e).
(7) Section 148(f)(4) is amended--
(A) by striking ``(determined in accordance with
section 147(b)(2)(A))'' in the flush matter following
subparagraph (A)(ii) and inserting ``(determined by
taking into account the respective issue prices of the
bonds issued as part of the issue)'', and
(B) by striking the last sentence of subparagraph
(D)(v).
(8) Clause (iv) of section 148(f)(4)(C) is amended to read as
follows:
``(iv) Construction issue.--For purposes of
this subparagraph--
``(I) In general.--The term
`construction issue' means any issue if
at least 75 percent of the available
construction proceeds of such issue are
to be used for construction
expenditures.
``(II) Construction.--The term
`construction' includes reconstruction
and rehabilitation.''.
(9) Section 149(b)(3) is amended by striking subparagraph
(C).
(10) Section 149(e)(2) is amended--
(A) by striking subparagraphs (C), (D), and (F) and
by redesignating subparagraphs (E) and (G) as
subparagraphs (C) and (D), respectively, and
(B) by striking the second sentence.
(11) Section 149(f)(6) is amended--
(A) by striking subparagraph (B), and
(B) by striking ``For purposes of this subsection''
and all that follows through ``The term'' and inserting
the following: ``For purposes of this subsection, the
term''.
(12) Section 150(e)(3) is amended to read as follows:
``(3) Public approval requirement.--A bond shall not be
treated as part of an issue which meets the requirements of
paragraph (1) unless such bond satisfies the requirements of
section 147(f)(2) (as in effect before its repeal by the Tax
Cuts and Jobs Act).''.
(13) Section 269A(b)(3) is amended by striking ``144(a)(3)''
and inserting ``414(n)(6)(A)''.
(14) Section 414(m)(5) is amended by striking ``section
144(a)(3)'' and inserting ``subsection (n)(6)(A)''.
(15) Section 414(n)(6)(A) is amended to read as follows:
``(A) Related persons.--A person is a related person
to another person if--
``(i) the relationship between such persons
would result in a disallowance of losses under
section 267 or 707(b), or
``(ii) such persons are members of the same
controlled group of corporations (as defined in
section 1563(a), except that `more than 50
percent' shall be substituted for `at least 80
percent' each place it appears therein).''.
(16) Section 6045(e)(4)(B) is amended by inserting ``(as in
effect before its repeal by the Tax Cuts and Jobs Act)'' after
``section 143(m)(3)''.
(17) Section 6654(f)(1) is amended by inserting ``(as in
effect before its repeal by the Tax Cuts and Jobs Act)'' after
``section 143(m)''.
(18) Section 7871(c) is amended--
(A) by striking paragraphs (2) and (3), and
(B) by striking ``Tax-exempt Bonds.--'' and all that
follows through ``Subsection (a) of section 103'' and
inserting the following: ``Tax-exempt Bonds.--
Subsection (a) of section 103''.
(c) Effective Date.--The amendments made by this section shall apply
to bonds issued after December 31, 2017.
SEC. 3602. REPEAL OF ADVANCE REFUNDING BONDS.
(a) In General.--Paragraph (1) of section 149(d) is amended by
striking ``as part of an issue described in paragraph (2), (3), or
(4).'' and inserting ``to advance refund another bond.''.
(b) Conforming Amendments.--
(1) Section 149(d) is amended by striking paragraphs (2),
(3), (4), and (6) and by redesignating paragraphs (5) and (7)
as paragraphs (2) and (3).
(2) Section 148(f)(4)(C) is amended by striking clause (xiv)
and by redesignating clauses (xv) to (xvii) as clauses (xiv) to
(xvi).
(c) Effective Date.--The amendments made by this section shall apply
to advance refunding bonds issued after December 31, 2017.
SEC. 3603. REPEAL OF TAX CREDIT BONDS.
(a) In General.--Part IV of subchapter A of chapter 1 is amended by
striking subparts H, I, and J (and by striking the items relating to
such subparts in the table of subparts for such part).
(b) Payments to Issuers.--Subchapter B of chapter 65 is amended by
striking section 6431 (and by striking the item relating to such
section in the table of sections for such subchapter).
(c) Conforming Amendments.--
(1) Part IV of subchapter U of chapter 1 is amended by
striking section 1397E (and by striking the item relating to
such section in the table of sections for such part).
(2) Section 54(l)(3)(B) is amended by inserting ``(as in
effect before its repeal by the Tax Cuts and Jobs Act)'' after
``section 1397E(I)''.
(3) Section 6211(b)(4)(A) is amended by striking ``, and
6431'' and inserting ``and'' before ``36B''.
(4) Section 6401(b)(1) is amended by striking ``G, H, I, and
J'' and inserting ``and G''.
(d) Effective Date.--The amendments made by this section shall apply
to bonds issued after December 31, 2017.
SEC. 3604. NO TAX EXEMPT BONDS FOR PROFESSIONAL STADIUMS.
(a) In General.--Section 103(b), as amended by this Act, is further
amended by adding at the end the following new paragraph:
``(4) Professional stadium bond.--Any professional stadium
bond.''.
(b) Professional Stadium Bond Defined.--Subsection (c) of section 103
is amended by adding at the end the following new paragraph:
``(3) Professional stadium bond.--The term `professional
stadium bond' means any bond issued as part of an issue any
proceeds of which are used to finance or refinance capital
expenditures allocable to a facility (or appurtenant real
property) which, during at least 5 days during any calendar
year, is used as a stadium or arena for professional sports
exhibitions, games, or training.''.
(c) Effective Date.--The amendments made by this section shall apply
to bonds issued after November 2, 2017.
Subtitle H--Insurance
SEC. 3701. NET OPERATING LOSSES OF LIFE INSURANCE COMPANIES.
(a) In General.--Section 805(b) is amended by striking paragraph (4)
and by redesignating paragraph (5) as paragraph (4).
(b) Conforming Amendments.--
(1) Part I of subchapter L of chapter 1 is amended by
striking section 810 (and by striking the item relating to such
section in the table of sections for such part).
(2) Part III of subchapter L of chapter 1 is amended by
striking section 844 (and by striking the item relating to such
section in the table of sections for such part).
(3) Section 381 is amended by striking subsection (d).
(4) Section 805(a)(4)(B)(ii) is amended to read as follows:
``(ii) the deduction allowed under section
172,''.
(5) Section 805(a) is amended by striking paragraph (5).
(6) Section 953(b)(1)(B) is amended to read as follows:
``(B) So much of section 805(a)(8) as relates to the
deduction allowed under section 172.''.
(c) Effective Date.--The amendments made by this section shall apply
to losses arising in taxable years beginning after December 31, 2017.
SEC. 3702. REPEAL OF SMALL LIFE INSURANCE COMPANY DEDUCTION.
(a) In General.--Part I of subchapter L of chapter 1 is amended by
striking section 806 (and by striking the item relating to such section
in the table of sections for such part).
(b) Conforming Amendments.--
(1) Section 453B(e) is amended--
(A) by striking ``(as defined in section 806(b)(3))''
in paragraph (2)(B), and
(B) by adding at the end the following new paragraph:
``(3) Noninsurance business.--
``(A) In general.--For purposes of this subsection,
the term `noninsurance business' means any activity
which is not an insurance business.
``(B) Certain activities treated as insurance
businesses.--For purposes of subparagraph (A), any
activity which is not an insurance business shall be
treated as an insurance business if--
``(i) it is of a type traditionally carried
on by life insurance companies for investment
purposes, but only if the carrying on of such
activity (other than in the case of real
estate) does not constitute the active conduct
of a trade or business, or
``(ii) it involves the performance of
administrative services in connection with
plans providing life insurance, pension, or
accident and health benefits.''.
(2) Section 465(c)(7)(D)(v)(II) is amended by striking
``section 806(b)(3)'' and inserting ``section 453B(e)(3)''.
(3) Section 801(a)(2) is amended by striking subparagraph
(C).
(4) Section 804 is amended by striking ``means--'' and all
that follows and inserting ``means the general deductions
provided in section 805.''.
(5) Section 805(a)(4)(B), as amended by section 3701, is
amended by striking clause (i) and by redesignating clauses
(ii), (iii), and (iv) as clauses (i), (ii), and (iii),
respectively.
(6) Section 805(b)(2)(A) is amended by striking clause (iii)
and by redesignating clauses (iv) and (v) as clauses (iii) and
(iv), respectively.
(7) Section 842(c) is amended by striking paragraph (1) and
by redesignating paragraphs (2) and (3) as paragraphs (1) and
(2), respectively.
(8) Section 953(b)(1), as amended by section 3701, is amended
by striking subparagraph (A) and by redesignating subparagraphs
(B) and (C) as subparagraphs (A) and (B), respectively.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3703. SURTAX ON LIFE INSURANCE COMPANY TAXABLE INCOME.
(a) In General.--Section 801(a)(1) is amended--
(1) by striking ``consist of a tax'' and insert ``consist of
the sum of--
``(A) a tax'', and
(2) by striking the period at the end and inserting ``,
and'', and
(3) by adding at the end the following new subparagraph:
``(B) a tax equal to 8 percent of the life insurance
company taxable income.''.
SEC. 3704. ADJUSTMENT FOR CHANGE IN COMPUTING RESERVES.
(a) In General.--Paragraph (1) of section 807(f) is amended to read
as follows:
``(1) Treatment as change in method of accounting.--If the
basis for determining any item referred to in subsection (c) as
of the close of any taxable year differs from the basis for
such determination as of the close of the preceding taxable
year, then so much of the difference between--
``(A) the amount of the item at the close of the
taxable year, computed on the new basis, and
``(B) the amount of the item at the close of the
taxable year, computed on the old basis,
as is attributable to contracts issued before the taxable year
shall be taken into account under section 481 as adjustments
attributable to a change in method of accounting initiated by
the taxpayer and made with the consent of the Secretary.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3705. REPEAL OF SPECIAL RULE FOR DISTRIBUTIONS TO SHAREHOLDERS
FROM PRE-1984 POLICYHOLDERS SURPLUS ACCOUNT.
(a) In General.--Subpart D of part I of subchapter L is amended by
striking section 815 (and by striking the item relating to such section
in the table of sections for such subpart).
(b) Conforming Amendment.--Section 801 is amended by striking
subsection (c).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
(d) Phased Inclusion of Remaining Balance of Policyholders Surplus
Accounts.--In the case of any stock life insurance company which has a
balance (determined as of the close of such company's last taxable year
beginning before January 1, 2018) in an existing policyholders surplus
account (as defined in section 815 of the Internal Revenue Code of
1986, as in effect before its repeal), the tax imposed by section 801
of such Code for the first 8 taxable years beginning after December 31,
2017, shall be the amount which would be imposed by such section for
such year on the sum of--
(1) life insurance company taxable income for such year
(within the meaning of such section 801 but not less than
zero), plus
(2) \1/8\ of such balance.
SEC. 3706. MODIFICATION OF PRORATION RULES FOR PROPERTY AND CASUALTY
INSURANCE COMPANIES.
(a) In General.--Section 832(b)(5)(B) is amended by striking ``15
percent'' and inserting ``26.25 percent''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3707. MODIFICATION OF DISCOUNTING RULES FOR PROPERTY AND CASUALTY
INSURANCE COMPANIES.
(a) Modification of Rate of Interest Used to Discount Unpaid
Losses.--Paragraph (2) of section 846(c) is amended to read as follows:
``(2) Determination of annual rate.--The annual rate
determined by the Secretary under this paragraph for any
calendar year shall be a rate determined on the basis of the
corporate bond yield curve (as defined in section
430(h)(2)(D)(i)).''.
(b) Modification of Computational Rules for Loss Payment Patterns.--
Section 846(d)(3) is amended by striking subparagraphs (B) through (G)
and inserting the following new subparagraphs:
``(B) Treatment of certain losses.--Losses which
would have been treated as paid in the last year of the
period applicable under subparagraph (A)(i) or (A)(ii)
shall be treated as paid in the following manner:
``(i) 3-year loss payment pattern.--
``(I) In general.--The period taken
into account under subparagraph (A)(i)
shall be extended to the extent
required under subclause (II).
``(II) Computation of extension.--The
amount of losses which would have been
treated as paid in the 3d year after
the accident year shall be treated as
paid in such 3d year and each
subsequent year in an amount equal to
the average of the losses treated as
paid in the 1st and 2d years after the
accident year (or, if lesser, the
portion of the unpaid losses not
theretofore taken into account). To the
extent such unpaid losses have not been
treated as paid before the 18th year
after the accident year, they shall be
treated as paid in such 18th year.
``(ii) 10-year loss payment pattern.--
``(I) In general.--The period taken
into account under subparagraph (A)(ii)
shall be extended to the extent
required under subclause (II).
``(II) Computation of extension.--The
amount of losses which would have been
treated as paid in the 10th year after
the accident year shall be treated as
paid in such 10th year and each
subsequent year in an amount equal to
the amount of the average of the losses
treated as paid in the 7th, 8th, and
9th years after the accident year (or,
if lesser, the portion of the unpaid
losses not theretofore taken into
account). To the extent such unpaid
losses have not been treated as paid
before the 25th year after the accident
year, they shall be treated as paid in
such 25th year.''.
(c) Repeal of Historical Payment Pattern Election.--Section 846 is
amended by striking subsection (e) and by redesignating subsections (f)
and (g) as subsections (e) and (f), respectively.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
(e) Transitional Rule.--For the first taxable year beginning after
December 31, 2017--
(1) the unpaid losses and the expenses unpaid (as defined in
paragraphs (5)(B) and (6) of section 832(b) of the Internal
Revenue Code of 1986) at the end of the preceding taxable year,
and
(2) the unpaid losses as defined in sections 807(c)(2) and
805(a)(1) of such Code at the end of the preceding taxable
year,
shall be determined as if the amendments made by this section had
applied to such unpaid losses and expenses unpaid in the preceding
taxable year and by using the interest rate and loss payment patterns
applicable to accident years ending with calendar year 2018, and any
adjustment shall be taken into account ratably in such first taxable
year and the 7 succeeding taxable years. For subsequent taxable years,
such amendments shall be applied with respect to such unpaid losses and
expenses unpaid by using the interest rate and loss payment patterns
applicable to accident years ending with calendar year 2018.
SEC. 3708. REPEAL OF SPECIAL ESTIMATED TAX PAYMENTS.
(a) In General.--Part III of subchapter L of chapter 1 is amended by
striking section 847 (and by striking the item relating to such section
in the table of sections for such part).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle I--Compensation
SEC. 3801. MODIFICATION OF LIMITATION ON EXCESSIVE EMPLOYEE
REMUNERATION.
(a) Repeal of Performance-based Compensation and Commission
Exceptions for Limitation on Excessive Employee Remuneration.--
(1) In general.--Section 162(m)(4) is amended by striking
subparagraphs (B) and (C) and by redesignating subparagraphs
(D), (E), (F), and (G) as subparagraphs (B), (C), (D), and (E),
respectively.
(2) Conforming amendments.--
(A) Paragraphs (5)(E) and (6)(D) of section 162(m)
are each amended by striking ``subparagraphs (B), (C),
and (D)'' and inserting ``subparagraph (B)''.
(B) Paragraphs (5)(G) and (6)(G) of section 162(m)
are each amended by striking ``(F) and (G)'' and
inserting ``(D) and (E)''.
(b) Expansion of Applicable Employer.--Section 162(m)(2) is amended
to read as follows:
``(2) Publicly held corporation.--For purposes of this
subsection, the term `publicly held corporation' means any
corporation which is an issuer (as defined in section 3 of the
Securities Exchange Act of 1934 (15 U.S.C. 78c))--
``(A) the securities of which are required to be
registered under section 12 of such Act (15 U.S.C.
78l), or
``(B) that is required to file reports under section
15(d) of such Act (15 U.S.C. 78o(d)).''.
(c) Modification of Definition of Covered Employees.--Section
162(m)(3) is amended--
(1) in subparagraph (A), by striking ``as of the close of the
taxable year, such employee is the chief executive officer of
the taxpayer or is'' and inserting ``such employee is the
principal executive officer or principal financial officer of
the taxpayer at any time during the taxable year, or was'',
(2) in subparagraph (B)--
(A) by striking ``4'' and inserting ``3'', and
(B) by striking ``(other than the chief executive
officer)'' and inserting ``(other than the principal
executive officer or principal financial officer)'',
and
(3) by striking ``or'' at the end of subparagraph (A), by
striking the period at the end of subparagraph (B) and
inserting ``, or'', and by adding at the end the following:
``(C) was a covered employee of the taxpayer (or any
predecessor) for any preceding taxable year beginning
after December 31, 2016.
Such term shall include any employee who would be described in
subparagraph (B) if the reporting described in such
subparagraph were required as so described.''.
(d) Special Rule for Remuneration Paid to Beneficiaries, etc.--
Section 162(m)(4), as amended by subsection (a), is amended by adding
at the end the following new subparagraph:
``(F) Special rule for remuneration paid to
beneficiaries, etc.--Remuneration shall not fail to be
applicable employee remuneration merely because it is
includible in the income of, or paid to, a person other
than the covered employee, including after the death of
the covered employee.''.
(e) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3802. EXCISE TAX ON EXCESS TAX-EXEMPT ORGANIZATION EXECUTIVE
COMPENSATION.
(a) In General.--Subchapter D of chapter 42 is amended by adding at
the end the following new section:
``SEC. 4960. TAX ON EXCESS TAX-EXEMPT ORGANIZATION EXECUTIVE
COMPENSATION.
``(a) Tax Imposed.--There is hereby imposed a tax equal to 20 percent
of the sum of--
``(1) so much of the remuneration paid (other than any excess
parachute payment) by an applicable tax-exempt organization for
the taxable year with respect to employment of any covered
employee in excess of $1,000,000, plus
``(2) any excess parachute payment paid by such an
organization to any covered employee.
``(b) Liability for Tax.--The employer shall be liable for the tax
imposed under subsection (a).
``(c) Definitions and Special Rules.--For purposes of this section--
``(1) Applicable tax-exempt organization.--The term
`applicable tax-exempt organization' means any organization
that for the taxable year--
``(A) is exempt from taxation under section 501(a),
``(B) is a farmers' cooperative organization
described in section 521(b)(1),
``(C) has income excluded from taxation under section
115(1), or
``(D) is a political organization described in
section 527(e)(1).
``(2) Covered employee.--For purposes of this section, the
term `covered employee' means any employee (including any
former employee) of an applicable tax-exempt organization if
the employee--
``(A) is one of the 5 highest compensated employees
of the organization for the taxable year, or
``(B) was a covered employee of the organization (or
any predecessor) for any preceding taxable year
beginning after December 31, 2016.
``(3) Remuneration.--For purposes of this section, the term
`remuneration' means wages (as defined in section 3401(a)),
except that such term shall not include any designated Roth
contribution (as defined in section 402A(c)).
``(4) Remuneration from related organizations.--
``(A) In general.--Remuneration of a covered employee
paid by an applicable tax-exempt organization shall
include any remuneration paid with respect to
employment of such employee by any related person or
governmental entity.
``(B) Related organizations.--A person or
governmental entity shall be treated as related to an
applicable tax-exempt organization if such person or
governmental entity--
``(i) controls, or is controlled by, the
organization,
``(ii) is controlled by one or more persons
that control the organization,
``(iii) is a supported organization (as
defined in section 509(f)(2)) during the
taxable year with respect to the organization,
``(iv) is a supporting organization described
in section 509(a)(3) during the taxable year
with respect to the organization, or
``(v) in the case of an organization that is
a voluntary employees' beneficiary association
described in section 501(a)(9), establishes,
maintains, or makes contributions to such
voluntary employees' beneficiary association.
``(C) Liability for tax.--In any case in which
remuneration from more than one employer is taken into
account under this paragraph in determining the tax
imposed by subsection (a), each such employer shall be
liable for such tax in an amount which bears the same
ratio to the total tax determined under subsection (a)
with respect to such remuneration as--
``(i) the amount of remuneration paid by such
employer with respect to such employee, bears
to
``(ii) the amount of remuneration paid by all
such employers to such employee.
``(5) Excess parachute payment.--For purposes determining the
tax imposed by subsection (a)(2)--
``(A) In general.--The term `excess parachute
payment' means an amount equal to the excess of any
parachute payment over the portion of the base amount
allocated to such payment.
``(B) Parachute payment.--The term `parachute
payment' means any payment in the nature of
compensation to (or for the benefit of) a covered
employee if--
``(i) such payment is contingent on such
employee's separation from employment with the
employer, and
``(ii) the aggregate present value of the
payments in the nature of compensation to (or
for the benefit of) such individual which are
contingent on such separation equals or exceeds
an amount equal to 3 times the base amount.
Such term does not include any payment described in
section 280G(b)(6) (relating to exemption for payments
under qualified plans) or any payment made under or to
an annuity contract described in section 403(b) or a
plan described in section 457(b).
``(C) Base amount.--Rules similar to the rules of
280G(b)(3) shall apply for purposes of determining the
base amount.
``(D) Property transfers; present value.--Rules
similar to the rules of paragraphs (3) and (4) of
section 280G(d) shall apply.
``(6) Coordination with deduction limitation.--Remuneration
the deduction for which is not allowed by reason of section
162(m) shall not be taken into account for purposes of this
section.
``(d) Regulations.--The Secretary shall prescribe such regulations as
may be necessary to prevent avoidance of the purposes of this section
through the performance of services other than as an employee.''.
(b) Clerical Amendment.--The table of sections for subchapter D of
chapter 42 is amended by adding at the end the following new item:
``Sec. 4960. Tax on excess exempt organization executive
compensation.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 3803. TREATMENT OF QUALIFIED EQUITY GRANTS.
(a) In General.--
(1) Election to defer income.--Section 83 is amended by
adding at the end the following new subsection:
``(i) Qualified Equity Grants.--
``(1) In general.--For purposes of this subtitle, if
qualified stock is transferred to a qualified employee who
makes an election with respect to such stock under this
subsection--
``(A) except as provided in subparagraph (B), no
amount shall be included in income under subsection (a)
for the first taxable year in which the rights of the
employee in such stock are transferable or are not
subject to a substantial risk of forfeiture, whichever
is applicable, and
``(B) an amount equal to the amount which would be
included in income of the employee under subsection (a)
(determined without regard to this subsection) shall be
included in income for the taxable year of the employee
which includes the earliest of--
``(i) the first date such qualified stock
becomes transferable (including transferable to
the employer),
``(ii) the date the employee first becomes an
excluded employee,
``(iii) the first date on which any stock of
the corporation which issued the qualified
stock becomes readily tradable on an
established securities market (as determined by
the Secretary, but not including any market
unless such market is recognized as an
established securities market by the Secretary
for purposes of a provision of this title other
than this subsection),
``(iv) the date that is 5 years after the
first date the rights of the employee in such
stock are transferable or are not subject to a
substantial risk of forfeiture, whichever
occurs earlier, or
``(v) the date on which the employee revokes
(at such time and in such manner as the
Secretary may provide) the election under this
subsection with respect to such stock.
``(2) Qualified stock.--
``(A) In general.--For purposes of this subsection,
the term `qualified stock' means, with respect to any
qualified employee, any stock in a corporation which is
the employer of such employee, if--
``(i) such stock is received--
``(I) in connection with the exercise
of an option, or
``(II) in settlement of a restricted
stock unit, and
``(ii) such option or restricted stock unit
was provided by the corporation--
``(I) in connection with the
performance of services as an employee,
and
``(II) during a calendar year in
which such corporation was an eligible
corporation.
``(B) Limitation.--The term `qualified stock' shall
not include any stock if the employee may sell such
stock to, or otherwise receive cash in lieu of stock
from, the corporation at the time that the rights of
the employee in such stock first become transferable or
not subject to a substantial risk of forfeiture.
``(C) Eligible corporation.--For purposes of
subparagraph (A)(ii)(II)--
``(i) In general.--The term `eligible
corporation' means, with respect to any
calendar year, any corporation if--
``(I) no stock of such corporation
(or any predecessor of such
corporation) is readily tradable on an
established securities market (as
determined under paragraph (1)(B)(iii))
during any preceding calendar year, and
``(II) such corporation has a written
plan under which, in such calendar
year, not less than 80 percent of all
employees who provide services to such
corporation in the United States (or
any possession of the United States)
are granted stock options, or
restricted stock units, with the same
rights and privileges to receive
qualified stock.
``(ii) Same rights and privileges.--For
purposes of clause (i)(II)--
``(I) except as provided in
subclauses (II) and (III), the
determination of rights and privileges
with respect to stock shall be
determined in a similar manner as
provided under section 423(b)(5),
``(II) employees shall not fail to be
treated as having the same rights and
privileges to receive qualified stock
solely because the number of shares
available to all employees is not equal
in amount, so long as the number of
shares available to each employee is
more than a de minimis amount, and
``(III) rights and privileges with
respect to the exercise of an option
shall not be treated as the same as
rights and privileges with respect to
the settlement of a restricted stock
unit.
``(iii) Employee.--For purposes of clause
(i)(II), the term `employee' shall not include
any employee described in section 4980E(d)(4)
or any excluded employee.
``(iv) Special rule for calendar years before
2018.--In the case of any calendar year
beginning before January 1, 2018, clause
(i)(II) shall be applied without regard to
whether the rights and privileges with respect
to the qualified stock are the same.
``(3) Qualified employee; excluded employee.--For purposes of
this subsection--
``(A) In general.--The term `qualified employee'
means any individual who--
``(i) is not an excluded employee, and
``(ii) agrees in the election made under this
subsection to meet such requirements as
determined by the Secretary to be necessary to
ensure that the withholding requirements of the
corporation under chapter 24 with respect to
the qualified stock are met.
``(B) Excluded employee.--The term `excluded
employee' means, with respect to any corporation, any
individual--
``(i) who was a 1-percent owner (within the
meaning of section 416(i)(1)(B)(ii)) at any
time during the 10 preceding calendar years,
``(ii) who is or has been at any prior time--
``(I) the chief executive officer of
such corporation or an individual
acting in such a capacity, or
``(II) the chief financial officer of
such corporation or an individual
acting in such a capacity,
``(iii) who bears a relationship described in
section 318(a)(1) to any individual described
in subclause (I) or (II) of clause (ii), or
``(iv) who has been for any of the 10
preceding taxable years one of the 4 highest
compensated officers of such corporation
determined with respect to each such taxable
year on the basis of the shareholder disclosure
rules for compensation under the Securities
Exchange Act of 1934 (as if such rules applied
to such corporation).
``(4) Election.--
``(A) Time for making election.--An election with
respect to qualified stock shall be made under this
subsection no later than 30 days after the first time
the rights of the employee in such stock are
transferable or are not subject to a substantial risk
of forfeiture, whichever occurs earlier, and shall be
made in a manner similar to the manner in which an
election is made under subsection (b).
``(B) Limitations.--No election may be made under
this section with respect to any qualified stock if--
``(i) the qualified employee has made an
election under subsection (b) with respect to
such qualified stock,
``(ii) any stock of the corporation which
issued the qualified stock is readily tradable
on an established securities market (as
determined under paragraph (1)(B)(iii)) at any
time before the election is made, or
``(iii) such corporation purchased any of its
outstanding stock in the calendar year
preceding the calendar year which includes the
first time the rights of the employee in such
stock are transferable or are not subject to a
substantial risk of forfeiture, unless--
``(I) not less than 25 percent of the
total dollar amount of the stock so
purchased is deferral stock, and
``(II) the determination of which
individuals from whom deferral stock is
purchased is made on a reasonable
basis.
``(C) Definitions and special rules related to
limitation on stock redemptions.--
``(i) Deferral stock.--For purposes of this
paragraph, the term `deferral stock' means
stock with respect to which an election is in
effect under this subsection.
``(ii) Deferral stock with respect to any
individual not taken into account if individual
holds deferral stock with longer deferral
period.--Stock purchased by a corporation from
any individual shall not be treated as deferral
stock for purposes of clause (iii) if such
individual (immediately after such purchase)
holds any deferral stock with respect to which
an election has been in effect under this
subsection for a longer period than the
election with respect to the stock so
purchased.
``(iii) Purchase of all outstanding deferral
stock.--The requirements of subclauses (I) and
(II) of subparagraph (B)(iii) shall be treated
as met if the stock so purchased includes all
of the corporation's outstanding deferral
stock.
``(iv) Reporting.--Any corporation which has
outstanding deferral stock as of the beginning
of any calendar year and which purchases any of
its outstanding stock during such calendar year
shall include on its return of tax for the
taxable year in which, or with which, such
calendar year ends the total dollar amount of
its outstanding stock so purchased during such
calendar year and such other information as the
Secretary may require for purposes of
administering this paragraph.
``(5) Controlled groups.--For purposes of this subsection,
all corporations which are members of the same controlled group
of corporations (as defined in section 1563(a)) shall be
treated as one corporation.
``(6) Notice requirement.--Any corporation that transfers
qualified stock to a qualified employee shall, at the time that
(or a reasonable period before) an amount attributable to such
stock would (but for this subsection) first be includible in
the gross income of such employee--
``(A) certify to such employee that such stock is
qualified stock, and
``(B) notify such employee--
``(i) that the employee may elect to defer
income on such stock under this subsection, and
``(ii) that, if the employee makes such an
election--
``(I) the amount of income recognized
at the end of the deferral period will
be based on the value of the stock at
the time at which the rights of the
employee in such stock first become
transferable or not subject to
substantial risk of forfeiture,
notwithstanding whether the value of
the stock has declined during the
deferral period,
``(II) the amount of such income
recognized at the end of the deferral
period will be subject to withholding
under section 3401(i) at the rate
determined under section 3402(t), and
``(III) the responsibilities of the
employee (as determined by the
Secretary under paragraph (3)(A)(ii))
with respect to such withholding.
``(7) Restricted stock units.--This section (other than this
subsection), including any election under subsection (b), shall
not apply to restricted stock units.''.
(2) Deduction by employer.--Subsection (h) of section 83 is
amended by striking ``or (d)(2)'' and inserting ``(d)(2), or
(i)''.
(b) Withholding.--
(1) Time of withholding.--Section 3401 is amended by adding
at the end the following new subsection:
``(i) Qualified Stock for Which an Election Is in Effect Under
Section 83(i).--For purposes of subsection (a), qualified stock (as
defined in section 83(i)) with respect to which an election is made
under section 83(i) shall be treated as wages--
``(1) received on the earliest date described in section
83(i)(1)(B), and
``(2) in an amount equal to the amount included in income
under section 83 for the taxable year which includes such
date.''.
(2) Amount of withholding.--Section 3402 is amended by adding
at the end the following new subsection:
``(t) Rate of Withholding for Certain Stock.--In the case of any
qualified stock (as defined in section 83(i)) with respect to which an
election is made under section 83(i)--
``(1) the rate of tax under subsection (a) shall not be less
than the maximum rate of tax in effect under section 1, and
``(2) such stock shall be treated for purposes of section
3501(b) in the same manner as a non-cash fringe benefit.''.
(c) Coordination With Other Deferred Compensation Rules.--
(1) Election to apply deferral to statutory options.--
(A) Incentive stock options.--Section 422(b) is
amended by adding at the end the following: ``Such term
shall not include any option if an election is made
under section 83(i) with respect to the stock received
in connection with the exercise of such option.''.
(B) Employee stock purchase plans.--Section 423(a) is
amended by adding at the end the following flush
sentence:
``The preceding sentence shall not apply to any share of stock with
respect to which an election is made under section 83(i).''.
(2) Exclusion from definition of nonqualified deferred
compensation plan.--Subsection (d) of section 409A is amended
by adding at the end the following new paragraph:
``(7) Treatment of qualified stock.--An arrangement under
which an employee may receive qualified stock (as defined in
section 83(i)(2)) shall not be treated as a nonqualified
deferred compensation plan solely because of an employee's
election, or ability to make an election, to defer recognition
of income under section 83(i).''.
(d) Information Reporting.--Section 6051(a) is amended by striking
``and'' at the end of paragraph (13), by striking the period at the end
of paragraph (14) and inserting a comma, and by inserting after
paragraph (14) the following new paragraphs:
``(15) the amount excludable from gross income under
subparagraph (A) of section 83(i)(1),
``(16) the amount includible in gross income under
subparagraph (B) of section 83(i)(1) with respect to an event
described in such subparagraph which occurs in such calendar
year, and
``(17) the aggregate amount of income which is being deferred
pursuant to elections under section 83(i), determined as of the
close of the calendar year.''.
(e) Penalty for Failure of Employer To Provide Notice of Tax
Consequences.--Section 6652 is amended by adding at the end the
following new subsection:
``(o) Failure to Provide Notice Under Section 83(i).--In the case of
each failure to provide a notice as required by section 83(i)(6), at
the time prescribed therefor, unless it is shown that such failure is
due to reasonable cause and not to willful neglect, there shall be
paid, on notice and demand of the Secretary and in the same manner as
tax, by the person failing to provide such notice, an amount equal to
$100 for each such failure, but the total amount imposed on such person
for all such failures during any calendar year shall not exceed
$50,000.''.
(f) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to stock
attributable to options exercised, or restricted stock units
settled, after December 31, 2017.
(2) Requirement to provide notice.--The amendments made by
subsection (e) shall apply to failures after December 31, 2017.
(g) Transition Rule.--Until such time as the Secretary (or the
Secretary's delegate) issue regulations or other guidance for purposes
of implementing the requirements of paragraph (2)(C)(i)(II) of section
83(i) of the Internal Revenue Code of 1986 (as added by this section),
or the requirements of paragraph (6) of such section, a corporation
shall be treated as being in compliance with such requirements
(respectively) if such corporation complies with a reasonable good
faith interpretation of such requirements.
TITLE IV--TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS
Subtitle A--Establishment of Participation Exemption System for
Taxation of Foreign Income
SEC. 4001. DEDUCTION FOR FOREIGN-SOURCE PORTION OF DIVIDENDS RECEIVED
BY DOMESTIC CORPORATIONS FROM SPECIFIED 10-PERCENT
OWNED FOREIGN CORPORATIONS.
(a) In General.--Part VIII of subchapter B of chapter 1 is amended by
inserting after section 245 the following new section:
``SEC. 245A. DEDUCTION FOR FOREIGN-SOURCE PORTION OF DIVIDENDS RECEIVED
BY DOMESTIC CORPORATIONS FROM SPECIFIED 10-PERCENT
OWNED FOREIGN CORPORATIONS.
``(a) In General.--In the case of any dividend received from a
specified 10-percent owned foreign corporation by a domestic
corporation which is a United States shareholder with respect to such
foreign corporation, there shall be allowed as a deduction an amount
equal to the foreign-source portion of such dividend.
``(b) Specified 10-percent Owned Foreign Corporation.--For purposes
of this section, the term `specified 10-percent owned foreign
corporation' means any foreign corporation with respect to which any
domestic corporation is a United States shareholder. Such term shall
not include any passive foreign investment company (within the meaning
of subpart D of part VI of subchapter P) that is not a controlled
foreign corporation.
``(c) Foreign-source Portion.--For purposes of this section--
``(1) In general.--The foreign-source portion of any dividend
is an amount which bears the same ratio to such dividend as--
``(A) the post-1986 undistributed foreign earnings of
the specified 10-percent owned foreign corporation,
bears to
``(B) the total post-1986 undistributed earnings of
such foreign corporation.
``(2) Post-1986 undistributed earnings.--The term `post-1986
undistributed earnings' means the amount of the earnings and
profits of the specified 10-percent owned foreign corporation
(computed in accordance with sections 964(a) and 986)
accumulated in taxable years beginning after December 31,
1986--
``(A) as of the close of the taxable year of the
specified 10-percent owned foreign corporation in which
the dividend is distributed, and
``(B) without diminution by reason of dividends
distributed during such taxable year.
``(3) Post-1986 undistributed foreign earnings.--The term
`post-1986 undistributed foreign earnings' means the portion of
the post-1986 undistributed earnings which is attributable to
neither--
``(A) income described in subparagraph (A) of section
245(a)(5), nor
``(B) dividends described in subparagraph (B) of such
section (determined without regard to section
245(a)(12)).
``(4) Treatment of distributions from earnings before 1987.--
``(A) In general.--In the case of any dividend paid
out of earnings and profits of the specified 10-percent
owned foreign corporation (computed in accordance with
sections 964(a) and 986) accumulated in taxable years
beginning before January 1, 1987--
``(i) paragraphs (1), (2), and (3) shall be
applied without regard to the phrase `post-
1986' each place it appears, and
``(ii) paragraph (2) shall be applied by
substituting `after the date specified in
section 316(a)(1)' for `in taxable years
beginning after December 31, 1986'.
``(B) Dividends paid first out of post-1986
earnings.--Dividends shall be treated as paid out of
post-1986 undistributed earnings to the extent thereof.
``(5) Treatment of certain dividends in excess of
undistributed earnings.--In the case of any dividend from the
specified 10-percent owned foreign corporation which is in
excess of undistributed earnings (as determined under paragraph
(2) after taking into account the modifications described in
clauses (i) and (ii) of paragraph (4)(A)), the foreign-source
portion of such dividend is an amount which bears the same
ratio to such dividend as--
``(A) the portion of the earnings and profits
described in subparagraph (B) which is attributable to
neither income described in paragraph (3)(A) nor
dividends described in paragraph (3)(B), bears to
``(B) the earnings and profits of such corporation
for the taxable year in which such distribution is made
(computed as of the close of the taxable year without
diminution by reason of any distributions made during
the taxable year).
``(d) Disallowance of Foreign Tax Credit, etc.--
``(1) In general.--No credit shall be allowed under section
901 for any taxes paid or accrued (or treated as paid or
accrued) with respect to any dividend for which a deduction is
allowed under this section.
``(2) Denial of deduction.--No deduction shall be allowed
under this chapter for any tax for which credit is not
allowable under section 901 by reason of paragraph (1)
(determined by treating the taxpayer as having elected the
benefits of subpart A of part III of subchapter N).
``(e) Regulations.--The Secretary may prescribe such regulations or
other guidance as may be necessary or appropriate to carry out the
provisions of this section.''.
(b) Application of Holding Period Requirement.--Section 246(c) is
amended--
(1) by striking ``or 245'' in paragraph (1) and inserting
``245, or 245A'', and
(2) by adding at the end the following new paragraph:
``(5) Special rules for foreign source portion of dividends
received from specified 10-percent owned foreign
corporations.--
``(A) 6-month holding period requirement.--For
purposes of section 245A--
``(i) paragraph (1)(A) shall be applied--
``(I) by substituting `180 days' for
`45 days'each place it appears, and
``(II) by substituting `361-day
period' for `91-day period', and
``(ii) paragraph (2) shall not apply.
``(B) Status must be maintained during holding
period.--For purposes of applying paragraph (1) with
respect to section 245A, the taxpayer shall be treated
as holding the stock referred to in paragraph (1) for
any period only if--
``(i) the specified 10-percent owned foreign
corporation referred to in section 245A(a) is a
specified 10-percent owned foreign corporation
for such period, and
``(ii) the taxpayer is a United States
shareholder with respect to such specified 10-
percent owned foreign corporation for such
period.''.
(c) Application of Rules Generally Applicable to Deductions for
Dividends Received.--
(1) Treatment of dividends from certain corporations.--
Section 246(a)(1) is amended by striking ``and 245'' and
inserting ``245, and 245A''.
(2) Coordination with section 1059.--Section 1059(b)(2)(B) is
amended by striking ``or 245'' and inserting ``245, or 245A''.
(d) Coordination With Foreign Tax Credit Limitation.--Section 904(b)
is amended by adding at the end the following new paragraph:
``(5) Treatment of dividends for which deduction is allowed
under section 245a.--For purposes of subsection (a), in the
case of a United States shareholder with respect to a specified
10-percent owned foreign corporation, such shareholder's
taxable income from sources without the United States (and
entire taxable income) shall be determined without regard to--
``(A) the foreign-source portion of any dividend
received from such foreign corporation, and
``(B) any deductions properly allocable or
apportioned to--
``(i) income (other than subpart F income (as
defined in section 952) and foreign high return
amounts (as defined in section 951A(b)) with
respect to stock of such specified 10-percent
owned foreign corporation, or
``(ii) such stock (to the extent income with
respect to such stock is other than subpart F
income (as so defined) or foreign high return
amounts (as so defined)).
Any term which is used in section 245A and in this paragraph
shall have the same meaning for purposes of this paragraph as
when used in such section.''.
(e) Conforming Amendments.--
(1) Section 245(a)(4) is amended by striking ``section
902(c)(1)'' and inserting ``section 245A(c)(2) applied by
substituting `qualified 10-percent owned foreign corporation'
for `specified 10-percent owned foreign corporation' each place
it appears''.
(2) Section 951(b) is amended by striking ``subpart'' and
inserting ``title''.
(3) Section 957(a) is amended by striking ``subpart'' in the
matter preceding paragraph (1) and inserting ``title''.
(4) The table of sections for part VIII of subchapter B of
chapter 1 is amended by inserting after section 245 the
following new item:
``Sec. 245A. Deduction for foreign-source portion of dividends received
by domestic corporations from specified 10-percent owned foreign
corporations.''.
(f) Effective Date.--The amendments made by this section shall apply
to distributions made after (and, in the case of the amendments made by
subsection (d), deductions with respect to taxable years ending after)
December 31, 2017.
SEC. 4002. APPLICATION OF PARTICIPATION EXEMPTION TO INVESTMENTS IN
UNITED STATES PROPERTY.
(a) In General.--Section 956(a) is amended in the matter preceding
paragraph (1) by inserting ``(other than a corporation)'' after
``United States shareholder''.
(b) Regulatory Authority to Prevent Abuse.--Section 956(e) is amended
by striking ``including regulations to prevent'' and inserting
``including regulations--
``(1) to address United States shareholders that are
partnerships with corporate partners, and
``(2) to prevent''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017.
SEC. 4003. LIMITATION ON LOSSES WITH RESPECT TO SPECIFIED 10-PERCENT
OWNED FOREIGN CORPORATIONS.
(a) Basis in Specified 10-percent Owned Foreign Corporation Reduced
by Nontaxed Portion of Dividend for Purposes of Determining Loss.--
(1) In general.--Section 961 is amended by adding at the end
the following new subsection:
``(d) Basis in Specified 10-percent Owned Foreign Corporation Reduced
by Nontaxed Portion of Dividend for Purposes of Determining Loss.--If a
domestic corporation received a dividend from a specified 10-percent
owned foreign corporation (as defined in section 245A) in any taxable
year, solely for purposes of determining loss on any disposition of
stock of such foreign corporation in such taxable year or any
subsequent taxable year, the basis of such domestic corporation in such
stock shall be reduced (but not below zero) by the amount of any
deduction allowable to such domestic corporation under section 245A
with respect to such stock except to the extent such basis was reduced
under section 1059 by reason of a dividend for which such a deduction
was allowable.''.
(2) Effective date.--The amendments made by this subsection
shall apply to distributions made after December 31, 2017.
(b) Treatment of Foreign Branch Losses Transferred to Specified 10-
percent Owned Foreign Corporations.--
(1) In general.--Part II of subchapter B of chapter 1 is
amended by adding at the end the following new section:
``SEC. 91. CERTAIN FOREIGN BRANCH LOSSES TRANSFERRED TO SPECIFIED 10-
PERCENT OWNED FOREIGN CORPORATIONS.
``(a) In General.--If a domestic corporation transfers substantially
all of the assets of a foreign branch (within the meaning of section
367(a)(3)(C)) to a specified 10-percent owned foreign corporation (as
defined in section 245A) with respect to which it is a United States
shareholder after such transfer, such domestic corporation shall
include in gross income for the taxable year which includes such
transfer an amount equal to the transferred loss amount with respect to
such transfer.
``(b) Transferred Loss Amount.--For purposes of this section, the
term `transferred loss amount' means, with respect to any transfer of
substantially all of the assets of a foreign branch, the excess (if
any) of--
``(1) the sum of losses--
``(A) which were incurred by the foreign branch after
December 31, 2017, and before the transfer, and
``(B) with respect to which a deduction was allowed
to the taxpayer, over
``(2) the sum of--
``(A) any taxable income of such branch for a taxable
year after the taxable year in which the loss was
incurred and through the close of the taxable year of
the transfer, and
``(B) any amount which is recognized under section
904(f)(3) on account of the transfer.
``(c) Reduction for Recognized Gains.--
``(1) In general.--In the case of a transfer not described in
section 367(a)(3)(C), the transferred loss amount shall be
reduced (but not below zero) by the amount of gain recognized
by the taxpayer on account of the transfer (other than amounts
taken into account under subsection (c)(2)(B)).
``(2) Coordination with recognition under section 367.--In
the case of a transfer described in section 367(a)(3)(C), the
transferred loss amount shall not exceed the excess (if any)
of--
``(A) the excess of the amount described in section
367(a)(3)(C)(i) over the amount described in section
367(a)(3)(C)(ii) with respect to such transfer, over
``(B) the amount of gain recognized under section
367(a)(3)(C) with respect to such transfer.
``(d) Source of Income.--Amounts included in gross income under this
section shall be treated as derived from sources within the United
States.
``(e) Basis Adjustments.--Consistent with such regulations or other
guidance as the Secretary may prescribe, proper adjustments shall be
made in the adjusted basis of the taxpayer's stock in the specified 10-
percent owned foreign corporation to which the transfer is made, and in
the transferee's adjusted basis in the property transferred, to reflect
amounts included in gross income under this section.''.
(2) Amounts recognized under section 367 on transfer of
foreign branch with previously deducted losses treated as
united states source.--Section 367(a)(3)(C) is amended by
striking ``outside'' in the last sentence and inserting
``within''.
(3) Clerical amendment.--The table of sections for part II of
subchapter B of chapter 1 is amended by adding at the end the
following new item:
``Sec. 91. Certain foreign branch losses transferred to specified 10-
percent owned foreign corporations.''.
(4) Effective date.--The amendments made by this subsection
shall apply to transfers after December 31, 2017.
SEC. 4004. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO
PARTICIPATION EXEMPTION SYSTEM OF TAXATION.
(a) In General.--Section 965 is amended to read as follows:
``SEC. 965. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO
PARTICIPATION EXEMPTION SYSTEM OF TAXATION.
``(a) Treatment of Deferred Foreign Income as Subpart F Income.--In
the case of the last taxable year of a deferred foreign income
corporation which begins before January 1, 2018, the subpart F income
of such foreign corporation (as otherwise determined for such taxable
year under section 952) shall be increased by the greater of--
``(1) the accumulated post-1986 deferred foreign income of
such corporation determined as of November 2, 2017, or
``(2) the accumulated post-1986 deferred foreign income of
such corporation determined as of December 31, 2017.
``(b) Reduction in Amounts Included in Gross Income of United States
Shareholders of Specified Foreign Corporations With Deficits in
Earnings and Profits.--
``(1) In general.--In the case of a taxpayer which is a
United States shareholder with respect to at least one deferred
foreign income corporation and at least one E&P; deficit foreign
corporation, the amount which would (but for this subsection)
be taken into account under section 951(a)(1) by reason of
subsection (a) as such United States shareholder's pro rata
share of the subpart F income of each deferred foreign income
corporation shall be reduced (but not below zero) by the amount
of such United States shareholder's aggregate foreign E&P;
deficit which is allocated under paragraph (2) to such deferred
foreign income corporation.
``(2) Allocation of aggregate foreign e&p; deficit.--The
aggregate foreign E&P; deficit of any United States shareholder
shall be allocated among the deferred foreign income
corporations of such United States shareholder in an amount
which bears the same proportion to such aggregate as--
``(A) such United States shareholder's pro rata share
of the accumulated post-1986 deferred foreign income of
each such deferred foreign income corporation, bears to
``(B) the aggregate of such United States
shareholder's pro rata share of the accumulated post-
1986 deferred foreign income of all deferred foreign
income corporations of such United States shareholder.
``(3) Definitions related to e&p; deficits.--For purposes of
this subsection--
``(A) Aggregate foreign e&p; deficit.--The term
`aggregate foreign E&P; deficit' means, with respect to
any United States shareholder, the aggregate of such
shareholder's pro rata shares of the specified E&P;
deficits of the E&P; deficit foreign corporations of
such shareholder.
``(B) E&P; deficit foreign corporation.--The term `E&P;
deficit foreign corporation' means, with respect to any
taxpayer, any specified foreign corporation with
respect to which such taxpayer is a United States
shareholder, if--
``(i) such specified foreign corporation has
a deficit in post-1986 earnings and profits,
and
``(ii) as of November 2, 2017--
``(I) such corporation was a
specified foreign corporation, and
``(II) such taxpayer was a United
States shareholder of such corporation.
``(C) Specified e&p; deficit.--The term `specified E&P;
deficit' means, with respect to any E&P; deficit foreign
corporation, the amount of the deficit referred to in
subparagraph (B).
``(4) Netting among united states shareholders in same
affiliated group.--
``(A) In general.--In the case of any affiliated
group which includes at least one E&P; net surplus
shareholder and one E&P; net deficit shareholder, the
amount which would (but for this paragraph) be taken
into account under section 951(a)(1) by reason of
subsection (a) by each such E&P; net surplus shareholder
shall be reduced (but not below zero) by such
shareholder's applicable share of the affiliated
group's aggregate unused E&P; deficit.
``(B) E&P; net surplus shareholder.--For purposes of
this paragraph, the term `E&P; net surplus shareholder'
means any United States shareholder which would
(determined without regard to this paragraph) take into
account an amount greater than zero under section
951(a)(1) by reason of subsection (a).
``(C) E&P; net deficit shareholder.--For purposes of
this paragraph, the term `E&P; net deficit shareholder'
means any United States shareholder if--
``(i) the aggregate foreign E&P; deficit with
respect to such shareholder (as defined in
paragraph (3)(A)), exceeds
``(ii) the amount which would (but for this
subsection) be taken into account by such
shareholder under section 951(a)(1) by reason
of subsection (a).
``(D) Aggregate unused e&p; deficit.--For purposes of
this paragraph--
``(i) In general.--The term `aggregate unused
E&P; deficit' means, with respect to any
affiliated group, the lesser of--
``(I) the sum of the excesses
described in subparagraph (C),
determined with respect to each E&P; net
deficit shareholder in such group, or
``(II) the amount determined under
subparagraph (E)(ii).
``(ii) Reduction with respect to e&p; net
deficit shareholders which are not wholly owned
by the affiliated group.--If the group
ownership percentage of any E&P; net deficit
shareholder is less than 100 percent, the
amount of the excess described in subparagraph
(C) which is taken into account under clause
(i)(I) with respect to such E&P; net deficit
shareholder shall be such group ownership
percentage of such amount.
``(E) Applicable share.--For purposes of this
paragraph, the term `applicable share' means, with
respect to any E&P; net surplus shareholder in any
affiliated group, the amount which bears the same
proportion to such group's aggregate unused E&P; deficit
as--
``(i) the product of--
``(I) such shareholder's group
ownership percentage, multiplied by
``(II) the amount which would (but
for this paragraph) be taken into
account under section 951(a)(1) by
reason of subsection (a) by such
shareholder, bears to
``(ii) the aggregate amount determined under
clause (i) with respect to all E&P; net surplus
shareholders in such group.
``(F) Group ownership percentage.--For purposes of
this paragraph, the term `group ownership percentage'
means, with respect to any United States shareholder in
any affiliated group, the percentage of the value of
the stock of such United States shareholder which is
held by other includible corporations in such
affiliated group. Notwithstanding the preceding
sentence, the group ownership percentage of the common
parent of the affiliated group is 100 percent. Any term
used in this subparagraph which is also used in section
1504 shall have the same meaning as when used in such
section.
``(c) Application of Participation Exemption to Included Income.--
``(1) In general.--In the case of a United States shareholder
of a deferred foreign income corporation, there shall be
allowed as a deduction for the taxable year in which an amount
is included in the gross income of such United States
shareholder under section 951(a)(1) by reason of this section
an amount equal to the sum of--
``(A) the United States shareholder's 7 percent rate
equivalent percentage of the excess (if any) of--
``(i) the amount so included as gross income,
over
``(ii) the amount of such United States
shareholder's aggregate foreign cash position,
plus
``(B) the United States shareholder's 14 percent rate
equivalent percentage of so much of the amount
described in subparagraph (A)(ii) as does not exceed
the amount described in subparagraph (A)(i).
``(2) 7 and 14 percent rate equivalent percentages.--For
purposes of this subsection--
``(A) 7 percent rate equivalent percentage.--The term
`7 percent rate equivalent percentage' means, with
respect to any United States shareholder for any
taxable year, the percentage which would result in the
amount to which such percentage applies being subject
to a 7 percent rate of tax determined by only taking
into account a deduction equal to such percentage of
such amount and the highest rate of tax specified in
section 11 for such taxable year. In the case of any
taxable year of a United States shareholder to which
section 15 applies, the highest rate of tax under
section 11 before the effective date of the change in
rates and the highest rate of tax under section 11
after the effective date of such change shall each be
taken into account under the preceding sentence in the
same proportions as the portion of such taxable year
which is before and after such effective date,
respectively.
``(B) 14 percent rate equivalent percentage.--The
term `14 percent rate equivalent percentage' means,
with respect to any United States shareholder for any
taxable year, the percentage determined under
subparagraph (A) applied by substituting `14 percent
rate of tax' for `7 percent rate of tax'.
``(3) Aggregate foreign cash position.--For purposes of this
subsection--
``(A) In general.--The term `aggregate foreign cash
position' means, with respect to any United States
shareholder, one-third of the sum of--
``(i) the aggregate of such United States
shareholder's pro rata share of the cash
position of each specified foreign corporation
of such United States shareholder determined as
of November 2, 2017,
``(ii) the aggregate described in clause (i)
determined as of the close of the last taxable
year of each such specified foreign corporation
which ends before November 2, 2017, and
``(iii) the aggregate described in clause (i)
determined as of the close of the taxable year
of each such specified foreign corporation
which precedes the taxable year referred to in
clause (ii).
In the case of any foreign corporation which did not
exist as of the determination date described in clause
(ii) or (iii), this subparagraph shall be applied
separately to such foreign corporation by not taking
into account such clause and by substituting `one-half
(100 percent in the case that both clauses (ii) and
(iii) are disregarded)' for `one-third'.
``(B) Cash position.--For purposes of this paragraph,
the cash position of any specified foreign corporation
is the sum of--
``(i) cash held by such foreign corporation,
``(ii) the net accounts receivable of such
foreign corporation, plus
``(iii) the fair market value of the
following assets held by such corporation:
``(I) Actively traded personal
property for which there is an
established financial market.
``(II) Commercial paper, certificates
of deposit, the securities of the
Federal government and of any State or
foreign government.
``(III) Any foreign currency.
``(IV) Any obligation with a term of
less than one year.
``(V) Any asset which the Secretary
identifies as being economically
equivalent to any asset described in
this subparagraph.
``(C) Net accounts receivable.--For purposes of this
paragraph, the term `net accounts receivable' means,
with respect to any specified foreign corporation, the
excess (if any) of--
``(i) such corporation's accounts receivable,
over
``(ii) such corporation's accounts payable
(determined consistent with the rules of
section 461).
``(D) Prevention of double counting.--
``(i) In general.--The applicable percentage
of each specified cash position of a specified
foreign corporation shall not be taken into
account by--
``(I) the United States shareholder
referred to in clause (ii) with respect
to such position, or
``(II) any United States shareholder
which is an includible corporation in
the same affiliated group as such
United States shareholder referred to
in clause (ii).
``(ii) Specified cash position.--For purposes
of this subparagraph, the term `specified cash
position' means--
``(I) amounts described in
subparagraph (B)(ii) to the extent such
amounts are receivable from another
specified foreign corporation with
respect to any United States
shareholder,
``(II) amounts described in
subparagraph (B)(iii)(I) to the extent
such amounts consist of an equity
interest in another specified foreign
corporation with respect to any United
States shareholder, and
``(III) amounts described in
subparagraph (B)(iii)(IV) to the extent
that another specified foreign
corporation with respect to any United
States shareholder is obligated to
repay such amount.
``(iii) Applicable percentage.--For purposes
of this subparagraph, the term `applicable
percentage' means--
``(I) with respect to each specified
cash position described in subclause
(I) or (III) of clause (ii), the pro
rata share of the United States
shareholder referred to in clause (ii)
with respect to the specified foreign
corporation referred to in such clause,
and
``(II) with respect to each specified
cash position described in clause
(ii)(II), the ratio (expressed as a
percentage and not in excess of 100
percent) of the United States
shareholder's pro rata share of the
cash position of the specified foreign
corporation referred to in such clause
divided by the amount of such specified
cash position.
For purposes of this subparagraph, a separate
applicable percentage shall be determined under
each of subclauses (I) and (II) with respect to
each specified foreign corporation referred to
in clause (ii) with respect to which a
specified cash position is determined for the
specified foreign corporation referred to in
clause (i).
``(iv) Reduction with respect to affiliated
group members not wholly owned by the
affiliated group.--For purposes of clause
(i)(II), in the case of an includible
corporation the group ownership percentage of
which is less than 100 percent (as determined
under subsection (b)(4)(F)), the amount not
take into account by reason of such clause
shall be the group ownership percentage of such
amount (determined without regard to this
clause).
``(E) Certain blocked assets not taken into
account.--A cash position of a specified foreign
corporation shall not be taken into account under
subparagraph (A) if such position could not (as of the
date that it would otherwise have been taken into
account under clause (i), (ii), or (iii) of
subparagraph (A)) have been distributed by such
specified foreign corporation to United States
shareholders of such specified foreign corporation
because of currency or other restrictions or
limitations imposed under the laws of any foreign
country (within the meaning of section 964(b)).
``(F) Cash positions of certain non-corporate
entities taken into account.--An entity (other than a
domestic corporation) shall be treated as a specified
foreign corporation of a United States shareholder for
purposes of determining such United States
shareholder's aggregate foreign cash position if any
interest in such entity is held by a specified foreign
corporation of such United States shareholder
(determined after application of this subparagraph) and
such entity would be a specified foreign corporation of
such United States shareholder if such entity were a
foreign corporation.
``(G) Time of certain determinations.--For purposes
of this paragraph, the determination of whether a
person is a United States shareholder, whether a person
is a specified foreign corporation, and the pro rata
share of a United States shareholder with respect to a
specified foreign corporation, shall be determined as
of the end of the taxable year described in subsection
(a).
``(H) Anti-abuse.--If the Secretary determines that
the principal purpose of any transaction was to reduce
the aggregate foreign cash position taken into account
under this subsection, such transaction shall be
disregarded for purposes of this subsection.
``(d) Deferred Foreign Income Corporation; Accumulated Post-1986
Deferred Foreign Income.--For purposes of this section--
``(1) Deferred foreign income corporation.--The term
`deferred foreign income corporation' means, with respect to
any United States shareholder, any specified foreign
corporation of such United States shareholder which has
accumulated post-1986 deferred foreign income (as of the date
referred to in paragraph (1) or (2) of subsection (a),
whichever is applicable with respect to such foreign
corporation) greater than zero.
``(2) Accumulated post-1986 deferred foreign income.--The
term `accumulated post-1986 deferred foreign income' means the
post-1986 earnings and profits except to the extent such
earnings--
``(A) are attributable to income of the specified
foreign corporation which is effectively connected with
the conduct of a trade or business within the United
States and subject to tax under this chapter, or
``(B) if distributed, would be excluded from the
gross income of a United States shareholder under
section 959.
To the extent provided in regulations or other guidance
prescribed by the Secretary, in the case of any controlled
foreign corporation which has shareholders which are not United
States shareholders, accumulated post-1986 deferred foreign
income shall be appropriately reduced by amounts which would be
described in subparagraph (B) if such shareholders were United
States shareholders.
``(3) Post-1986 earnings and profits.--The term `post-1986
earnings and profits' means the earnings and profits of the
foreign corporation (computed in accordance with sections
964(a) and 986) accumulated in taxable years beginning after
December 31, 1986, and determined--
``(A) as of the date referred to in paragraph (1) or
(2) of subsection (a), whichever is applicable with
respect to such foreign corporation,
``(B) without diminution by reason of dividends
distributed during the taxable year ending with or
including such date, and
``(C) increased by the amount of any qualified
deficit (within the meaning of section
952(c)(1)(B)(ii)) arising before January 1, 2018, which
is treated as a qualified deficit (within the meaning
of such section as amended by the Tax Cuts and Jobs
Act) for purposes of such foreign corporation's first
taxable year beginning after December 31, 2017.
``(e) Specified Foreign Corporation.--
``(1) In general.--For purposes of this section, the term
`specified foreign corporation' means--
``(A) any controlled foreign corporation, and
``(B) any foreign corporation with respect to which
one or more domestic corporations is a United States
shareholder (determined without regard to section
958(b)(4)).
``(2) Application to certain foreign corporations.--For
purposes of sections 951 and 961, a foreign corporation
described in paragraph (1)(B) shall be treated as a controlled
foreign corporation solely for purposes of taking into account
the subpart F income of such corporation under subsection (a)
(and for purposes of applying subsection (f)).
``(3) Exception for passive foreign investment companies.--
The term `specified foreign corporation' shall not include any
passive foreign investment company (within the meaning of
subpart D of part VI of subchapter P) that is not a controlled
foreign corporation.
``(f) Determinations of Pro Rata Share.--For purposes of this
section, the determination of any United States shareholder's pro rata
share of any amount with respect to any specified foreign corporation
shall be determined under rules similar to the rules of section
951(a)(2) by treating such amount in the same manner as subpart F
income (and by treating such specified foreign corporation as a
controlled foreign corporation).
``(g) Disallowance of Foreign Tax Credit, etc.--
``(1) In general.--No credit shall be allowed under section
901 for the applicable percentage of any taxes paid or accrued
(or treated as paid or accrued) with respect to any amount for
which a deduction is allowed under this section.
``(2) Applicable percentage.--For purposes of this
subsection, the term `applicable percentage' means the amount
(expressed as a percentage) equal to the sum of--
``(A) 80 percent of the ratio of--
``(i) the excess to which subsection
(c)(1)(A) applies, divided by
``(ii) the sum of such excess plus the amount
to which subsection (c)(1)(B) applies, plus
``(B) 60 percent of the ratio of--
``(i) the amount to which subsection
(c)(1)(B) applies, divided by
``(ii) the sum described in subparagraph
(A)(ii).
``(3) Denial of deduction.--No deduction shall be allowed
under this chapter for any tax for which credit is not
allowable under section 901 by reason of paragraph (1)
(determined by treating the taxpayer as having elected the
benefits of subpart A of part III of subchapter N).
``(4) Coordination with section 78.--With respect to the
taxes treated as paid or accrued by a domestic corporation with
respect to amounts which are includible in gross income of such
domestic corporation by reason of this section, section 78
shall apply only to so much of such taxes as bears the same
proportion to the amount of such taxes as--
``(A) the excess of--
``(i) the amounts which are includible in
gross income of such domestic corporation by
reason of this section, over
``(ii) the deduction allowable under
subsection (c) with respect to such amounts,
bears to
``(B) such amounts.
``(5) Extension of foreign tax credit carryover period.--With
respect to any taxes paid or accrued (or treated as paid or
accrued) with respect to any amount for which a deduction is
allowed under this section, section 904(c) shall be applied by
substituting `first 20 succeeding taxable years' for `first 10
succeeding taxable years'.
``(h) Election to Pay Liability in Installments.--
``(1) In general.--In the case of a United States shareholder
of a deferred foreign income corporation, such United States
shareholder may elect to pay the net tax liability under this
section in 8 equal installments.
``(2) Date for payment of installments.--If an election is
made under paragraph (1), the first installment shall be paid
on the due date (determined without regard to any extension of
time for filing the return) for the return of tax for the
taxable year described in subsection (a) and each succeeding
installment shall be paid on the due date (as so determined)
for the return of tax for the taxable year following the
taxable year with respect to which the preceding installment
was made.
``(3) Acceleration of payment.--If there is an addition to
tax for failure to timely pay any installment required under
this subsection, a liquidation or sale of substantially all the
assets of the taxpayer (including in a title 11 or similar
case), a cessation of business by the taxpayer, or any similar
circumstance, then the unpaid portion of all remaining
installments shall be due on the date of such event (or in the
case of a title 11 or similar case, the day before the petition
is filed). The preceding sentence shall not apply to the sale
of substantially all the assets of a taxpayer to a buyer if
such buyer enters into an agreement with the Secretary under
which such buyer is liable for the remaining installments due
under this subsection in the same manner as if such buyer were
the taxpayer.
``(4) Proration of deficiency to installments.--If an
election is made under paragraph (1) to pay the net tax
liability under this section in installments and a deficiency
has been assessed with respect to such net tax liability, the
deficiency shall be prorated to the installments payable under
paragraph (1). The part of the deficiency so prorated to any
installment the date for payment of which has not arrived shall
be collected at the same time as, and as a part of, such
installment. The part of the deficiency so prorated to any
installment the date for payment of which has arrived shall be
paid upon notice and demand from the Secretary. This subsection
shall not apply if the deficiency is due to negligence, to
intentional disregard of rules and regulations, or to fraud
with intent to evade tax.
``(5) Election.--Any election under paragraph (1) shall be
made not later than the due date for the return of tax for the
taxable year described in subsection (a) and shall be made in
such manner as the Secretary may provide.
``(6) Net tax liability under this section.--For purposes of
this subsection--
``(A) In general.--The net tax liability under this
section with respect to any United States shareholder
is the excess (if any) of--
``(i) such taxpayer's net income tax for the
taxable year in which an amount is included in
the gross income of such United States
shareholder under section 951(a)(1) by reason
of this section, over
``(ii) such taxpayer's net income tax for
such taxable year determined--
``(I) without regard to this section,
and
``(II) without regard to any income,
deduction, or credit, properly
attributable to a dividend received by
such United States shareholder from any
deferred foreign income corporation.
``(B) Net income tax.--The term `net income tax'
means the regular tax liability reduced by the credits
allowed under subparts A, B, and D of part IV of
subchapter A.
``(i) Special Rules for S Corporation Shareholders.--
``(1) In general.--In the case of any S corporation which is
a United States shareholder of a deferred foreign income
corporation, each shareholder of such S corporation may elect
to defer payment of such shareholder's net tax liability under
this section with respect to such S corporation until the
shareholder's taxable year which includes the triggering event
with respect to such liability. Any net tax liability payment
of which is deferred under the preceding sentence shall be
assessed on the return as an addition to tax in the
shareholder's taxable year which includes such triggering
event.
``(2) Triggering event.--
``(A) In general.--In the case of any shareholder's
net tax liability under this section with respect to
any S corporation, the triggering event with respect to
such liability is whichever of the following occurs
first:
``(i) Such corporation ceases to be an S
corporation (determined as of the first day of
the first taxable year that such corporation is
not an S corporation).
``(ii) A liquidation or sale of substantially
all the assets of such S corporation (including
in a title 11 or similar case), a cessation of
business by such S corporation, such S
corporation ceases to exist, or any similar
circumstance.
``(iii) A transfer of any share of stock in
such S corporation by the taxpayer (including
by reason of death, or otherwise).
``(B) Partial transfers of stock.--In the case of a
transfer of less than all of the taxpayer's shares of
stock in the S corporation, such transfer shall only be
a triggering event with respect to so much of the
taxpayer's net tax liability under this section with
respect to such S corporation as is properly allocable
to such stock.
``(C) Transfer of liability.--A transfer described in
clause (iii) shall not be treated as a triggering event
if the transferee enters into an agreement with the
Secretary under which such transferee is liable for net
tax liability with respect to such stock in the same
manner as if such transferee were the taxpayer.
``(3) Net tax liability.--A shareholder's net tax liability
under this section with respect to any S corporation is the net
tax liability under this section which would be determined
under subsection (h)(6) if the only subpart F income taken into
account by such shareholder by reason of this section were
allocations from such S corporation.
``(4) Election to pay deferred liability in installments.--In
the case of a taxpayer which elects to defer payment under
paragraph (1)--
``(A) subsection (h) shall be applied separately with
respect to the liability to which such election
applies,
``(B) an election under subsection (h) with respect
to such liability shall be treated as timely made if
made not later than the due date for the return of tax
for the taxable year in which the triggering event with
respect to such liability occurs,
``(C) the first installment under subsection (h) with
respect to such liability shall be paid not later than
such due date (but determined without regard to any
extension of time for filing the return), and
``(D) if the triggering event with respect to any net
tax liability is described in paragraph (2)(A)(ii), an
election under subsection (h) with respect to such
liability may be made only with the consent of the
Secretary.
``(5) Joint and several liability of s corporation.--If any
shareholder of an S corporation elects to defer payment under
paragraph (1), such S corporation shall be jointly and
severally liable for such payment and any penalty, addition to
tax, or additional amount attributable thereto.
``(6) Extension of limitation on collection.--Notwithstanding
any other provision of law, any limitation on the time period
for the collection of a liability deferred under this
subsection shall not be treated as beginning before the date of
the triggering event with respect to such liability.
``(7) Annual reporting of net tax liability.--
``(A) In general.--Any shareholder of an S
corporation which makes an election under paragraph (1)
shall report the amount of such shareholder's deferred
net tax liability on such shareholder's return of tax
for the taxable year for which such election is made
and on the return of tax for each taxable year
thereafter until such amount has been fully assessed on
such returns.
``(B) Deferred net tax liability.--For purposes of
this paragraph, the term `deferred net tax liability'
means, with respect to any taxable year, the amount of
net tax liability payment of which has been deferred
under paragraph (1) and which has not been assessed on
a return of tax for any prior taxable year.
``(C) Failure to report.--In the case of any failure
to report any amount required to be reported under
subparagraph (A) with respect to any taxable year
before the due date for the return of tax for such
taxable year, there shall be assessed on such return as
an addition to tax 5 percent of such amount.
``(8) Election.--Any election under paragraph (1)--
``(A) shall be made by the shareholder of the S
corporation not later than the due date for such
shareholder's return of tax for the taxable year which
includes the close of the taxable year of such S
corporation in which the amount described in subsection
(a) is taken into account, and
``(B) shall be made in such manner as the Secretary
may provide.
``(j) Reporting by S Corporation.--Each S corporation which is a
United States shareholder of a deferred foreign income corporation
shall report in its return of tax under section 6037(a) the amount
includible in its gross income for such taxable year by reason of this
section and the amount of the deduction allowable by subsection (c).
Any copy provided to a shareholder under section 6037(b) shall include
a statement of such shareholder's pro rata share of such amounts.
``(k) Inclusion of Deferred Foreign Income Under This Section Not to
Trigger Recapture of Overall Foreign Loss, etc.--For purposes of
sections 904(f)(1) and 907(c)(4), in the case of a United States
shareholder of a deferred foreign income corporation, such United
States shareholder's taxable income from sources without the United
States and combined foreign oil and gas income shall be determined
without regard to this section.
``(l) Regulations.--The Secretary may prescribe such regulations or
other guidance as may be necessary or appropriate to carry out the
provisions of this section.''.
(b) Clerical Amendment.--The table of sections for subpart F of part
III of subchapter N of chapter 1 is amended by striking the item
relating to section 965 and inserting the following:
``Sec. 965. Treatment of deferred foreign income upon transition to
participation exemption system of taxation.''.
Subtitle B--Modifications Related to Foreign Tax Credit System
SEC. 4101. REPEAL OF SECTION 902 INDIRECT FOREIGN TAX CREDITS;
DETERMINATION OF SECTION 960 CREDIT ON CURRENT YEAR
BASIS.
(a) Repeal of Section 902 Indirect Foreign Tax Credits.--Subpart A of
part III of subchapter N of chapter 1 is amended by striking section
902.
(b) Determination of Section 960 Credit on Current Year Basis.--
Section 960 is amended--
(1) by striking subsection (c), by redesignating subsection
(b) as subsection (c), by striking all that precedes subsection
(c) (as so redesignated) and inserting the following:
``SEC. 960. DEEMED PAID CREDIT FOR SUBPART F INCLUSIONS.
``(a) In General.--For purposes of this subpart, if there is included
in the gross income of a domestic corporation any item of income under
section 951(a)(1) with respect to any controlled foreign corporation
with respect to which such domestic corporation is a United States
shareholder, such domestic corporation shall be deemed to have paid so
much of such foreign corporation's foreign income taxes as are properly
attributable to such item of income.
``(b) Special Rules for Distributions From Previously Taxed Earnings
and Profits.--For purposes of this subpart--
``(1) In general.--If any portion of a distribution from a
controlled foreign corporation to a domestic corporation which
is a United States shareholder with respect to such controlled
foreign corporation is excluded from gross income under section
959(a), such domestic corporation shall be deemed to have paid
so much of such foreign corporation's foreign income taxes as--
``(A) are properly attributable to such portion, and
``(B) have not been deemed to have to been paid by
such domestic corporation under this section for the
taxable year or any prior taxable year.
``(2) Tiered controlled foreign corporations.--If section
959(b) applies to any portion of a distribution from a
controlled foreign corporation to another controlled foreign
corporation, such controlled foreign corporation shall be
deemed to have paid so much of such other controlled foreign
corporation's foreign income taxes as--
``(A) are properly attributable to such portion, and
``(B) have not been deemed to have been paid by a
domestic corporation under this section for the taxable
year or any prior taxable year.'',
(2) and by adding after subsection (c) (as so redesignated)
the following new subsections:
``(d) Foreign Income Taxes.--The term `foreign income taxes' means
any income, war profits, or excess profits taxes paid or accrued to any
foreign country or possession of the United States.
``(e) Regulations.--The Secretary may prescribe such regulations or
other guidance as may be necessary or appropriate to carry out the
provisions of this section.''.
(c) Conforming Amendments.--
(1) Section 78 is amended to read as follows:
``SEC. 78. GROSS UP FOR DEEMED PAID FOREIGN TAX CREDIT.
``If a domestic corporation chooses to have the benefits of subpart A
of part III of subchapter N (relating to foreign tax credit) for any
taxable year, an amount equal to the taxes deemed to be paid by such
corporation under subsections (a) and (b) of section 960 for such
taxable year shall be treated for purposes of this title (other than
sections 959, 960, and 961) as an item of income required to be
included in the gross income of such domestic corporation under section
951(a) for such taxable year.''.
(2) Section 245(a)(10)(C) is amended by striking ``sections
902, 907, and 960'' and inserting ``sections 907 and 960''.
(3) Sections 535(b)(1) and 545(b)(1) are each amended by
striking ``section 902(a) or 960(a)(1)'' and inserting
``section 960''.
(4) Section 814(f)(1) is amended--
(A) by striking subparagraph (B), and
(B) by striking all that precedes ``No income'' and
inserting the following:
``(1) Treatment of foreign taxes.--''.
(5) Section 865(h)(1)(B) is amended by striking ``sections
902, 907, and 960'' and inserting ``sections 907 and 960''.
(6) Section 901(a) is amended by striking ``sections 902 and
960'' and inserting ``section 960''.
(7) Section 901(e)(2) is amended by striking ``but is not
limited to--'' and all that follows through ``that portion''
and inserting ``but is not limited to, that portion''.
(8) Section 901(f) is amended by striking ``sections 902 and
960'' and inserting ``section 960''.
(9) Section 901(j)(1)(A) is amended by striking ``902 or''.
(10) Section 901(j)(1)(B) is amended by striking ``sections
902 and 960'' and inserting ``section 960''.
(11) Section 901(k)(2) is amended by striking ``section 853,
902, or 960'' and inserting ``section 853 or 960''.
(12) Section 901(k)(6) is amended by striking ``902 or''.
(13) Section 901(m)(1) is amended by striking ``relevant
foreign assets--'' and all that follows and inserting
``relevant foreign assets shall not be taken into account in
determining the credit allowed under subsection (a).''.
(14) Section 904(d)(1) is amended by striking ``sections 902,
907, and 960'' and inserting ``sections 907 and 960''.
(15) Section 904(d)(6)(A) is amended by striking ``sections
902, 907, and 960'' and inserting ``sections 907 and 960''.
(16) Section 904(h)(10)(A) is amended by striking ``sections
902, 907, and 960'' and inserting ``sections 907 and 960''.
(17) Section 904 is amended by striking subsection (k).
(18) Section 905(c)(1) is amended by striking the last
sentence.
(19) Section 905(c)(2)(B)(i) is amended to read as follows:
``(i) shall be taken into account for the
taxable year to which such taxes relate, and''.
(20) Section 906(a) is amended by striking ``(or deemed,
under section 902, paid or accrued during the taxable year)''.
(21) Section 906(b) is amended by striking paragraphs (4) and
(5).
(22) Section 907(b)(2)(B) is amended by striking ``902 or''.
(23) Section 907(c)(3) is amended--
(A) by striking subparagraph (A) and redesignating
subparagraphs (B) and (C) as subparagraphs (A) and (B),
respectively, and
(B) by striking ``section 960(a)'' in subparagraph
(A) (as so redesignated) and inserting ``section 960''.
(24) Section 907(c)(5) is amended by striking ``902 or''.
(25) Section 907(f)(2)(B)(i) is amended by striking ``902
or''.
(26) Section 908(a) is amended by striking ``902 or''.
(27) Section 909(b) is amended--
(A) by striking ``section 902 corporation'' in the
matter preceding paragraph (1) and inserting ``10/50
corporation'',
(B) by striking ``902 or'' in paragraph (1),
(C) by striking ``by such section 902 corporation''
and all that follows in the matter following paragraph
(2) and inserting ``by such 10/50 corporation or a
domestic corporation which is a United States
shareholder with respect to such 10/50 corporation.'',
and
(D) by striking ``Section 902 Corporations'' in the
heading thereof and inserting ``10/50 Corporations''.
(28) Section 909(d)(5) is amended to read as follows:
``(5) 10/50 corporation.--The term `10/50 corporation' means
any foreign corporation with respect to which one or more
domestic corporations is a United States shareholder.''.
(29) Section 958(a)(1) is amended by striking ``960(a)(1)''
and inserting ``960''.
(30) Section 959(d) is amended by striking ``Except as
provided in section 960(a)(3), any'' and inserting ``Any''.
(31) Section 959(e) is amended by striking ``section 960(b)''
and inserting ``section 960(c)''.
(32) Section 1291(g)(2)(A) is amended by striking ``any
distribution--'' and all that follows through ``but only if''
and inserting ``any distribution, any withholding tax imposed
with respect to such distribution, but only if''.
(33) Section 6038(c)(1)(B) is amended by striking ``sections
902 (relating to foreign tax credit for corporate stockholder
in foreign corporation) and 960 (relating to special rules for
foreign tax credit)'' and inserting ``section 960''.
(34) Section 6038(c)(4) is amended by striking subparagraph
(C).
(35) The table of sections for subpart A of part III of
subchapter N of chapter 1 is amended by striking the item
relating to section 902.
(36) The table of sections for subpart F of part III of
subchapter N of chapter 1 is amended by striking the item
relating to section 960 and inserting the following:
``Sec. 960. Deemed paid credit for subpart F inclusions.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 4102. SOURCE OF INCOME FROM SALES OF INVENTORY DETERMINED SOLELY
ON BASIS OF PRODUCTION ACTIVITIES.
(a) In General.--Section 863(b) is amended by adding at the end the
following: ``Gains, profits, and income from the sale or exchange of
inventory property described in paragraph (2) shall be allocated and
apportioned between sources within and without the United States solely
on the basis of the production activities with respect to the
property.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle C--Modification of Subpart F Provisions
SEC. 4201. REPEAL OF INCLUSION BASED ON WITHDRAWAL OF PREVIOUSLY
EXCLUDED SUBPART F INCOME FROM QUALIFIED
INVESTMENT.
(a) In General.--Subpart F of part III of subchapter N of chapter 1
is amended by striking section 955.
(b) Conforming Amendments.--
(1)(A) Section 951(a)(1)(A) is amended to read as follows:
``(A) his pro rata share (determined under paragraph
(2)) of the corporation's subpart F income for such
year, and''.
(B) Section 851(b)(3) is amended by striking ``section
951(a)(1)(A)(i)'' in the flush language at the end and
inserting ``section 951(a)(1)(A)''.
(C) Section 952(c)(1)(B)(i) is amended by striking ``section
951(a)(1)(A)(i)'' and inserting ``section 951(a)(1)(A)''.
(D) Section 953(c)(1)(C) is amended by striking ``section
951(a)(1)(A)(i)'' and inserting ``section 951(a)(1)(A)''.
(2) Section 951(a) is amended by striking paragraph (3).
(3) Section 953(d)(4)(B)(iv)(II) is amended by striking ``or
amounts referred to in clause (ii) or (iii) of section
951(a)(1)(A)''.
(4) Section 964(b) is amended by striking ``, 955,''.
(5) Section 970 is amended by striking subsection (b).
(6) The table of sections for subpart F of part III of
subchapter N of chapter 1 is amended by striking the item
relating to section 955.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017, and to taxable years of United States shareholders in which or
with which such taxable years of foreign corporations end.
SEC. 4202. REPEAL OF TREATMENT OF FOREIGN BASE COMPANY OIL RELATED
INCOME AS SUBPART F INCOME.
(a) In General.--Section 954(a) is amended by striking paragraph (5),
by striking the comma at the end of paragraph (3) and inserting a
period, and by inserting ``and'' at the end of paragraph (2).
(b) Conforming Amendments.--
(1) Section 952(c)(1)(B)(iii) is amended by striking
subclause (I) and by redesignating subclauses (II) through (V)
as subclauses (I) through (IV), respectively.
(2) Section 954(b)(4) is amended by striking the last
sentence.
(3) Section 954(b)(5) is amended by striking ``the foreign
base company services income, and the foreign base company oil
related income'' and inserting ``and the foreign base company
services income''.
(4) Section 954(b) is amended by striking paragraph (6).
(5) Section 954 is amended by striking subsection (g).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017, and to taxable years of United States shareholders in which or
with which such taxable years of foreign corporations end.
SEC. 4203. INFLATION ADJUSTMENT OF DE MINIMIS EXCEPTION FOR FOREIGN
BASE COMPANY INCOME.
(a) In General.--Section 954(b)(3) is amended by adding at the end
the following new subparagraph:
``(D) Inflation adjustment.--In the case of any
taxable year beginning after 2017, the dollar amount in
subparagraph (A)(ii) shall be increased by an amount
equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(c)(2)(A) for the
calendar year in which the taxable year begins.
Any increase determined under the preceding sentence
shall be rounded to the nearest multiple of $50,000.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017, and to taxable years of United States shareholders in which or
with which such taxable years of foreign corporations end.
SEC. 4204. LOOK-THRU RULE FOR RELATED CONTROLLED FOREIGN CORPORATIONS
MADE PERMANENT.
(a) In General.--Paragraph (6) of section 954(c) is amended by
striking subparagraph (C).
(b) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2019, and to taxable years of United States shareholders in which or
with which such taxable years of foreign corporations end.
SEC. 4205. MODIFICATION OF STOCK ATTRIBUTION RULES FOR DETERMINING
STATUS AS A CONTROLLED FOREIGN CORPORATION.
(a) In General.--Section 958(b) is amended--
(1) by striking paragraph (4), and
(2) by striking ``Paragraphs (1) and (4)'' in the last
sentence and inserting ``Paragraph (1)''.
(b) Application of Certain Reporting Requirements.--Section
6038(e)(2) is amended by striking ``except that--'' and all that
follows through ``in applying subparagraph (C)'' and inserting ``except
that in applying subparagraph (C)''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017, and to taxable years of United States shareholders in which or
with which such taxable years of foreign corporations end.
SEC. 4206. ELIMINATION OF REQUIREMENT THAT CORPORATION MUST BE
CONTROLLED FOR 30 DAYS BEFORE SUBPART F INCLUSIONS
APPLY.
(a) In General.--Section 951(a)(1) is amended by striking ``for an
uninterrupted period of 30 days or more'' and inserting ``at any
time''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017, and to taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.
Subtitle D--Prevention of Base Erosion
SEC. 4301. CURRENT YEAR INCLUSION BY UNITED STATES SHAREHOLDERS WITH
FOREIGN HIGH RETURNS.
(a) In General.--Subpart F of part III of subchapter N of chapter 1
is amended by inserting after section 951 the following new section:
``SEC. 951A. FOREIGN HIGH RETURN AMOUNT INCLUDED IN GROSS INCOME OF
UNITED STATES SHAREHOLDERS.
``(a) In General.--Each person who is a United States shareholder of
any controlled foreign corporation for any taxable year of such United
States shareholder shall include in gross income for such taxable year
50 percent of such shareholder's foreign high return amount for such
taxable year.
``(b) Foreign High Return Amount.--For purposes of this section--
``(1) In general.--The term `foreign high return amount'
means, with respect to any United States shareholder for any
taxable year of such United States shareholder, the excess (if
any) of--
``(A) such shareholder's net CFC tested income for
such taxable year, over
``(B) the excess (if any) of--
``(i) the applicable percentage of the
aggregate of such shareholder's pro rata share
of the qualified business asset investment of
each controlled foreign corporation with
respect to which such shareholder is a United
States shareholder for such taxable year
(determined for each taxable year of each such
controlled foreign corporation which ends in or
with such taxable year of such United States
shareholder), over
``(ii) the amount of interest expense taken
into account under subsection (c)(2)(A)(ii) in
determining the shareholder's net CFC tested
income for the taxable year.
``(2) Applicable percentage.--The term `applicable
percentage' means, with respect to any taxable year, the
Federal short-term rate (determined under section 1274(d) for
the month in which or with which such taxable year ends) plus 7
percentage points.
``(c) Net CFC Tested Income.--For purposes of this section--
``(1) In general.--The term `net CFC tested income' means,
with respect to any United States shareholder for any taxable
year of such United States shareholder, the excess (if any)
of--
``(A) the aggregate of such shareholder's pro rata
share of the tested income of each controlled foreign
corporation with respect to which such shareholder is a
United States shareholder for such taxable year of such
United States shareholder (determined for each taxable
year of such controlled foreign corporation which ends
in or with such taxable year of such United States
shareholder), over
``(B) the aggregate of such shareholder's pro rata
share of the tested loss of each controlled foreign
corporation with respect to which such shareholder is a
United States shareholder for such taxable year of such
United States shareholder (determined for each taxable
year of such controlled foreign corporation which ends
in or with such taxable year of such United States
shareholder).
``(2) Tested income; tested loss.--For purposes of this
section--
``(A) Tested income.--The term `tested income' means,
with respect to any controlled foreign corporation for
any taxable year of such controlled foreign
corporation, the excess (if any) of--
``(i) the gross income of such corporation
determined without regard to--
``(I) any item of income which is
effectively connected with the conduct
by such corporation of a trade or
business within the United States if
subject to tax under this chapter,
``(II) any gross income taken into
account in determining the subpart F
income of such corporation,
``(III) except as otherwise provided
by the Secretary, any amount excluded
from the foreign personal holding
company income (as defined in section
954) of such corporation by reason of
section 954(c)(6) but only to the
extent that any deduction allowable for
the payment or accrual of such amount
does not result in a reduction in the
foreign high return amount of any
United States shareholder (determined
without regard to this subclause),
``(IV) any gross income excluded from
the foreign personal holding company
income (as defined in section 954) of
such corporation by reason of
subsection (c)(2)(C), (h), or (i) of
section 954,
``(V) any gross income excluded from
the insurance income (as defined in
section 953) of such corporation by
reason of section 953(a)(2),
``(VI) any gross income excluded from
foreign base company income (as defined
in section 954) or insurance income (as
defined in section 953) of such
corporation by reason of section
954(b)(4),
``(VII) any dividend received from a
related person (as defined in section
954(d)(3)), and
``(VIII) any commodities gross income
of such corporation, over
``(ii) the deductions (including taxes)
properly allocable to such gross income under
rules similar to the rules of section 954(b)(5)
(or which would be so properly allocable if
such corporation had such gross income).
``(B) Tested loss.--The term `tested loss' means,
with respect to any controlled foreign corporation for
any taxable year of such controlled foreign
corporation, the excess (if any) of the amount
described in subparagraph (A)(ii) over the amount
described in subparagraph (A)(i).
``(d) Qualified Business Asset Investment.--For purposes of this
section--
``(1) In general.--The term `qualified business asset
investment' means, with respect to any controlled foreign
corporation for any taxable year of such controlled foreign
corporation, the aggregate of the corporation's adjusted bases
(determined as of the close of such taxable year and after any
adjustments with respect to such taxable year) in specified
tangible property--
``(A) used in a trade or business of the corporation,
and
``(B) of a type with respect to which a deduction is
allowable under section 168.
``(2) Specified tangible property.--The term `specified
tangible property' means any tangible property to the extent
such property is used in the production of tested income or
tested loss.
``(3) Partnership property.--For purposes of this subsection,
if a controlled foreign corporation holds an interest in a
partnership at the close of such taxable year of the controlled
foreign corporation, such controlled foreign corporation shall
take into account under paragraph (1) the controlled foreign
corporation's distributive share of the aggregate of the
partnership's adjusted bases (determined as of such date in the
hands of the partnership) in tangible property held by such
partnership to the extent such property--
``(A) is used in the trade or business of the
partnership,
``(B) is of a type with respect to which a deduction
is allowable under section 168, and
``(C) is used in the production of tested income or
tested loss (determined with respect to such controlled
foreign corporation's distributive share of income or
loss with respect to such property).
For purposes of this paragraph, the controlled foreign
corporation's distributive share of the adjusted basis of any
property shall be the controlled foreign corporation's
distributive share of income and loss with respect to such
property.
``(4) Determination of adjusted basis.--For purposes of this
subsection, the adjusted basis in any property shall be
determined without regard to any provision of this title (or
any other provision of law) which is enacted after the date of
the enactment of this section.
``(5) Regulations.--The Secretary shall issue such
regulations or other guidance as the Secretary determines
appropriate to prevent the avoidance of the purposes of this
subsection, including regulations or other guidance which
provide for the treatment of property if--
``(A) such property is transferred, or held,
temporarily, or
``(B) the avoidance of the purposes of this paragraph
is a factor in the transfer or holding of such
property.
``(e) Commodities Gross Income.--For purposes of this section--
``(1) Commodities gross income.--The term `commodities gross
income' means, with respect to any corporation--
``(A) gross income of such corporation from the
disposition of commodities which are produced or
extracted by such corporation (or a partnership in
which such corporation is a partner), and
``(B) gross income of such corporation from the
disposition of property which gives rise to income
described in subparagraph (A).
``(2) Commodity.--The term `commodity' means any commodity
described in section 475(e)(2)(A) or section 475(e)(2)(D)
(determined without regard to clause (i) thereof and by
substituting `a commodity described in subparagraph (A)' for
`such a commodity' in clause (ii) thereof).
``(f) Taxable Years for Which Persons Are Treated as United States
Shareholders of Controlled Foreign Corporations.--For purposes of this
section--
``(1) In general.--A United States shareholder of a
controlled foreign corporation shall be treated as a United
States shareholder of such controlled foreign corporation for
any taxable year of such United States shareholder if--
``(A) a taxable year of such controlled foreign
corporation ends in or with such taxable year of such
person, and
``(B) such person owns (within the meaning of section
958(a)) stock in such controlled foreign corporation on
the last day, in such taxable year of such foreign
corporation, on which the foreign corporation is a
controlled foreign corporation.
``(2) Treatment as a controlled foreign corporation.--Except
for purposes of paragraph (1)(B) and the application of section
951(a)(2) to this section pursuant to subsection (g), a foreign
corporation shall be treated as a controlled foreign
corporation for any taxable year of such foreign corporation if
such foreign corporation is a controlled foreign corporation at
any time during such taxable year.
``(g) Determination of Pro Rata Share.--For purposes of this section,
pro rata shares shall be determined under the rules of section
951(a)(2) in the same manner as such section applies to subpart F
income.
``(h) Coordination With Subpart F.--
``(1) Treatment as subpart f income for certain purposes.--
Except as otherwise provided by the Secretary any foreign high
return amount included in gross income under subsection (a)
shall be treated in the same manner as an amount included under
section 951(a)(1)(A) for purposes of applying sections
168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962,
993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C),
6654(d)(2)(D), and 6655(e)(4).
``(2) Entire foreign high return amount taken into account
for purposes of certain sections.--For purposes of applying
paragraph (1) with respect to sections 168(h)(2)(B), 851(b),
959, 961, 962, 1248(b)(1), and 1248(d)(1), the foreign high
return amount included in gross income under subsection (a)
shall be determined by substituting `100 percent' for `50
percent' in such subsection.
``(3) Allocation of foreign high return amount to controlled
foreign corporations.--For purposes of the sections referred to
in paragraph (1), with respect to any controlled foreign
corporation any pro rata amount from which is taken into
account in determining the foreign high return amount included
in gross income of a United States shareholder under subsection
(a), the portion of such foreign high return amount which is
treated as being with respect to such controlled foreign
corporation is--
``(A) in the case of a controlled foreign corporation
with tested loss, zero, and
``(B) in the case of a controlled foreign corporation
with tested income, the portion of such foreign high
return amount which bears the same ratio to such
foreign high return amount as--
``(i) such United States shareholder's pro
rata amount of the tested income of such
controlled foreign corporation, bears to
``(ii) the aggregate amount determined under
subsection (c)(1)(A) with respect to such
United States shareholder.
``(4) Coordination with subpart f to deny double benefit of
losses.--In the case of any United States shareholder of any
controlled foreign corporation, the amount included in gross
income under section 951(a)(1)(A) shall be determined by
increasing the earnings and profits of such controlled foreign
corporation (solely for purposes of determining such amount) by
an amount that bears the same ratio (not greater than 1) to
such shareholder's pro rata share of the tested loss of such
controlled foreign corporation as--
``(A) the aggregate amount determined under
subsection (c)(1)(A) with respect to such shareholder,
bears to
``(B) the aggregate amount determined under
subsection (c)(1)(B) with respect to such
shareholder.''.
(b) Foreign Tax Credit.--
(1) Application of deemed paid foreign tax credit.--Section
960, as amended by the preceding provisions of this Act, is
amended by redesignating subsections (d) and (e) as subsections
(e) and (f), respectively, and by inserting after subsection
(c) the following new subsection:
``(d) Deemed Paid Credit for Taxes Properly Attributable to Tested
Income.--
``(1) In general.--For purposes of this subpart, if any
amount is includible in the gross income of a domestic
corporation under section 951A, such domestic corporation shall
be deemed to have paid foreign income taxes equal to 80 percent
of--
``(A) such domestic corporation's foreign high return
percentage, multiplied by
``(B) the aggregate tested foreign income taxes paid
or accrued by controlled foreign corporations with
respect to which such domestic corporation is a United
States shareholder.
``(2) Foreign high return percentage.--For purposes of
paragraph (1), the term `foreign high return percentage' means,
with respect to any domestic corporation, the ratio (expressed
as a percentage) of--
``(A) such corporation's foreign high return amount
(as defined in section 951A(b)), divided by
``(B) the aggregate amount determined under section
951A(c)(1)(A) with respect to such corporation.
``(3) Tested foreign income taxes.--For purposes of paragraph
(1), the term `tested foreign income taxes' means, with respect
to any domestic corporation which is a United States
shareholder of a controlled foreign corporation, the foreign
income taxes paid or accrued by such foreign corporation which
are properly attributable to gross income described in section
951A(c)(2)(A)(i).''.
(2) Application of foreign tax credit limitation.--
(A) Separate basket for foreign high return amount.--
Section 904(d)(1) is amended by redesignating
subparagraphs (A) and (B) as subparagraphs (B) and (C),
respectively, and by inserting before subparagraph (B)
(as so redesignated) the following new subparagraph:
``(A) any amount includible in gross income under
section 951A,''.
(B) No carryover of excess taxes.--Section 904(c) is
amended by adding at the end the following: ``This
subsection shall not apply to taxes paid or accrued
with respect to amounts described in subsection
(d)(1)(A).''
(3) Gross up for deemed paid foreign tax credit.--Section 78,
as amended by the preceding provisions of this Act, is
amended--
(A) by striking ``any taxable year, an amount'' and
inserting ``any taxable year--
``(1) an amount'', and
(B) by striking the period at the end and inserting
``, and
``(2) an amount equal to the taxes deemed to be paid by such
corporation under section 960(d) for such taxable year
(determined by substituting `100 percent' for `80 percent' in
such section) shall be treated for purposes of this title
(other than sections 959, 960, and 961) as an increase in the
foreign high return amount of such domestic corporation under
section 951A for such taxable year.''.
(c) Conforming Amendments.--
(1) Section 170(b)(2)(D) is amended by striking ``computed
without regard to'' and all that follows and inserting
``computed--
``(i) without regard to--
``(I) this section,
``(II) part VIII (except section
248),
``(III) any net operating loss
carryback to the taxable year under
section 172,
``(IV) any capital loss carryback to
the taxable year under section
1212(a)(1), and
``(ii) by substituting `100 percent' for `50
percent' in section 951A(a).''.
(2) Section 246(b)(1) is amended by--
(A) striking ``and without regard to'' and inserting
``without regard to'', and
(B) by striking the period at the end and inserting
``, and by substituting `100 percent' for `50 percent'
in section 951A(a).''.
(3) Section 469(i)(3)(F) is amended by striking ``determined
without regard to'' and all that follows and inserting
``determined--
``(i) without regard to--
``(I) any amount includible in gross
income under section 86,
``(II) the amounts allowable as a
deduction under section 219, and
``(III) any passive activity loss or
any loss allowable by reason of
subsection (c)(7), and
``(ii) by substituting `100 percent' for `50
percent' in section 951A(a).''.
(4) Section 856(c)(2) is amended by striking ``and'' at the
end of subparagraph (H), by adding ``and'' at the end of
subparagraph (I), and by inserting after subparagraph (I) the
following new subparagraph:
``(J) amounts includible in gross income under
section 951A(a);''.
(5) Section 856(c)(3)(D) is amended by striking ``dividends
or other distributions on, and gain'' and inserting
``dividends, other distributions on, amounts includible in
gross income under section 951A(a) with respect to, and gain''.
(6) The table of sections for subpart F of part III of
subchapter N of chapter 1 is amended by inserting after the
item relating to section 951 the following new item:
``Sec. 951A. Foreign high return amount included in gross income of
United States shareholders.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years of foreign corporations beginning after December 31,
2017, and to taxable years of United States shareholders in which or
with which such taxable years of foreign corporations end.
SEC. 4302. LIMITATION ON DEDUCTION OF INTEREST BY DOMESTIC CORPORATIONS
WHICH ARE MEMBERS OF AN INTERNATIONAL FINANCIAL
REPORTING GROUP.
(a) In General.--Section 163 is amended by redesignating subsection
(n) as subsection (p) and by inserting after subsection (m) the
following new subsection:
``(n) Limitation on Deduction of Interest by Domestic Corporations in
International Financial Reporting Groups.--
``(1) In general.--In the case of any domestic corporation
which is a member of any international financial reporting
group, the deduction under this chapter for interest paid or
accrued during the taxable year shall not exceed the sum of--
``(A) the allowable percentage of 110 percent of the
excess (if any) of --
``(i) the amount of such interest so paid or
accrued, over
``(ii) the amount described in subparagraph
(B), plus
``(B) the amount of interest includible in gross
income of such corporation for such taxable year.
``(2) International financial reporting group.--
``(A) For purposes of this subsection, the term
`international financial reporting group' means, with
respect to any reporting year, any group of entities
which--
``(i) includes--
``(I) at least one foreign
corporation engaged in a trade or
business within the United States, or
``(II) at least one domestic
corporation and one foreign
corporation,
``(ii) prepares consolidated financial
statements with respect to such year, and
``(iii) reports in such statements average
annual gross receipts (determined in the
aggregate with respect to all entities which
are part of such group) for the 3-reporting-
year period ending with such reporting year in
excess of $100,000,000.
``(B) Rules relating to determination of average
gross receipts.--For purposes of subparagraph (A)(iii),
rules similar to the rules of section 448(c)(3) shall
apply.
``(3) Allowable percentage.--For purposes of this
subsection--
``(A) In general.--The term `allowable percentage'
means, with respect to any domestic corporation for any
taxable year, the ratio (expressed as a percentage and
not greater than 100 percent) of--
``(i) such corporation's allocable share of
the international financial reporting group's
reported net interest expense for the reporting
year of such group which ends in or with such
taxable year of such corporation, over
``(ii) such corporation's reported net
interest expense for such reporting year of
such group.
``(B) Reported net interest expense.--The term
`reported net interest expense' means--
``(i) with respect to any international
financial reporting group for any reporting
year, the excess of--
``(I) the aggregate amount of
interest expense reported in such
group's consolidated financial
statements for such taxable year, over
``(II) the aggregate amount of
interest income reported in such
group's consolidated financial
statements for such taxable year, and
``(ii) with respect to any domestic
corporation for any reporting year, the excess
of--
``(I) the amount of interest expense
of such corporation reported in the
books and records of the international
financial reporting group which are
used in preparing such group's
consolidated financial statements for
such taxable year, over
``(II) the amount of interest income
of such corporation reported in such
books and records.
``(C) Allocable share of reported net interest
expense.--With respect to any domestic corporation
which is a member of any international financial
reporting group, such corporation's allocable share of
such group's reported net interest expense for any
reporting year is the portion of such expense which
bears the same ratio to such expense as--
``(i) the EBITDA of such corporation for such
reporting year, bears to
``(ii) the EBITDA of such group for such
reporting year.
``(D) EBITDA.--
``(i) In general.--The term `EBITDA' means,
with respect to any reporting year, earnings
before interest, taxes, depreciation, and
amortization--
``(I) as determined in the
international financial reporting
group's consolidated financial
statements for such year, or
``(II) for purposes of subparagraph
(A)(i), as determined in the books and
records of the international financial
reporting group which are used in
preparing such statements if not
determined in such statements.
``(ii) Treatment of disregarded entities.--
The EBITDA of any domestic corporation shall
not fail to include the EBITDA of any entity
which is disregarded for purposes of this
chapter.
``(iii) Treatment of intra-group
distributions.--The EBITDA of any domestic
corporation shall be determined without regard
to any distribution received by such
corporation from any other member of the
international financial reporting group.
``(E) Special rules for non-positive ebitda.--
``(i) Non-positive group ebitda.--In the case
of any international financial reporting group
the EBITDA of which is zero or less, paragraph
(1) shall not apply to any member of such group
the EBITDA of which is above zero.
``(ii) Non-positive entity ebitda.--In the
case of any group member the EBITDA of which is
zero or less, paragraph (1) shall be applied
without regard to subparagraph (A) thereof.
``(4) Consolidated financial statement.--For purposes of this
subsection, the term `consolidated financial statement' means
any consolidated financial statement described in paragraph
(2)(A)(ii) if such statement is--
``(A) a financial statement which is certified as
being prepared in accordance with generally accepted
accounting principles, international financial
reporting standards, or any other comparable method of
accounting identified by the Secretary, and which is--
``(i) a 10-K (or successor form), or annual
statement to shareholders, required to be filed
with the United States Securities and Exchange
Commission,
``(ii) an audited financial statement which
is used for--
``(I) credit purposes,
``(II) reporting to shareholders,
partners, or other proprietors, or to
beneficiaries, or
``(III) any other substantial nontax
purpose,
but only if there is no statement described in
clause (i), or
``(iii) filed with any other Federal or State
agency for nontax purposes, but only if there
is no statement described in clause (i) or
(ii), or
``(B) a financial statement which--
``(i) is used for a purpose described in
subclause (I), (II), or (III) of subparagraph
(A)(ii), or
``(ii) filed with any regulatory or
governmental body (whether domestic or foreign)
specified by the Secretary,
but only if there is no statement described in
subparagraph (A).
``(5) Reporting year.--For purposes of this subsection, the
term `reporting year' means, with respect to any international
financial reporting group, the year with respect to which the
consolidated financial statements are prepared.
``(6) Application to certain entities.--
``(A) Partnerships.--Except as otherwise provided by
the Secretary in paragraph (7), this subsection shall
apply to any partnership which is a member of any
international financial reporting group under rules
similar to the rules of section 163(j)(3).
``(B) Foreign corporations engaged in trade or
business within the united states.--Except as otherwise
provided by the Secretary in paragraph (8), any
deduction for interest paid or accrued by a foreign
corporation engaged in a trade or business within the
United States shall be limited in a manner consistent
with the principles of this subsection.
``(C) Consolidated groups.--For purposes of this
subsection, the members of any group that file (or are
required to file) a consolidated return with respect to
the tax imposed by chapter 1 for a taxable year shall
be treated as a single corporation.
``(7) Regulations.--The Secretary may issue such regulations
or other guidance as are necessary or appropriate to carry out
the purposes of this subsection.''.
(b) Carryforward of Disallowed Interest.--
(1) In general.--Section 163(o) is amended to read as
follows:
``(o) Carryforward of Certain Disallowed Interest.--The amount of any
interest not allowed as a deduction for any taxable year by reason of
subsection (j)(1) or (n)(1) (whichever imposes the lower limitation
with respect to such taxable year) shall be treated as interest (and as
business interest for purposes of subsection (j)(1)) paid or accrued in
the succeeding taxable year. Interest paid or accrued in any taxable
year (determined without regard to the preceding sentence) shall not be
carried past the 5th taxable year following such taxable year,
determined by treating interest as allowed as a deduction on a first-
in, first-out basis.''.
(2) Treatment of carryforward of disallowed interest in
certain corporate acquisitions.--For rules related to the
carryforward of disallowed interest in certain corporate
acquisitions, see the amendments made by section 3301(c).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 4303. EXCISE TAX ON CERTAIN PAYMENTS FROM DOMESTIC CORPORATIONS TO
RELATED FOREIGN CORPORATIONS; ELECTION TO TREAT
SUCH PAYMENTS AS EFFECTIVELY CONNECTED INCOME.
(a) Excise Tax on Certain Amounts From Domestic Corporations to
Foreign Affiliates.--
(1) In general.--Chapter 36 is amended by adding at the end
the following new subchapter:
``Subchapter E--Tax on Certain Amounts to Foreign Affiliates
``Sec. 4491. Imposition of tax on certain amounts from domestic
corporations to foreign affiliates.
``SEC. 4491. IMPOSITION OF TAX ON CERTAIN AMOUNTS FROM DOMESTIC
CORPORATIONS TO FOREIGN AFFILIATES.
``(a) In General.--There is hereby imposed on each specified amount
paid or incurred by a domestic corporation to a foreign corporation
which is a member of the same international financial reporting group
as such domestic corporation a tax equal to the highest rate of tax in
effect under section 11 multiplied by such amount.
``(b) By Whom Paid.--The tax imposed by subsection (a) shall be paid
by the domestic corporation described in such subsection.
``(c) Exception for Effectively Connected Income.--Subsection (a)
shall not apply to so much of any specified amount as is effectively
connected with the conduct of a trade or business within the United
States if such amount is subject to tax under chapter 1. In the case of
any amount which is treated as effectively connected with the conduct
of a trade or business within the United States by reason of section
882(g), the preceding sentence shall apply to such amount only if the
domestic corporation provides to the Secretary (at such time and in
such form and manner as the Secretary may provide) a copy of the
election made under section 882(g) by the foreign corporation referred
to in subsection (a).
``(d) Definitions and Special Rules.--Terms used in this section that
are also used in section 882(g) shall have the same meaning as when
used in such section and rules similar to the rules of paragraphs (5)
and (6) of such section shall apply for purposes of this section.''.
(2) Denial of deduction for tax imposed.--Section 275(a) is
amended by inserting after paragraph (6) the following new
paragraph:
``(7) Taxes imposed by section 4491.''.
(3) Clerical amendment.--The table of subchapters for chapter
36 is amended by adding at the end the following new item:
``subchapter e. tax on certain amounts to foreign affiliates.''.
(b) Election to Treat Certain Payments From Domestic Corporations to
Related Foreign Corporations as Effectively Connected Income.--Section
882 is amended by adding at the end the following new subsection:
``(g) Election to Treat Certain Payments From Domestic Corporations
to Related Foreign Corporations as Effectively Connected Income.--
``(1) In general.--In the case of any specified amount paid
or incurred by a domestic corporation to a foreign corporation
which is a member of the same international financial reporting
group as such domestic corporation and which has elected to be
subject to the provisions of this subsection--
``(A) such amount shall be taken into account (other
than for purposes of sections 245, 245A, and 881) in
the taxable year of such foreign corporation during
which such amount is paid or incurred as if--
``(i) such foreign corporation were engaged
in a trade or business within the United
States,
``(ii) such foreign corporation had a
permanent establishment in the United States
during the taxable year, and
``(iii) such payment were effectively
connected with the conduct of a trade or
business within the United States and were
attributable to such permanent establishment,
``(B) for purposes of subsection (c)(1)(A), no
deduction shall be allowed with respect to such amount
and such subsection shall be applied without regard to
such amount, and
``(C) the foreign corporation shall be allowed a
deduction (for the taxable year referred to in
subparagraph (A)) equal to the deemed expenses with
respect to such amount.
``(2) Specified amount.--For purposes of this subsection--
``(A) In general.--The term `specified amount' means
any amount which is, with respect to the payor,
allowable as a deduction or includible in costs of
goods sold, inventory, or the basis of a depreciable or
amortizable asset.
``(B) Exceptions.--The term `specified amount' shall
not include--
``(i) interest,
``(ii) any amount paid or incurred for the
acquisition of any security described in
section 475(c)(2) (determined without regard to
the last sentence thereof) or any commodity
described in section 475(e)(2),
``(iii) except as provided in subparagraph
(C), any amount with respect to which tax is
imposed under section 881(a), and
``(iv) in the case of a payor which has
elected to use a services cost method for
purposes of section 482, any amount paid or
incurred for services if such amount is the
total services cost with no markup.
``(C) Amounts not treated as effectively connected to
extent of gross-basis tax.--Subparagraph (B)(iii) shall
only apply to so much of any specified amount as bears
the proportion to such amount as--
``(i) the rate of tax imposed under section
881(a) with respect to such amount, bears to
``(ii) 30 percent.
``(3) Deemed expenses.--
``(A) In general.--The deemed expenses with respect
to any specified amount received by a foreign
corporation during any reporting year is the amount of
expenses such that the net income ratio of such foreign
corporation with respect to such amount (taking into
account only such specified amount and such deemed
expenses) is equal to the net income ratio of the
international financial reporting group determined for
such reporting year with respect to the product line to
which the specified amount relates.
``(B) Net income ratio.--For purposes of this
paragraph, the term `net income ratio' means the ratio
of--
``(i) net income determined without regard to
interest income, interest expense, and income
taxes, divided by
``(ii) revenues.
``(C) Method of determination.--Amounts described in
subparagraph (B) shall be determined with respect to
the international financial reporting group on the
basis of the consolidated financial statements referred
to in paragraph (4)(A)(i) and the books and records of
the members of the international financial reporting
group which are used in preparing such statements,
taking into account only revenues and expenses of the
members of such group (other than the members of such
group which are (or are treated as) a domestic
corporation for purposes of this subsection) derived
from, or incurred with respect to--
``(i) persons who are not members of such
group, and
``(ii) members of such group which are (or
are treated as) a domestic corporation for
purposes of this subsection.
``(4) International financial reporting group.--For purposes
of this subsection--
``(A) In general.--The term `international financial
reporting group' means any group of entities, with
respect to any specified amount, if such amount is paid
or incurred during a reporting year of such group with
respect to which--
``(i) such group prepares consolidated
financial statements (within the meaning of
section 163(n)(4)) with respect to such year,
and
``(ii) the average annual aggregate payment
amount of such group for the 3-reporting-year
period ending with such reporting year exceeds
$100,000,000.
``(B) Annual aggregate payment amount.--The term
`annual aggregate payment amount' means, with respect
to any reporting year of the group referred to in
subparagraph (A)(i), the aggregate specified amounts to
which paragraph (1) applies (or would apply if such
group were an international financial reporting group).
``(C) Application of certain rules.--Rules similar to
the rules of subparagraphs (A), (B), and (D) of section
448(c)(3) shall apply for purposes of this paragraph.
``(5) Treatment of partnerships.--Any specified amount paid,
incurred, or received by a partnership which is a member of any
international financial reporting group (and any amount treated
as paid, incurred, or received by a partnership under this
paragraph) shall be treated for purposes of this subsection as
amounts paid, incurred, or received, respectively, by each
partner of such partnership in an amount equal to such
partner's distributive share of the items of income, gain,
deduction, or loss to which such amounts relate.
``(6) Treatment of amounts in connection with united states
trade or business.--Any specified amount paid, incurred, or
received by a foreign corporation in connection with the
conduct of a trade or business within the United States (other
than a trade or business it is deemed to conduct pursuant to
this subsection) shall be treated for purposes of this
subsection as an amount paid, incurred, or received,
respectively, by a domestic corporation. For purposes of the
preceding sentence, a foreign corporation shall be deemed to
pay, incur, and receive amounts with respect to a trade or
business it conducts within the United States (other than a
trade or business it is deemed to conduct pursuant to this
subsection) to the extent such foreign corporation would be
treated as paying, incurring, or receiving such amounts from
such trade or business if such trade or business were a
domestic corporation.
``(7) Joint and several liability of members of internal
financial reporting group.--In the case of any underpayment
with respect to any taxable year of a foreign corporation which
is a member of an international financial accounting group,
each domestic corporation which is a member of such group at
any time during such taxable year shall be jointly and
severally liable for--
``(A) so much of such underpayment as does not exceed
the excess (if any) of such underpayment over the
amount of such underpayment determined without regard
to this subsection, and
``(B) any penalty, addition to tax, or additional
amount attributable to the amount described in
subparagraph (A).
``(8) Foreign tax credit allowed.--The credit allowed under
section 906(a) with respect to amounts taken into account in
income under paragraph (1)(A) shall be limited to 80 percent of
the amount of taxes paid or accrued and determined without
regard to section 906(b)(1).
``(9) Election.--Any election under paragraph (1)--
``(A) shall be made at such time and in such form and
manner as the Secretary may provide, and
``(B) shall apply for the taxable year for which made
and all subsequent taxable years unless revoked with
the consent of the Secretary.
``(10) Regulations.--The Secretary may issue such regulations
or other guidance as are necessary or appropriate to carry out
the purposes of this subsection, including regulations or other
guidance--
``(A) to provide for the proper determination of
product lines, and
``(B) to prevent the avoidance of the purposes of
this subsection through the use of conduit transactions
or by other means.''.
(c) Reporting Requirements.--
(1) Reporting by foreign corporation.--Section 6038C(b) is
amended to read as follows:
``(b) Required Information.--
``(1) In general.--The information described in this
subsection is--
``(A) the information described in section 6038A(b),
and
``(B) such other information as the Secretary may
prescribe by regulations relating to any item not
directly connected with a transaction for which
information is required under subparagraph (A).
``(2) Certain payments from related domestic corporations.--
``(A) In general.--In the case of any reporting
corporation that receives during the taxable year any
amount to which section 882(g)(1) applies, the
information described in this subsection shall include,
with respect to each member of the international
financial reporting group from which any such amount is
received--
``(i) the name and taxpayer identification
number of such member,
``(ii) the aggregate amounts received from
such member,
``(iii) the product lines to which such
amounts relate, the aggregate amounts relating
to each such product line, and the net income
ratio for each such product line (determined
under section 882(g)(3)(B) with respect to the
international financial reporting group), and
``(iv) a summary of any changes in financial
accounting methods that affect the computation
of any net income ratio described in clause
(iii).
``(B) Definitions and special rules.--Terms used in
this paragraph that are also used in section 882(g)
shall have the same meaning as when used in such
section and rules similar to the rules of paragraphs
(5) and (6) of such section shall apply for purposes of
this paragraph.''.
(2) Reporting by domestic group members.--
(A) In general .--Subpart A of part III of subchapter
A of chapter 61 is amended by inserting after section
6038D the following new section:
``SEC. 6038E. INFORMATION WITH RESPECT TO CERTAIN PAYMENTS FROM
DOMESTIC CORPORATIONS TO RELATED FOREIGN
CORPORATIONS.
``(a) In General.--In the case of any domestic corporation which pays
or incurs any amount to which section 882(g)(1) applies, such person
shall--
``(1) make a return according to the forms and regulations
prescribed the Secretary, setting forth the information
described in subsection (b), and
``(2) maintain (at the location, in the manner, and to the
extent prescribed in regulations) such records as may be
appropriate to determine liability for tax pursuant to
paragraphs (1) and (7) of section 882(g).
``(b) Required Information.--The information described in this
subsection is--
``(1) the name and taxpayer identification number of the
common parent of the international financial reporting group in
which such domestic corporation is a member, and
``(2) with respect to any person who receives an amount
described in subsection (a) from such domestic corporation--
``(A) the name and taxpayer identification number of
such person,
``(B) the aggregate amounts received by such person,
``(C) the product lines to which such amounts relate,
the aggregate amounts relating to each such product
line, and the net income ratio for each such product
line (determined under section 882(g)(3)(B) with
respect to the international financial reporting
group), and
``(D) a summary of any changes in financial
accounting methods that affect the computation of any
net income ratios described in subparagraph (C).
``(c) Definitions and Special Rules.--Terms used in this paragraph
that are also used in section 882(g) shall have the same meaning as
when used in such section and rules similar to the rules of paragraphs
(5) and (6) of such section shall apply for purposes of this
paragraph.''.
(B) Clerical amendment.--The table of sections for
subpart A of part III of subchapter A of chapter 61 is
amended by inserting after the item relating to section
6038D the following new item:
``Sec. 6038E. Information with respect to certain payments from
domestic corporations to related foreign corporations.''.
(d) Effective Date.--The amendments made by this section shall apply
to amounts paid or incurred after December 31, 2018.
Subtitle E--Provisions Related to Possessions of the United States
SEC. 4401. EXTENSION OF DEDUCTION ALLOWABLE WITH RESPECT TO INCOME
ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES IN
PUERTO RICO.
(a) In General.--Section 199(d)(8)(C), prior to its repeal by this
Act, is amended--
(1) by striking ``first 11 taxable years'' and inserting
``first 12 taxable years'', and
(2) by striking ``January 1, 2017'' and inserting ``January
1, 2018''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2016.
SEC. 4402. EXTENSION OF TEMPORARY INCREASE IN LIMIT ON COVER OVER OF
RUM EXCISE TAXES TO PUERTO RICO AND THE VIRGIN
ISLANDS.
(a) In General.--Section 7652(f)(1) is amended by striking ``January
1, 2017'' and inserting ``January 1, 2023''.
(b) Effective Date.--The amendment made by this section shall apply
to distilled spirits brought into the United States after December 31,
2016.
SEC. 4403. EXTENSION OF AMERICAN SAMOA ECONOMIC DEVELOPMENT CREDIT.
(a) In General.--Section 119(d) of division A of the Tax Relief and
Health Care Act of 2006 is amended--
(1) by striking ``January 1, 2017'' each place it appears and
inserting ``January 1, 2023'',
(2) by striking ``first 11 taxable years'' in paragraph (1)
and inserting ``first 17 taxable years'', and
(3) by striking ``first 5 taxable years'' in paragraph (2)
and inserting ``first 11 taxable years''.
(b) Treatment of Certain References.--Section 119(e) of division A of
the Tax Relief and Health Care Act of 2006 is amended by adding at the
end the following: ``References in this subsection to section 199 of
the Internal Revenue Code of 1986 shall be treated as references to
such section as in effect before its repeal by the Tax Cuts and Jobs
Act.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2016.
Subtitle F--Other International Reforms
SEC. 4501. RESTRICTION ON INSURANCE BUSINESS EXCEPTION TO PASSIVE
FOREIGN INVESTMENT COMPANY RULES.
(a) In General.--Section 1297(b)(2)(B) is amended to read as follows:
``(B) derived in the active conduct of an insurance
business by a qualifying insurance corporation (as
defined in subsection (f)),''.
(b) Qualifying Insurance Corporation Defined.--Section 1297 is
amended by adding at the end the following new subsection:
``(f) Qualifying Insurance Corporation.--For purposes of subsection
(b)(2)(B)--
``(1) In general.--The term `qualifying insurance
corporation' means, with respect to any taxable year, a foreign
corporation--
``(A) which would be subject to tax under subchapter
L if such corporation were a domestic corporation, and
``(B) the applicable insurance liabilities of which
constitute more than 25 percent of its total assets,
determined on the basis of such liabilities and assets
as reported on the corporation's applicable financial
statement for the last year ending with or within the
taxable year.
``(2) Alternative facts and circumstances test for certain
corporations.--If a corporation fails to qualify as a qualified
insurance corporation under paragraph (1) solely because the
percentage determined under paragraph (1)(B) is 25 percent or
less, a United States person that owns stock in such
corporation may elect to treat such stock as stock of a
qualifying insurance corporation if--
``(A) the percentage so determined for the
corporation is at least 10 percent, and
``(B) under regulations provided by the Secretary,
based on the applicable facts and circumstances--
``(i) the corporation is predominantly
engaged in an insurance business, and
``(ii) such failure is due solely to runoff-
related or rating-related circumstances
involving such insurance business.
``(3) Applicable insurance liabilities.--For purposes of this
subsection--
``(A) In general.--The term `applicable insurance
liabilities' means, with respect to any life or
property and casualty insurance business--
``(i) loss and loss adjustment expenses, and
``(ii) reserves (other than deficiency,
contingency, or unearned premium reserves) for
life and health insurance risks and life and
health insurance claims with respect to
contracts providing coverage for mortality or
morbidity risks.
``(B) Limitations on amount of liabilities.--Any
amount determined under clause (i) or (ii) of
subparagraph (A) shall not exceed the lesser of such
amount--
``(i) as reported to the applicable insurance
regulatory body in the applicable financial
statement described in paragraph (4)(A) (or, if
less, the amount required by applicable law or
regulation), or
``(ii) as determined under regulations
prescribed by the Secretary.
``(4) Other definitions and rules.--For purposes of this
subsection--
``(A) Applicable financial statement.--The term
`applicable financial statement' means a statement for
financial reporting purposes which--
``(i) is made on the basis of generally
accepted accounting principles,
``(ii) is made on the basis of international
financial reporting standards, but only if
there is no statement that meets the
requirement of clause (i), or
``(iii) except as otherwise provided by the
Secretary in regulations, is the annual
statement which is required to be filed with
the applicable insurance regulatory body, but
only if there is no statement which meets the
requirements of clause (i) or (ii).
``(B) Applicable insurance regulatory body.--The term
`applicable insurance regulatory body' means, with
respect to any insurance business, the entity
established by law to license, authorize, or regulate
such business and to which the statement described in
subparagraph (A) is provided.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
TITLE V--EXEMPT ORGANIZATIONS
Subtitle A--Unrelated Business Income Tax
SEC. 5001. CLARIFICATION OF UNRELATED BUSINESS INCOME TAX TREATMENT OF
ENTITIES TREATED AS EXEMPT FROM TAXATION UNDER
SECTION 501(A).
(a) In General.--Section 511 is amended by adding at the end the
following new subsection:
``(d) Organizations and Trusts Exempt From Taxation Not Solely by
Reason of Section 501(a).--For purposes of subsections (a)(2) and
(b)(2), an organization or trust shall not fail to be treated as exempt
from taxation under this subtitle by reason of section 501(a) solely
because such organization is also so exempt, or excludes amounts from
gross income, by reason of any other provision of this title.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 5002. EXCLUSION OF RESEARCH INCOME LIMITED TO PUBLICLY AVAILABLE
RESEARCH.
(a) In General.--Section 512(b)(9) is amended by striking ``from
research'' and inserting ``from such research''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle B--Excise Taxes
SEC. 5101. SIMPLIFICATION OF EXCISE TAX ON PRIVATE FOUNDATION
INVESTMENT INCOME.
(a) Rate Reduction.--Section 4940(a) is amended by striking ``2
percent'' and inserting ``1.4 percent''.
(b) Repeal of Special Rules for Certain Private Foundations.--Section
4940 is amended by striking subsection (e).
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 5102. PRIVATE OPERATING FOUNDATION REQUIREMENTS RELATING TO
OPERATION OF ART MUSEUM.
(a) In General.--Section 4942(j) is amended by adding at the end the
following new paragraph:
``(6) Organization operating art museum.--For purposes of
this section, the term `operating foundation' shall not include
an organization which operates an art museum as a substantial
activity unless such museum is open during normal business
hours to the public for at least 1,000 hours during the taxable
year.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 5103. EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE COLLEGES
AND UNIVERSITIES.
(a) In General.--Chapter 42 is amended by adding at the end the
following new subchapter:
``Subchapter H--Excise Tax Based on Investment Income of Private
Colleges and Universities
``Sec. 4969. Excise tax based on investment income of private colleges
and universities.
``SEC. 4969. EXCISE TAX BASED ON INVESTMENT INCOME OF PRIVATE COLLEGES
AND UNIVERSITIES.
``(a) Tax Imposed.--There is hereby imposed on each applicable
educational institution for the taxable year a tax equal to 1.4 percent
of the net investment income of such institution for the taxable year.
``(b) Applicable Educational Institution.--For purposes of this
subchapter--
``(1) In general.--The term `applicable educational
institution' means an eligible educational institution (as
defined in section 25A(e)(3))--
``(A) which has at least 500 students during the
preceding taxable year,
``(B) which is not described in the first sentence of
section 511(a)(2)(B), and
``(C) the aggregate fair market value of the assets
of which at the end of the preceding taxable year
(other than those assets which are used directly in
carrying out the institution's exempt purpose) is at
least $250,000 per student of the institution.
``(2) Students.--For purposes of paragraph (1), the number of
students of an institution shall be based on the daily average
number of full-time students attending such institution (with
part-time students taken into account on a full-time student
equivalent basis).
``(c) Net Investment Income.--For purposes of this section, net
investment income shall be determined under rules similar to the rules
of section 4940(c).
``(d) Assets and Net Investment Income of Related Organizations.--
``(1) In general.--For purposes of subsections (b)(1)(C) and
(c), the assets and net investment income of any related
organization shall be treated as the assets and net investment
income of the eligible educational institution.
``(2) Related organization.--For purposes of this subsection,
the term `related organization' means, with respect to an
eligible educational institution, any organization which--
``(A) controls, or is controlled by, such
institution,
``(B) is controlled by one or more persons that
control such institution, or
``(C) is a supported organization (as defined in
section 509(f)(3)), or an organization described in
section 509(a)(3), during the taxable year with respect
to such institution.''.
(b) Clerical Amendment.--The table of subchapters for chapter 42 is
amended by adding at the end the following new item:
``subchapter h--excise tax based on investment income of private
colleges and universities''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
SEC. 5104. EXCEPTION FROM PRIVATE FOUNDATION EXCESS BUSINESS HOLDING
TAX FOR INDEPENDENTLY-OPERATED PHILANTHROPIC
BUSINESS HOLDINGS.
(a) In General.--Section 4943 is amended by adding at the end the
following new subsection:
``(g) Exception for Certain Holdings Limited to Independently-
operated Philanthropic Business.--
``(1) In general.--Subsection (a) shall not apply with
respect to the holdings of a private foundation in any business
enterprise which for the taxable year meets--
``(A) the ownership requirements of paragraph (2),
``(B) the all profits to charity distribution
requirement of paragraph (3), and
``(C) the independent operation requirements of
paragraph (4).
``(2) Ownership.--The ownership requirements of this
paragraph are met if--
``(A) 100 percent of the voting stock in the business
enterprise is held by the private foundation at all
times during the taxable year, and
``(B) all the private foundation's ownership
interests in the business enterprise were acquired not
by purchase.
``(3) All profits to charity.--
``(A) In general.--The all profits to charity
distribution requirement of this paragraph is met if
the business enterprise, not later than 120 days after
the close of the taxable year, distributes an amount
equal to its net operating income for such taxable year
to the private foundation.
``(B) Net operating income.--For purposes of this
paragraph, the net operating income of any business
enterprise for any taxable year is an amount equal to
the gross income of the business enterprise for the
taxable year, reduced by the sum of--
``(i) the deductions allowed by chapter 1 for
the taxable year which are directly connected
with the production of such income,
``(ii) the tax imposed by chapter 1 on the
business enterprise for the taxable year, and
``(iii) an amount for a reasonable reserve
for working capital and other business needs of
the business enterprise.
``(4) Independent operation.--The independent operation
requirements of this paragraph are met if, at all times during
the taxable year--
``(A) no substantial contributor (as defined in
section 4958(c)(3)(C)) to the private foundation, or
family member of such a contributor (determined under
section 4958(f)(4)) is a director, officer, trustee,
manager, employee, or contractor of the business
enterprise (or an individual having powers or
responsibilities similar to any of the foregoing),
``(B) at least a majority of the board of directors
of the private foundation are not--
``(i) also directors or officers of the
business enterprise, or
``(ii) members of the family (determined
under section 4958(f)(4)) of a substantial
contributor (as defined in section
4958(c)(3)(C)) to the private foundation, and
``(C) there is no loan outstanding from the business
enterprise to a substantial contributor (as so defined)
to the private foundation or a family member of such
contributor (as so determined).
``(5) Certain deemed private foundations excluded.--This
subsection shall not apply to--
``(A) any fund or organization treated as a private
foundation for purposes of this section by reason of
subsection (e) or (f),
``(B) any trust described in section 4947(a)(1)
(relating to charitable trusts), and
``(C) any trust described in section 4947(a)(2)
(relating to split-interest trusts).''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2017.
Subtitle C--Requirements for Organizations Exempt From Tax
SEC. 5201. 501(C)(3) ORGANIZATIONS PERMITTED TO MAKE STATEMENTS
RELATING TO POLITICAL CAMPAIGN IN ORDINARY COURSE
OF ACTIVITIES.
(a) In General.--Section 501 is amended by adding at the end the
following new subsection:
``(s) Special Rule Relating to Political Campaign Statements of
Organizations Described in Subsection (c)(3).--
``(1) In general.--For purposes of subsection (c)(3) and
sections 170(c)(2), 2055, 2106, 2522, and 4955, an organization
shall not fail to be treated as organized and operated
exclusively for a purpose described in subsection (c)(3), nor
shall it be deemed to have participated in, or intervened in
any political campaign on behalf of (or in opposition to) any
candidate for public office, solely because of the content of
any statement which--
``(A) is made in the ordinary course of the
organization's regular and customary activities in
carrying out its exempt purpose, and
``(B) results in the organization incurring not more
than de minimis incremental expenses.
``(2) Termination.--Paragraph (1) shall not apply to taxable
years beginning after December 31, 2023.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2018.
SEC. 5202. ADDITIONAL REPORTING REQUIREMENTS FOR DONOR ADVISED FUND
SPONSORING ORGANIZATIONS.
(a) In General.--Section 6033(k) is amended by striking ``and'' at
the end of paragraph (2), by striking the period at the end of
paragraph (3), and by adding at the end the following new paragraphs:
``(4) indicate the average amount of grants made from such
funds during such taxable year (expressed as a percentage of
the value of assets held in such funds at the beginning of such
taxable year), and
``(5) indicate whether the organization has a policy with
respect to donor advised funds (as so defined) for frequency
and minimum level of distributions.
Such organization shall include with such return a copy of any policy
described in paragraph (5).''.
(b) Effective Date.--The amendment made by this section shall apply
for returns filed for taxable years beginning after December 31, 2017.
Amend the title so as to read:
A bill to provide for reconciliation pursuant to titles II
and V of the concurrent resolution on the budget for fiscal
year 2018.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
H.R. 1, as reported by the Committee on Ways and Means,
makes comprehensive reforms to the Internal Revenue Code of
1986 to provide tax relief and simplification to American
families and individuals so that they can keep more of what
they earn and devote less time and resources to filing their
tax returns; to provide tax relief to businesses of all sizes
so that they can create jobs, increase paychecks, and invest in
the American economy; and to modernize the U.S. international
tax system to unleash the global competitiveness of America and
American businesses. H.R. 1 fulfills the reconciliation
instructions included in Titles II and V of the Concurrent
Resolution on the Budget for Fiscal Year 2018.
B. Background and Need for Legislation
H.R. 1 reflects the Committee's long-standing focus on
achieving comprehensive tax reform in order to promote economic
growth and job creation, to support global competiveness, and
to reduce tax burdens on families and individuals. Lowering tax
burdens on the middle class and creating a healthier economy
will help American families, as will reforms that make the
system simpler and fairer for taxpayers. Lowering the tax
burden on businesses small and large and modernizing the U.S.
international tax rules will promote investment and job
creation and put America back in the lead pack. The Committee
believes that H.R. 1 delivers a 21st century tax code that is
built for growth.
C. Legislative History
Budget resolution
On October 26, 2017, the House of Representatives approved
H. Con. Res. 71, the budget resolution for fiscal year 2018.
Pursuant to section 5113(b) of H. Con. Res. 71, the Committee
on Ways and Means was directed to submit to the Committee on
the Budget recommendations for changes in law within the
jurisdiction of the Committee on Ways and Means that increase
the deficit by not more than $1,500,000,000,000 for the period
of fiscal years 2018 through 2027.
Committee action
Beginning November 6, 2017, the Committee on Ways and Means
marked up H.R. 1, a bill to provide for reconciliation pursuant
to the concurrent resolution on the budget for fiscal year
2018, and ordered the bill, as amended, favorably reported
(with a quorum being present) on November 9, 2017.
Committee hearings
The Ways and Means Committee has held extensive hearings
over many years focused on tax reform overall and on particular
aspects of tax reform.
During the 115th Congress, the Committee held the following
hearings that addressed aspects of tax reform:
How Tax Reform Will Grow our Economy and
Create Jobs (May 18, 2017)
Increasing U.S. Competitiveness and
Preventing American Jobs from Moving Overseas (May 23,
2017)
The President's Fiscal Year 2018 Budget
Proposals (May 24, 2017).
Also during the 115th Congress, the Subcommittee on Tax
Policy held hearings on the following tax reform topics:
How Tax Reform Will Help America's Small
Businesses Grow and Create New Jobs (July 13, 2017)
How Tax Reform Will Simplify Our Broken Tax
Code and Help Individuals and Families (July 19, 2017).
In addition, the Committee and its Subcommittees held many
hearings over the past several years on a wide variety of
subjects relevant to comprehensive tax reform, including the
following hearings:
Committee on Ways and Means
The Global Tax Environment in 2016 and
Implications for International Tax Reform (February 24,
2016)
Reaching America's Potential: Delivering
Growth and Opportunity for All Americans (February 2,
2016)
Benefits of Permanent Tax Policy for
America's Job Creators (April 8, 2014).
Tax Reform: Tax Havens, Base Erosion, and
Profit-Shifting (June 13, 2013)
Tax Reform and Residential Real Estate
(April 25, 2013)
Tax Reform and Tax Provisions Affecting
State and Local Governments (March 19, 2013)
Tax Reform and Charitable Contributions
(February 14, 2013)
Tax Reform and the Tax Treatment of Capital
Gains (September 20, 2012)
Tax Reform and the U.S. Manufacturing Sector
(July 19, 2012)
Tax Reform and Tax-Favored Retirement
Accounts (April 17, 2012)
Treatment of Closely-Held Businesses in the
Context of Tax Reform (March 7, 2012)
Interaction of Tax and Financial Accounting
on Tax Reform (February 8, 2012)
Economic Models Available to the Joint
Committee on Taxation for Analyzing Tax Reform
Proposals (September 21, 2011)
Tax Reform and Consumption-Based Tax Systems
(July 26, 2011)
Tax Reform and the Tax Treatment of Debt and
Equity (July 13, 2011)
How Business Tax Reform Can Encourage Job
Creation (June 2, 2011)
How Other Countries Have Used Tax Reform to
Help Their Companies Compete in the Global Market and
Create Jobs (May 24, 2011)
The Need for Comprehensive Tax Reform to
Help American Companies Compete in the Global Market
and Create Jobs for American Workers (May 12, 2011)
How the Tax Code's Burdens on Individuals
and Families Demonstrate the Need for Comprehensive Tax
Reform (April 13, 2011)
Fundamental Tax Reform (January 20, 2011)
Subcommittee on Tax Policy (formerly Subcommittee on Select
Revenue Measures)
Perspectives on Need for Tax Reform (May 25,
2016)
Member Proposals for Improvements to the
U.S. Tax System (May 12, 2016)
Fundamental Tax Reform Proposals, Part II
(April 13, 2016)
Fundamental Tax Reform Proposals, Part I
(March 22, 2016)
OECD Base Erosion and Profit Shifting (BEPS)
Project (December 1, 2015)
Burden of the Estate Tax on Family
Businesses and Farms (March 18, 2015)
Dynamic Analysis of the Tax Reform Act of
2014 (July 30, 2014)
Small Business Pass-Through Entity Tax
Reform Discussion Draft (May 15, 2013)
Financial Products Tax Reform Discussion
Draft (March 20, 2013)
How Welfare and Tax Benefits Can Discourage
Work (June 27, 2012)
Framework for Evaluating Certain Expiring
Tax Provisions (June 8, 2012)
Certain Expiring Tax Provisions (April 26,
2012)
International Tax Reform Discussion Draft
(November 17, 2011)
Energy Tax Policy and Tax Reform (September
22, 2011)
Tax Reform and Foreign Investment in the
United States (June 23, 2011)
Small Business and Tax Reform (March 3,
2011)
Subcommittee on Oversight
Back to School: A Review of Tax-Exempt
College and University Endowments (September 13, 2016)
Tax-Exempt Colleges and Universities:
Encouraging the Free Exchange of Ideas (March 2, 2016)
The Rising Costs of Higher Education and Tax
Policy (October 7, 2015)
The Department of Labor's Proposed Fiduciary
Rule (September 30, 2015)
Protecting Small Businesses from IRS Abuse
(February 11, 2015)
Internal Revenue Service's Colleges and
Universities Compliance Project (May 8, 2013)
Public Charity Organizational Issues,
Unrelated Business Income Tax, and the Revised Form 990
(July 25, 2012)
Tax Exempt Organizations (May 16, 2012)
II. EXPLANATION OF THE BILL
TITLE I--TAX REFORM FOR INDIVIDUALS
A. Simplification and Reform of Rates, Standard Deductions, and
Exemptions
1. Reduction and simplification of individual income tax rates (secs.
1001 and 1005 of the bill and sec. 1 of the Code)
PRESENT LAW
In general
To determine regular tax liability, an individual taxpayer
generally must apply the tax rate schedules (or the tax tables)
to his or her regular taxable income. The rate schedules are
broken into several ranges of income, known as income brackets,
and the marginal tax rate increases as a taxpayer's income
increases.
Tax rate schedules
Separate rate schedules apply based on an individual's
filing status. For 2017, the regular individual income tax rate
schedules are as follows:
TABLE 1.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2017\1\
------------------------------------------------------------------------
If taxable income is: Then income tax equals:
------------------------------------------------------------------------
Single Individuals
------------------------------------------------------------------------
Not over $9,325........................ 10% of the taxable income.
Over $9,325 but not over $37,950....... $932.50 plus 15% of the excess
over $9,325.
Over $37,950 but not over $91,900...... $5,226.25 plus 25% of the
excess over $37,950.
Over $91,900 but not over $191,650..... $18,713.75 plus 28% of the
excess over $91,900.
Over $191,650 but not over $416,700.... $46,643.75 plus 33% of the
excess over $191,650.
Over $416,700 but not over $418,400.... $120,910.25 plus 35% of the
excess over $416,700.
Over $418,400.......................... $121,505.25 plus 39.6% of the
excess over $418,400.
------------------------------------------------------------------------
Heads of Households
------------------------------------------------------------------------
Not over $13,350....................... 10% of the taxable income.
Over $13,350 but not over $50,800...... $1,335 plus 15% of the excess
over $13,350.
Over $50,800 but not over $131,200..... $6,952.50 plus 25% of the
excess over $50,800.
Over $131,200 but not over $212,500.... $27,052.50 plus 28% of the
excess over $131,200.
Over $212,500 but not over $416,700.... $49,816.50 plus 33% of the
excess over $212,500.
Over $416,700 but not over $444,550.... $117,202.50 plus 35% of the
excess over $416,700.
Over $444,550.......................... $126,950 plus 39.6% of the
excess over $444,550.
------------------------------------------------------------------------
Married Individuals Filing Joint Returns and Surviving Spouses
------------------------------------------------------------------------
Not over $18,650....................... 10% of the taxable income.
Over $18,650 but not over $75,900...... $1,865 plus 15% of the excess
over $18,650.
Over $75,900 but not over $153,100..... $10,452.50 plus 25% of the
excess over $75,900.
Over $153,100 but not over $233,350.... $29,752.50 plus 28% of the
excess over $153,100.
Over $233,350 but not over $416,700.... $52,222.50 plus 33% of the
excess over $233,350.
Over $416,700 but not over $470,700.... $112,728 plus 35% of the excess
over $416,700.
Over $470,700.......................... $131,628 plus 39.6% of the
excess over $470,700.
------------------------------------------------------------------------
Married Individuals Filing Separate Returns
------------------------------------------------------------------------
Not over $9,325........................ 10% of the taxable income.
Over $9,325 but not over $37,950....... $932.50 plus 15% of the excess
over $9,325.
Over $37,950 but not over $76,550...... $5,226.25 plus 25% of the
excess over $37,950.
Over $76,550 but not over $116,675..... $14,876.25 plus 28% of the
excess over $76,550.
Over $116,675 but not over $208,350.... $26,111.25 plus 33% of the
excess over $116,675.
Over $208,350 but not over $235,350.... $56,364 plus 35% of the excess
over $208,350.
Over $235,350.......................... $65,814 plus 39.6% of the
excess over $235,350.
------------------------------------------------------------------------
Estates and Trusts
------------------------------------------------------------------------
Not over $2,550........................ 15% of the taxable income.
Over $2,550 but not over $6,000........ $382.50 plus 25% of the excess
over $2,550.
Over $6,000 but not over $9,150........ $1,245 plus 28% of the excess
over $6,000.
Over $9,150 but not over $12,500....... $2,127 plus 33% of the excess
over $9,150.
Over $12,500........................... $3,232.50 plus 39.6% of the
excess over $12,500.
------------------------------------------------------------------------
\1\Rev. Proc. 2016-55, 2016-45 I.R.B. 707, sec. 3.01.
Unearned income of children
Special rules (generally referred to as the ``kiddie tax'')
apply to the net unearned income of certain children.\1\
Generally, the kiddie tax applies to a child if: (1) the child
has not reached the age of 19 by the close of the taxable year,
or the child is a full-time student under the age of 24, and
either of the child's parents is alive at such time; (2) the
child's unearned income exceeds $2,100 (for 2017); and (3) the
child does not file a joint return.\2\ The kiddie tax applies
regardless of whether the child may be claimed as a dependent
by either or both parents. For children above age 17, the
kiddie tax applies only to children whose earned income does
not exceed one-half of the amount of their support.
---------------------------------------------------------------------------
\1\Sec. 1(g). Unless otherwise stated, all section references are
to the Internal Revenue Code of 1986, as amended (the ``Code'').
\2\Sec. 1(g)(2).
---------------------------------------------------------------------------
Under these rules, the net unearned income of a child (for
2017, unearned income over $2,100) is taxed at the parents' tax
rates if the parents' tax rates are higher than the tax rates
of the child.\3\ The remainder of a child's taxable income
(i.e., earned income, plus unearned income up to $2,100 (for
2017), less the child's standard deduction) is taxed at the
child's rates, regardless of whether the kiddie tax applies to
the child. For these purposes, unearned income is income other
than wages, salaries, professional fees, other amounts received
as compensation for personal services actually rendered, and
distributions from qualified disability trusts.\4\ In general,
a child is eligible to use the preferential tax rates for
qualified dividends and capital gains.\5\
---------------------------------------------------------------------------
\3\Special rules apply for determining which parent's rate applies
where a joint return is not filed.
\4\Sec. 1(g)(4) and sec. 911(d)(2).
\5\Sec. 1(h).
---------------------------------------------------------------------------
The kiddie tax is calculated by computing the ``allocable
parental tax.'' This involves adding the net unearned income of
the child to the parent's income and then applying the parent's
tax rate. A child's ``net unearned income'' is the child's
unearned income less the sum of (1) the minimum standard
deduction allowed to dependents ($1,050 for 2017\6\), and (2)
the greater of (a) such minimum standard deduction amount or
(b) the amount of allowable itemized deductions that are
directly connected with the production of the unearned
income.\7\
---------------------------------------------------------------------------
\6\Sec. 3.02 of Rev. Proc. 2016-55, supra.
\7\Sec. 1(g)(4).
---------------------------------------------------------------------------
The allocable parental tax equals the hypothetical increase
in tax to the parent that results from adding the child's net
unearned income to the parent's taxable income.\8\ If the child
has net capital gains or qualified dividends, these items are
allocated to the parent's hypothetical taxable income according
to the ratio of net unearned income to the child's total
unearned income. If a parent has more than one child subject to
the kiddie tax, the net unearned income of all children is
combined, and a single kiddie tax is calculated. Each child is
then allocated a proportionate share of the hypothetical
increase, based upon the child's net unearned income relative
to the aggregate net unearned income of all of the parent's
children subject to the tax.
---------------------------------------------------------------------------
\8\Sec. 1(g)(3).
---------------------------------------------------------------------------
Generally, a child must file a separate return to report
his or her income.\9\ In such case, items on the parents'
return are not affected by the child's income, and the total
tax due from the child is the greater of:
---------------------------------------------------------------------------
\9\Sec. 1(g)(6). See Form 8615, Tax for Certain Children Who Have
Unearned Income.
---------------------------------------------------------------------------
1. The sum of (a) the tax payable by the child on the
child's earned income and unearned income up to $2,100
(for 2017), plus (b) the allocable parental tax on the
child's unearned income, or
2. The tax on the child's income without regard to
the kiddie tax provisions.\10\
---------------------------------------------------------------------------
\10\Sec. 1(g)(1).
---------------------------------------------------------------------------
Under certain circumstances, a parent may elect to report a
child's unearned income on the parent's return.\11\
---------------------------------------------------------------------------
\11\Sec. 1(g)(7).
---------------------------------------------------------------------------
Indexing tax provisions for inflation
Under present law, many parameters of the tax system are
adjusted for inflation to protect taxpayers from the effects of
rising prices. Most of the adjustments are based on annual
changes in the level of the Consumer Price Index for all Urban
Consumers (``CPI-U'').\12\ The CPI-U is an index that measures
prices paid by typical urban consumers on a broad range of
products, and is developed and published by the Department of
Labor.
---------------------------------------------------------------------------
\12\Sec. 1(f)(5).
---------------------------------------------------------------------------
Among the inflation-indexed tax parameters are the
following individual income tax amounts: (1) the regular income
tax brackets; (2) the basic standard deduction; (3) the
additional standard deduction for aged and blind; (4) the
personal exemption amount; (5) the thresholds for the overall
limitation on itemized deductions and the personal exemption
phase-out; (6) the phase-in and phase-out thresholds of the
earned income credit; (7) IRA contribution limits and
deductible amounts; and (8) the saver's credit.
Capital gains rates
In general
In the case of an individual, estate, or trust, any
adjusted net capital gain which otherwise would be taxed at the
10- or 15-percent rate is not taxed. Any adjusted net capital
gain which otherwise would be taxed at rates over 15-percent
and below 39.6 percent is taxed at a 15-percent rate. Any
adjusted net capital gain which otherwise would be taxed at a
39.6-percent rate is taxed at a 20-percent rate.
The unrecaptured section 1250 gain is taxed at a maximum
rate of 25 percent, and 28-percent rate gain is taxed at a
maximum rate of 28 percent. Any amount of unrecaptured section
1250 gain or 28-percent rate gain otherwise taxed at a 10- or
15-percent rate is taxed at the otherwise applicable rate.
In addition, a tax is imposed on net investment income in
the case of an individual, estate, or trust. In the case of an
individual, the tax is 3.8 percent of the lesser of net
investment income, which includes gains and dividends, or the
excess of modified adjusted gross income over the threshold
amount. The threshold amount is $250,000 in the case of a joint
return or surviving spouse, $125,000 in the case of a married
individual filing a separate return, and $200,000 in the case
of any other individual.
Definitions
Net capital gain
In general, gain or loss reflected in the value of an asset
is not recognized for income tax purposes until a taxpayer
disposes of the asset. On the sale or exchange of a capital
asset, any gain generally is included in income. Net capital
gain is the excess of the net long-term capital gain for the
taxable year over the net short-term capital loss for the year.
Gain or loss is treated as long-term if the asset is held for
more than one year.
A capital asset generally means any property except (1)
inventory, stock in trade, or property held primarily for sale
to customers in the ordinary course of the taxpayer's trade or
business, (2) depreciable or real property used in the
taxpayer's trade or business, (3) specified literary or
artistic property, (4) business accounts or notes receivable,
(5) certain U.S. publications, (6) certain commodity derivative
financial instruments, (7) hedging transactions, and (8)
business supplies. In addition, the net gain from the
disposition of certain property used in the taxpayer's trade or
business is treated as long-term capital gain. Gain from the
disposition of depreciable personal property is not treated as
capital gain to the extent of all previous depreciation
allowances. Gain from the disposition of depreciable real
property is generally not treated as capital gain to the extent
of the depreciation allowances in excess of the allowances
available under the straight-line method of depreciation.
Adjusted net capital gain
The ``adjusted net capital gain'' of an individual is the
net capital gain reduced (but not below zero) by the sum of the
28-percent rate gain and the unrecaptured section 1250 gain.
The net capital gain is reduced by the amount of gain that the
individual treats as investment income for purposes of
determining the investment interest limitation under section
163(d).
Qualified dividend income
Adjusted net capital gain is increased by the amount of
qualified dividend income.
A dividend is the distribution of property made by a
corporation to its shareholders out of its after-tax earnings
and profits. Qualified dividends generally includes dividends
received from domestic corporations and qualified foreign
corporations. The term ``qualified foreign corporation''
includes a foreign corporation that is eligible for the
benefits of a comprehensive income tax treaty with the United
States which the Treasury Department determines to be
satisfactory and which includes an exchange of information
program. In addition, a foreign corporation is treated as a
qualified foreign corporation for any dividend paid by the
corporation with respect to stock that is readily tradable on
an established securities market in the United States.
If a shareholder does not hold a share of stock for more
than 60 days during the 121-day period beginning 60 days before
the ex-dividend date (as measured under section 246(c)),
dividends received on the stock are not eligible for the
reduced rates. Also, the reduced rates are not available for
dividends to the extent that the taxpayer is obligated to make
related payments with respect to positions in substantially
similar or related property.
Dividends received from a corporation that is a passive
foreign investment company (as defined in section 1297) in
either the taxable year of the distribution, or the preceding
taxable year, are not qualified dividends.
A dividend is treated as investment income for purposes of
determining the amount of deductible investment interest only
if the taxpayer elects to treat the dividend as not eligible
for the reduced rates.
The amount of dividends qualifying for reduced rates that
may be paid by a regulated investment company (``RIC'') for any
taxable year in which the qualified dividend income received by
the RIC is less than 95 percent of its gross income (as
specially computed) may not exceed the sum of (1) the qualified
dividend income of the RIC for the taxable year and (2) the
amount of earnings and profits accumulated in a non-RIC taxable
year that were distributed by the RIC during the taxable year.
The amount of qualified dividend income that may be paid by
a real estate investment trust (``REIT'') for any taxable year
may not exceed the sum of (1) the qualified dividend income of
the REIT for the taxable year, (2) an amount equal to the
excess of the income subject to the taxes imposed by section
857(b)(1) and the regulations prescribed under section 337(d)
for the preceding taxable year over the amount of these taxes
for the preceding taxable year, and (3) the amount of earnings
and profits accumulated in a non-REIT taxable year that were
distributed by the REIT during the taxable year.
Dividends received from an organization that was exempt
from tax under section 501 or was a tax-exempt farmers'
cooperative in either the taxable year of the distribution or
the preceding taxable year; dividends received from a mutual
savings bank that received a deduction under section 591; or
deductible dividends paid on employer securities are not
qualified dividend income.
28-percent rate gain
The term ``28-percent rate gain'' means the excess of the
sum of the amount of net gain attributable to long-term capital
gains and losses from the sale or exchange of collectibles (as
defined in section 408(m) without regard to paragraph (3)
thereof) and the amount of gain equal to the additional amount
of gain that would be excluded from gross income under section
1202 (relating to certain small business stock) if the
percentage limitations of section 1202(a) did not apply, over
the sum of the net short-term capital loss for the taxable year
and any long-term capital loss carryover to the taxable year.
Unrecaptured section 1250 gain
``Unrecaptured section 1250 gain'' means any long-term
capital gain from the sale or exchange of section 1250 property
(i.e., depreciable real estate) held more than one year to the
extent of the gain that would have been treated as ordinary
income if section 1250 applied to all depreciation, reduced by
the net loss (if any) attributable to the items taken into
account in computing 28-percent rate gain. The amount of
unrecaptured section 1250 gain (before the reduction for the
net loss) attributable to the disposition of property to which
section 1231 (relating to certain property used in a trade or
business) applies may not exceed the net section 1231 gain for
the year.
REASONS FOR CHANGE
The Committee believes that changing the individual rate
structure by reducing the total number of rate brackets and the
size of some rate brackets creates a simpler and fairer Federal
income tax. The committee further believes that a tax system
with lower rates will allow taxpayers to keep more of their
earnings to spend on family needs and will contribute to
economic growth.
Under present law, the tax on the unearned income of
children depends on the income of the child, parents, and when
applicable, siblings. The Committee intends to simplify the
taxation of unearned income of children, while continuing to
minimize the benefit of tax-motivated income shifting, by
subjecting this unearned income to the rates applicable to
trusts.
The Committee believes that the cost-of-living adjustments
provided throughout the code can be improved by indexing with
the chained Consumer Price Index (``C-CPI-U''), which is
designed by the Bureau of Labor Statistics to be a closer
approximation of a cost-of-living index than other CPI
measures.
EXPLANATION OF PROVISION
Modification of rates
The provision replaces the individual income tax rate
structure with a new rate structure.
TABLE 2.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2018 UNDER THE
PROVISION
------------------------------------------------------------------------
If taxable income is: Then income tax equals:
------------------------------------------------------------------------
Single Individuals
------------------------------------------------------------------------
Not over $45,000....................... 12% of the taxable income.
Over $45,000 but not over $200,000..... $5,400 plus 25% of the excess
over $45,000.
Over $200,000 but not over $500,000.... $44,150 plus 35% of the excess
over $200,000.
Over $500,000.......................... $149,150 plus 39.6% of the
excess over $500,000.
------------------------------------------------------------------------
Heads of Households
------------------------------------------------------------------------
Not over $67,500....................... 12% of the taxable income.
Over $67,500 but not over $200,000..... $8,100 plus 25% of the excess
over $67,500.
Over $200,000 but not over $500,000.... $41,225 plus 35% of the excess
over $200,000.
Over $500,000.......................... $146,225 plus 39.6% of the
excess over $500,000.
------------------------------------------------------------------------
Married Individuals Filing Joint Returns and Surviving Spouses
------------------------------------------------------------------------
Not over $90,000....................... 12% of the taxable income.
Over $90,000 but not over $260,000..... $10,800 plus 25% of the excess
over $90,000.
Over $260,000 but not over $1,000,000.. $53,300 plus 35% of the excess
over $260,000.
Over $1,000,000........................ $312,300 plus 39.6% of the
excess over $1,000,000.
------------------------------------------------------------------------
Married Individuals Filing Separate Returns
------------------------------------------------------------------------
Not over $45,000....................... 12% of the taxable income.
Over $45,000 but not over $130,000..... $5,400 plus 25% of the excess
over $45,000.
Over $130,000 but not over $500,000.... $26,650 plus 35% of the excess
over $130,000.
Over $500,000.......................... $156,150 plus 39.6% of the
excess over $500,000.
------------------------------------------------------------------------
Estates and Trusts
------------------------------------------------------------------------
Not over $2,550........................ 12% of the taxable income.
Over $2,550 but not over $9,150........ $306 plus 25% of the excess
over $2,550.
Over $9,150 but not over $12,500....... $1,956 plus 35% of the excess
over $9,150.
Over $12,500........................... $3,128.50 plus 39.6% of the
excess over $12,500.
------------------------------------------------------------------------
The bracket thresholds are all adjusted for inflation and
then rounded to the next lowest multiple of $100 in future
years. Unlike present law (which uses a measure of the consumer
price index for all-urban consumers), the new inflation
adjustment uses the chained consumer price index for all-urban
consumers.
Phaseout of benefit of the 12-percent bracket
For taxpayers with adjusted gross income in excess of
$1,000,000 ($1,200,000 in the case of married taxpayers filing
jointly), the benefit of the 12-percent bracket, as measured
against the 39.6-percent bracket, is phased out at a rate of 6-
percent for taxpayers whose AGI is in excess of these amounts.
Thus, in the case of a married taxpayer filing a joint return,
if AGI is in excess of $1,200,000, the benefit of $24,840
(27.6-percent of $90,000) phases out over an income range of
$414,000. The phaseout thresholds are indexed for inflation.
Simplification of tax on unearned income of children
The provision simplifies the ``kiddie tax'' by effectively
applying the rates applicable to trusts, without the 12-percent
rate applicable to estates and trusts, to the net unearned
income of a child to whom the provision applies. Specifically,
the amount of taxable income taxed at a 12 percent rate may not
exceed the amount of taxable income in excess of the net
unearned income of the child. The amount of taxable income
taxed at rates below 35 percent may not exceed sum of (1) the
taxable income in excess of the net unearned income of the
child plus (2) the amount of taxable income not in excess of
the 35-percent bracket threshold applicable to a trust. The
amount of taxable income taxed at rates below 39.6 percent may
not exceed sum of (1) the taxable income in excess of the net
unearned income of the child plus (2) the amount of taxable
income not in excess of the 39.6-percent bracket threshold
applicable to a trust.
The following examples illustrate the application of the
provision:
Example 1.--Assume a child to whom the ``kiddie tax''
applies has $60,000 taxable income of which $50,000 is net
unearned income, which would otherwise be treated as ordinary
income, such as interest. Assume the 25-percent bracket
threshold amount for the taxable year is $45,000 for an
unmarried taxpayer, and the 35-percent and 39.6-percent bracket
thresholds for a trust are $9,150 and $12,500 respectively.
The child's 25-percent bracket threshold is $10,000
($60,000 less $50,000), 35-percent bracket threshold is $19,150
($10,000 plus $9,150), and 39.6-percent bracket threshold is
$22,500 ($10,000 plus $12,500). Thus, $10,000 is taxed at a 12-
percent rate, $9,150 at a 25 percent rate, $3,350 at a 35-
percent rate, and $37,500 at a 39.6-percent rate.
Example 2.--Assume the same facts as Example 1 except that
the amount of the child's net unearned income is $20,000
(rather than $50,000).
The child's 25-percent bracket threshold is $40,000
($60,000 less $50,000), 35-percent bracket threshold is $49,150
($40,000 plus $9,150), and the 39.6-percent bracket threshold
is $52,500 ($40,000 plus $12,500). Thus, $40,000 is taxed at a
10-percent rate, $9,150 at a 25-percent rate, $3,350 at a 35-
percent rate, and $7,500 at a 39.6-percent rate.
Replacing CPI-U with chained CPI-U
The provision requires the use of the chained CPI-U (``C-
CPI-U'') to index tax parameters currently indexed by the CPI-
U. The C-CPI-U, like the CPI-U, is a measure of the average
change over time in prices paid by urban consumers. It is
developed and published by the Department of Labor, but differs
from the CPI-U in accounting for the ability of individuals to
alter their consumption patterns in response to relative price
changes. The C-CPI-U accomplishes this by allowing for consumer
substitution between item categories in the market basket of
consumer goods and services that make up the index, while the
CPI-U only allows for modest substitution within item
categories. Values that are reset for 2018, such as the bracket
thresholds and standard deduction, are indexed by the C-CPI-U
in taxable years beginning after December 31, 2018. Other
indexed values in the code switch from CPI indexing to C-CPI-U
indexing going forward in taxable years beginning after
December 31, 2017.
Maximum rates on capital gains and qualified dividends
The provision generally retains the present-law maximum
rates on net capital gain and qualified dividends. The
breakpoints between the zero-and 15-percent rates (``15-percent
breakpoint'') and the 15-and 20-percent rates (``20-percent
breakpoint'') are the same amounts as the breakpoints under
present law, except the breakpoints are indexed using the C-
CPI-U in taxable years beginning after 2017. Thus, for 2018,
the 15-percent breakpoint is $77,200 for joint returns and
surviving spouses (one-half of this amount for married
taxpayers filing separately), $51,700 for heads of household,
$2,600 for estates and trusts, and $38,600 for other unmarried
individuals. The 20-percent breakpoint is $479,000 for joint
returns and surviving spouses (one-half of this amount for
married taxpayers filing separately), $452,400 for heads of
household, $12,700 for estates and trusts, and $425,800 for
other unmarried individuals.
Therefore, in the case of an individual (including an
estate or trust) with adjusted net capital gain, to the extent
the gain would not result in taxable income exceeding the 15-
percent breakpoint is not taxed. Any adjusted net capital gain
which would result in taxable income exceeding the 15-percent
breakpoint but not exceeding the 20-percent breakpoint is taxed
at 15 percent. The remaining adjusted net capital gain is taxed
at 20 percent.
As under present law, unrecaptured section 1250 gain
generally is taxed at a maximum rate of 25 percent, and 28-
percent rate gain is taxed at a maximum rate of 28 percent.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
2. Enhancement of standard deduction (sec. 1002 of the bill and sec. 63
of the Code)
PRESENT LAW
Under present law, an individual who does not elect to
itemize deductions may reduce his adjusted gross income
(``AGI'') by the amount of the applicable standard deduction in
arriving at his taxable income. The standard deduction is the
sum of the basic standard deduction and, if applicable, the
additional standard deduction. The basic standard deduction
varies depending upon a taxpayer's filing status. For 2017, the
amount of the basic standard deduction is $6,350 for single
individuals and married individuals filing separate returns,
$9,350 for heads of households, and $12,700 for married
individuals filing a joint return and surviving spouses. An
additional standard deduction is allowed with respect to any
individual who is elderly or blind.\13\ The amount of the
standard deduction is indexed annually for inflation.
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\13\For 2017, the additional amount is $1,250 for married taxpayers
(for each spouse meeting the applicable criterion) and surviving
spouses. The additional amount for single individuals and heads of
households is $1,550. An individual who qualifies as both blind and
elderly is entitled to two additional standard educations, for a total
additional amount (for 2017) of $2,500 or $3,100, as applicable.
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In the case of a dependent for whom a deduction for a
personal exemption is allowed to another taxpayer, the standard
deduction may not exceed the greater of (i) $1,050 (in 2017) or
(ii) the sum of $350 (in 2017) plus the individual's earned
income.
REASONS FOR CHANGE
The Committee believes that consolidating the basic
standard deduction, additional standard deduction, personal
exemption, and other tax benefits for taxpayer and spouse into
a larger standard deduction simplifies the tax code while
allowing a minimum level of income to be exempt from Federal
income taxation.
EXPLANATION OF PROVISION
The provision increases the standard deduction for
individuals across all filing statuses. Under the provision,
the amount of the standard deduction is $24,400 for married
individuals filing a joint return, $18,300 for head-of-
household filers, and $12,200 for all other taxpayers. The
amount of the standard deduction is indexed for inflation using
the chained consumer price index for all-urban consumers for
taxable years beginning after December 31, 2019.\14\
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\14\Thus, the standard deduction is the same for 2018 and 2019.
---------------------------------------------------------------------------
The provision eliminates the additional standard deduction
for the aged and the blind.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
3. Repeal of deduction for personal exemptions (sec. 1003 of the bill
and secs. 151-153 of the Code)
PRESENT LAW
Under present law, in determining taxable income, an
individual reduces AGI by any personal exemption deductions and
either the applicable standard deduction or his or her itemized
deductions. Personal exemptions generally are allowed for the
taxpayer, his or her spouse, and any dependents. For 2017, the
amount deductible for each personal exemption is $4,050. This
amount is indexed annually for inflation. The personal
exemption amount is phased out in the case of an individual
with AGI in excess of $313,800 for taxpayers filing jointly,
$287,650 for heads of household and $261,500 for all other
filers. In addition, no personal exemption is allowed in the
case of a dependent if a deduction is allowed to another
taxpayer.
Withholding rules
Under present law, the amount of tax required to be
withheld by employers from a taxpayer's wages is based in part
on the number of withholding exemptions a taxpayer claims on
his Form W-4. An employee is entitled to the following
exemptions: (1) an exemption for himself, unless he allowed to
be claimed as a dependent of another person; (2) an exemption
to which the employee's spouse would be entitled, if that
spouse does not file a Form W-4 for that taxable year claiming
an exemption described in (1); (3) an exemption for each
individual who is a dependent (but only if the employee's
spouse has not also claimed such a withholding exemption on a
Form W-4); (4) additional withholding allowances (taking into
account estimated itemized deductions, estimated tax credits,
and additional deductions as provided by the Secretary of the
Treasury); and (5) a standard deduction allowance.
Filing requirements
Under present law, an unmarried individual is required to
file a tax return for the taxable year if in that year the
individual had income which equals or exceeds the exemption
amount plus the standard deduction applicable to such
individual (i.e., single, head of household, or surviving
spouse). An individual entitled to file a joint return is
required to do so unless that individual's gross income, when
combined with the individual's spouse's gross income for the
taxable year, is less than the sum of twice the exemption
amount plus the basic standard deduction applicable to a joint
return, provided that such individual and his spouse, at the
close of the taxable year, had the same household as their
home.
TRUSTS AND ESTATES
In lieu of the deduction for personal exemptions, an estate
is allowed a deduction of $600. A trust is allowed a deduction
of $100; $300 if required to distribute all its income
currently; and an amount equal to the personal exemption of an
individual in the case of a qualified disability trust.
REASONS FOR CHANGE
The Committee believes that consolidating the basic
standard deduction, additional standard deduction, personal
exemption, and other tax benefits for taxpayer and spouse into
a larger standard deduction simplifies the tax code while
allowing a minimum level of income to be exempt from Federal
income taxation.
EXPLANATION OF PROVISION
The provision repeals the deduction for personal
exemptions.
The provision modifies the requirements for those who are
required to file a tax return. In the case of an individual who
is not married, such individual is required to file a tax
return if the taxpayer's gross income for the taxable year
exceeds the applicable standard deduction. Married individuals
are required to file a return if that individual's gross
income, when combined with the individual's spouse's gross
income, for the taxable year is more than the standard
deduction applicable to a joint return, provided that: (i) such
individual and his spouse, at the close of the taxable year,
had the same household as their home; (ii) the individual's
spouse does not make a separate return; and (iii) neither the
individual nor his spouse is a dependent of another taxpayer
who has income (other than earned income) in excess of $500
(indexed for inflation).
The provision repeals the enhanced deduction for qualified
disability trusts.
Under the provision, the Secretary of the Treasury is to
develop rules to determine the amount of tax required to be
withheld by employers from a taxpayer's wages.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
4. Maximum rate on business income of individuals (sec. 1004 of the
bill and new sec. 4 of the Code)
PRESENT LAW
Individual income tax rates
To determine regular tax liability, an individual taxpayer
generally must apply the tax rate schedules (or the tax tables)
to his or her regular taxable income. The rate schedules are
broken into several ranges of income, known as income brackets,
and the marginal tax rate increases as a taxpayer's income
increases. Separate rate schedules apply based on an
individual's filing status (i.e, single, head of household,
married filing jointly, or married filing separately). For
2017, the regular individual income tax rate schedule provides
rates of 10, 15, 25, 28, 33, 35, and 39.6 percent.
Under present law, no separate or different tax rate
schedule applies to business income of individuals from
partnerships, S corporations, or sole proprietorships.
Partnerships
In general
Partnerships generally are treated for Federal income tax
purposes as pass-through entities not subject to tax at the
entity level.\15\ Items of income (including tax-exempt
income), gain, loss, deduction, and credit of the partnership
are taken into account by the partners in computing their
income tax liability (based on the partnership's method of
accounting and regardless of whether the income is distributed
to the partners).\16\ A partner's deduction for partnership
losses is limited to the partner's adjusted basis in its
partnership interest.\17\ Losses not allowed as a result of
that limitation generally are carried forward to the next year.
A partner's adjusted basis in the partnership interest
generally equals the sum of (1) the partner's capital
contributions to the partnership, (2) the partner's
distributive share of partnership income, and (3) the partner's
share of partnership liabilities, less (1) the partner's
distributive share of losses allowed as a deduction and certain
nondeductible expenditures, and (2) any partnership
distributions to the partner.\18\ Partners generally may
receive distributions of partnership property without
recognition of gain or loss, subject to some exceptions.\19\
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\15\Sec. 701.
\16\Sec. 702(a).
\17\Sec. 704(d). In addition, passive loss and at-risk limitations
limit the extent to which certain types of income can be offset by
partnership deductions (sections 469 and 465). These limitations do not
apply to corporate partners (except certain closely-held corporations)
and may not be important to individual partners who have partner-level
passive income from other investments.
\18\Sec. 705.
\19\Sec. 731. Gain or loss may nevertheless be recognized, for
example, on the distribution of money or marketable securities,
distributions with respect to contributed property, or in the case of
disproportionate distributions (which can result in ordinary income).
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Partnerships may allocate items of income, gain, loss,
deduction, and credit among the partners, provided the
allocations have substantial economic effect.\20\ In general,
an allocation has substantial economic effect to the extent the
partner to which the allocation is made receives the economic
benefit or bears the economic burden of such allocation and the
allocation substantially affects the dollar amounts to be
received by the partners from the partnership independent of
tax consequences.\21\
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\20\Sec. 704(b)(2).
\21\Treas. Reg. sec. 1.704-1(b)(2).
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Limited liability companies
State laws of every State provide for limited liability
companies\22\ (``LLCs''), which are neither partnerships nor
corporations under applicable State law, but which are
generally treated as partnerships for Federal tax purposes.\23\
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\22\The first LLC statute was enacted in Wyoming in 1977. All
States (and the District of Columbia) now have an LLC statute, though
the tax treatment of LLCs for State tax purposes may differ.
\23\Under Treasury regulations promulgated in 1996, any domestic
nonpublicly traded unincorporated entity with two or more members
generally is treated as a partnership for federal income tax purposes,
while any single-member domestic unincorporated entity generally is
treated as disregarded for Federal income tax purposes (i.e., treated
as not separate from its owner). Instead of the applicable default
treatment, however, an LLC may elect to betreate as a corporation for
Federal income tax purposes. Treas. Reg. sec. 301.7701-3. These are
known as the ``check-the-box'' regulations.
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Publicly traded partnerships
Under present law, a publicly traded partnership generally
is treated as a corporation for Federal tax purposes.\24\ For
this purpose, a publicly traded partnership means any
partnership if interests in the partnership are traded on an
established securities market or interests in the partnership
are readily tradable on a secondary market (or the substantial
equivalent thereof).\25\
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\24\Sec. 7704(a). The reasons for change stated by the Ways and
Means Committee when the provision was enacted provide in part: ``[t]he
recent proliferation of publicly traded partnerships has come to the
committee's attention. The growth in such partnerships has caused
concern about long-term erosion of the corporate tax base.'' H.R. Rep.
100-391, Omnibus Reconciliation Act of 1987, October 26, 1987, p. 1065.
\25\Sec. 7704(b).
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An exception from corporate treatment is provided for
certain publicly traded partnerships, 90 percent or more of
whose gross income is qualifying income.\26\
---------------------------------------------------------------------------
\26\Sec. 7704(c)(2). Qualifying income is defined to include
interest, dividends, and gains from the disposition of a capital asset
(or of property described in section 1231(b)) that is held for the
production of income that is qualifying income. Sec. 7704(d).
Qualifying income also includes rents from real property, gains from
the sale or other disposition of real property, and income and gains
from the exploration, development, mining or production, processing,
refining, transportation (including pipelines transporting gas, oil, or
products thereof), or the marketing of any mineral or natural resource
(including fertilizer, geothermal energy, and timber), industrial
source carbon dioxide, or the transportation or storage of certain fuel
mixtures, alternative fuel, alcohol fuel, or biodiesel fuel. It also
includes income and gains from commodities (not described in section
1221(a)(1)) or futures, options, or forward contracts with respect to
such commodities (including foreign currency transactions of a
commodity pool) where a principal activity of the partnership is the
buying and selling of such commodities, futures, options, or forward
contracts. However, the exception for partnerships with qualifying
income does not apply to any partnership resembling a mutual fund
(i.e., that would be described in section 851(a) if it were a domestic
corporation), which includes a corporation registered under the
Investment Company Act of 1940 (Pub. L. No. 76-768 (1940)) as a
management company or unit investment trust (sec. 7704(c)(3)).
---------------------------------------------------------------------------
S corporations
Generally
For Federal income tax purposes, an S corporation\27\
generally is not subject to tax at the corporate level.\28\
Items of income (including tax-exempt income), gain, loss,
deduction, and credit of the S corporation are taken into
account by the S corporation shareholders in computing their
income tax liabilities (based on the S corporation's method of
accounting and regardless of whether the income is distributed
to the shareholders). A shareholder's deduction for corporate
losses is limited to the sum of the shareholder's adjusted
basis in its S corporation stock and the indebtedness of the S
corporation to such shareholder. Losses not allowed as a result
of that limitation generally are carried forward to the next
year. A shareholder's adjusted basis in the S corporation stock
generally equals the sum of (1) the shareholder's capital
contributions to the S corporation and (2) the shareholder's
pro rata share of S corporation income, less (1) the
shareholder's pro rata share of losses allowed as a deduction
and certain nondeductible expenditures, and (2) any S
corporation distributions to the shareholder.\29\
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\27\An S corporation is so named because its Federal tax treatment
is governed by subchapter S of the Code.
\28\Secs. 1363 and 1366.
\29\Sec. 1367. If any amount that would reduce the adjusted basis
of a shareholder's S corporation stock exceeds the amount that would
reduce that basis to zero, the excess is applied to reduce (but not
below zero) the shareholder's basis in any indebtedness of the S
corporation to the shareholder. If, after a reduction in the basis of
such indebtedness, there is an event that would increase the adjusted
basis of the shareholder's S corporation stock, such increase is
instead first applied to restore the reduction in the basis of the
shareholder's indebtedness. Sec. 1367(b)(2).
---------------------------------------------------------------------------
To be eligible to elect S corporation status, a corporation
may not have more than 100 shareholders and may not have more
than one class of stock.\30\ Only individuals (other than
nonresident aliens), certain tax-exempt organizations, and
certain trusts and estates are permitted shareholders of an S
corporation. A corporation may elect S corporation status only
with the consent of all of its shareholders, and may terminate
its election with the consent of shareholders holding more than
50 percent of the stock.\31\ Although there are limitations on
the types of shareholders and stock structure an S corporation
may have, businesses organized as S corporations may be as
large as those organized as C corporations or partnerships.
Certain corporations may not elect S corporation status,
including financial institutions using the reserve method of
accounting for bad debts and insurance companies subject to tax
under subchapter L.\32\
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\30\Sec. 1361. For this purpose, a husband and wife and all members
of a family are treated as one shareholder. Sec. 1361(c)(1).
\31\Sec. 1362.
\32\Sec. 1361(b)(2).
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In general, an S corporation shareholder is not subject to
tax on corporate distributions unless the distributions exceed
the shareholder's basis in the stock of the corporation.
S corporations that were previously C corporations
There are two principal exceptions to the general pass-
through treatment of S corporations. Both are applicable only
if the S corporation was previously a C corporation. The first
applies when the C corporation had appreciated assets,\33\ and
the second applies when the C corporation had accumulated
earnings and profits.\34\
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\33\Sec. 1374. The period was seven years for taxable years
beginning in 2009 and 2010, and five years for taxable years beginning
in 2011, 2012, 2013, and 2014. If a C corporation elects to be an S
corporation (or transfers assets to an S corporation in a carryover
basis transaction), certain net built-in gains that are attributable to
the period in which it was a C corporation, and that are recognized
during the first five years in which the former C corporation is an S
corporation, are subject to corporate-level tax.
\34\Sec. 1375. An S corporation with accumulated earnings and
profits is subject to corporate tax on excess net passive investment
income (but not in excess of its taxable income, subject to certain
adjustments), if more than 25 percent of its gross receipts for the
year are passive investment income. Subchapter C earnings and profits
generally refers to the earnings of the corporation prior to its
subchapter S election which would have been taxable as dividends if
distributed to shareholders by the corporation prior to its subchapter
S election. If the S corporation continues to have C corporation
earnings and profits and has gross receipts more than 25 percent of
which are passive investment income in each year for three consecutive
years, the S corporation election is automatically terminated. Sec.
1362(d)(3). Further, while an S corporation shareholder generally is
not subject to tax on corporate distributions unless the distributions
exceed the shareholder's basis in the stock of the corporation,
distributions from an S corporation that was formerly a C corporation
generally are taxed to shareholders as dividends to the extent of the S
corporation's accumulated earnings and profits. Sec. 1368.
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Sole proprietorships
Unlike a C corporation, partnership, or S corporation, a
business conducted as a sole proprietorship is not treated as
an entity distinct from its owner for Federal income tax
purposes.\35\ Rather, the business owner is taxed directly on
business income, and files Schedule C (sole proprietorships
generally), Schedule E (rental real estate and royalties), or
Schedule F (farms) with his or her individual tax return.
Furthermore, transfer of a sole proprietorship is treated as a
transfer of each individual asset of the business. Nonetheless,
a sole proprietorship is treated as an entity separate from its
owner for employment tax purposes,\36\ for certain excise
taxes,\37\ and certain information reporting requirements.\38\
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\35\A single-member unincorporated entity is disregarded for
Federal income tax purposes, unless its owner elects to be treated as a
C corporation. Treas. Reg. sec. 301.7701-3(b)(1)(ii). Sole
proprietorships often are conducted through legal entities for nontax
reasons. While sole proprietorships generally may have no more than one
owner, a married couple that files a joint return and jointly owns and
operates a business may elect to have that business treated as a sole
proprietorship under section 761(f).
\36\Treas. Reg. sec. 301.7701-2(c)(2)(iv).
\37\Treas. Reg. sec. 301.7701-2(c)(2)(v).
\38\Treas. Reg. sec. 301.7701-2(c)(2)(vi).
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REASONS FOR CHANGE
The Committee believes that a reduction in the corporate
income tax rate to 20 percent provided by the bill does not
completely address the income tax rate on business income. Many
businesses are conducted in the form of passthrough entities,
namely partnerships and S corporations. Further, businesses are
frequently conducted as sole proprietorships, rather than
through a legal entity that is treated for tax purposes as
separate from the individual who owns the business. The income
of businesses conducted in passthrough form or in sole
proprietorship form is subject to tax in the hands of their
individual owners at the income tax rates of individuals. To
treat corporate and noncorporate business income more similarly
under the income tax, the bill provides a maximum rate of 25
percent on qualified business income of individuals.
EXPLANATION OF PROVISION
Qualified business income of an individual from a
partnership, S corporation, or sole proprietorship is subject
to Federal income tax at a rate no higher than 25 percent.
Qualified business income means, generally, all net business
income from a passive business activity plus the capital
percentage of net business income from an active business
activity, reduced by carryover business losses and by certain
net business losses from the current year, as determined under
the provision.
Determination of rate
25-percent rate
The provision provides that an individual's tax is reduced
to reflect a maximum rate of 25 percent on qualified business
income. Qualified business income includes the capital
percentage, generally 30 percent, of net business income. The
percentage differs in the case of specified service activities
or in the case of a taxpayer election to prove out a different
percentage.
Taxable income (reduced by net capital gain) that exceeds
the maximum dollar amount for the 25-percent rate bracket
applicable to the taxpayer, and that exceeds qualified business
income, is subject to tax in the next higher brackets.
The provision provides that a 25-percent tax rate applies
generally to dividends received from a real estate investment
trust (other than any portion that is a capital gain dividend
or a qualified dividend), and applies generally to dividends
that are includable in gross income from certain cooperatives.
Nine-percent rate
A special rule provides a reduced tax rate of 11, 10, or
nine percent in the case of an individual's qualified active
business income below an indexed threshold of $75,000 (in the
case of a joint return or a surviving spouse) (the ``nine-
percent bracket threshold amount''). The indexed $75,000
threshold is three quarters of that amount for individuals
filing as head of household and half that amount for other
individuals. The reduced rate is not available to estates and
trusts.
The reduced rate is phased in. The reduced rate is 11
percent (that is, one percentage point below the 12 percent
rate) for taxable years beginning in 2018 and 2019, and is 10
percent (that is, two percentage points below the 12 percent
rate) for taxable years beginning in 2020 and 2021. For taxable
years beginning in 2022 and thereafter the reduced rate is nine
percent (that is, three percentage points below the 12 percent
rate).
The reduced tax rate applies to the least of three amounts,
the taxpayer's: (1) qualified active business income, (2)
taxable income reduced by net capital gain, or (3) nine-percent
bracket threshold amount (described above). Qualified active
business income for a taxable year means the excess of the
taxpayer's net business income from any active business
activity over his or her net business loss from any active
business activity. An active business activity is an activity
that involves the conduct of any trade or business and that is
not a passive activity for purposes of the passive loss rules
of section 469 determined without regard to paragraphs (2) and
(6)(B) of section 469(c) (that is, generally, the taxpayer
materially participates in the trade or business activity).
Qualified active business income includes income from any trade
or business activity, including service businesses. No capital
percentage limitation applies in determining qualified active
business income.
A phaseout applies to the amount subject to the 11-, 10-,
or nine-percent rate. The amount taxed at one of these rates is
reduced by the excess of taxable income over an indexed
applicable threshold amount, $150,000 in the case of married
individuals filing jointly. The applicable threshold amount is
three quarters of that amount for individuals filing as head of
household and half that amount for other individuals.
For example, assume that in 2022, an individual (married
filing jointly) has $70,000 of qualified active business income
and $40,000 of other income, resulting in taxable income of
$110,000. The $70,000 of qualified active business income is
subject to tax at nine percent. Alternatively, assume that in
2022, another individual has $160,000 of qualified active
business income and $10,000 of other income resulting in
taxable income of $170,000. The excess of the taxpayer's
$170,000 taxable income over the $150,000 applicable threshold
amount is $20,000. Taking into account the phaseout, this
$20,000 amount reduces the $75,000 amount that, absent the
phaseout, would be subject to the nine-percent rate, reversing
the benefit of the nine-percent rate for $20,000 of the
taxpayer's qualified active business income. The effect is that
$55,000 is subject to the nine percent rate.
Qualified business income
Qualified business income is defined as the sum of 100
percent of any net business income derived from any passive
business activity plus the capital percentage of net business
income derived from any active business activity, reduced by
the sum of 100 percent of any net business loss derived from
any passive business activity, 30 percent (except as otherwise
provided under rules for determining the capital percentage,
below) of any net business loss derived from any active
business activity, and any carryover business loss determined
for the preceding taxable year. Qualified business income does
not include income from a business activity that exceeds these
percentages.
Net business income or loss
To determine qualified business income requires a
calculation of net business income or loss from each of an
individual's passive business activities and active business
activities. Net business income or loss is determined at the
activity level, that is, separately for each business activity.
Net business income is determined by appropriately netting
items of income, gain, deduction and loss with respect to the
business activity. The determination takes into account these
amounts only to the extent the amount affects the determination
of taxable income for the year. For example, if in a taxable
year, a business activity has 100 of ordinary income from
inventory sales, and makes an expenditure of 25 that is
required to be capitalized and amortized over 5 years under
applicable tax rules, the net business income is 100 minus 5
(current-year ordinary amortization deduction), or 95. The net
business income is not reduced by the entire amount of the
capital expenditure, only by the amount deductible in
determining taxable income for the year.
Net business income or loss includes the amounts received
by the individual taxpayer as wages, director's fees,
guaranteed payments and amounts received from a partnership
other than in the individual's capacity as a partner, that are
properly attributable to a business activity. These amounts are
taken into account as an item of income with respect to the
business activity. For example, if an individual shareholder of
an S corporation engaged in a business activity is paid wages
or director's fees by the S corporation, the amount of wages or
director's fees is added in determining net business or loss
with respect to the business activity. This rule is intended to
ensure that the amount eligible for the 25-percent tax rate is
not erroneously reduced because of compensation for services or
other specified amounts that are paid separately (or treated as
separate) from the individual's distributive share of
passthrough income.
Net business income or loss does not include specified
investment-related income, deductions, or loss. Specifically,
net business income does not include (1) any item taken into
account in determining net long-term capital gain or net long-
term capital loss, (2) dividends, income equivalent to a
dividend, or payments in lieu of dividends, (3) interest income
and income equivalent to interest, other than that which is
properly allocable to a trade or business, (4) the excess of
gain over loss from commodities transactions, other than those
entered into in the normal course of the trade or business or
with respect to stock in trade or property held primarily for
sale to customers in the ordinary course of the trade or
business, property used in the trade or business, or supplies
regularly used or consumed in the trade or business, (5) the
excess of foreign currency gains over foreign currency losses
from section 988 transactions, other than transactions directly
related to the business needs of the business activity, (6) net
income from notional principal contracts, other than clearly
identified hedging transactions that are treated as ordinary
(i.e., not treated as capital assets), and (7) any amount
received from an annuity that is not used in the trade or
business of the business activity. Net business income does not
include any item of deduction or loss properly allocable to
such income.
Carryover business loss
The carryover business loss from the preceding taxable year
reduces qualified business income in the taxable year. The
carryover business loss is the excess of (1) the sum of 100
percent of any net business loss derived from any passive
business activity, 30 percent (except as otherwise provided
under rules for determining the capital percentage, below) of
any net business loss derived from any active business
activity, and any carryover business loss determined for the
preceding taxable year, over (2) the sum of 100 percent of any
net business income derived from any passive business activity
plus the capital percentage of net business income derived from
any active business activity. There is no time limit on
carryover business losses. For example, an individual has two
business activities that give rise to a net business loss of 3
and 4, respectively, in year one, giving rise to a carryover
business loss of 7 in year two. If in year two the two business
activities each give rise to net business income of 2, a
carryover business loss of 3 is carried to year three (that is,
- (2 + 2) = ).
Passive business activity and active business activity
A business activity means an activity that involves the
conduct of any trade or business. A taxpayer's activities
include those conducted through partnerships, S corporations,
and sole proprietorships. An activity has the same meaning as
under the present-law passive loss rules (section 469). As
provided in regulations under those rules, a taxpayer may use
any reasonable method of applying the relevant facts and
circumstances in grouping activities together or as separate
activities (through rental activities generally may not be
grouped with other activities unless together they constitute
an appropriate economic unit, and grouping real property
rentals with personal property rentals is not permitted). It is
intended that the activity grouping the taxpayer has selected
under the passive loss rules is required to be used for
purposes of the passthrough rate rules. For example, an
individual taxpayer has an interest in a bakery and a movie
theater in Baltimore, and a bakery and a movie theatre in
Philadelphia. For purposes of the passive loss rules, the
taxpayer has grouped them as two activities, a bakery activity
and a movie theatre activity. The taxpayer must group them the
same way, that is as two activities, a bakery activity and a
movie theatre activity, for purposes of rules of this
provision.
Regulatory authority is provided to require or permit
grouping as one or as multiple activities in particular
circumstances, in the case of specified services activities
that would be treated as a single employer under broad related
party rules of present law.
A passive business activity generally has the same meaning
as a passive activity under the present-law passive loss rules.
However, for this purpose, a passive business activity is not
defined to exclude a working interest in any oil or gas
property that the taxpayer holds directly or through an entity
that does not limit the taxpayer's liability. Rather, whether
the taxpayer materially participates in the activity is
relevant. Further, for this purpose, a passive business
activity does not include an activity in connection with a
trade or business or in connection with the production of
income.
An active business activity is an activity that involves
the conduct of any trade or business and that is not a passive
activity. For example, if an individual has a partnership
interest in a manufacturing business and materially
participates in the manufacturing business, it is considered an
active business activity of the individual.
Capital percentage
The capital percentage is the percentage of net business
income from an active business activity that is included in
qualified business income subject to Federal income tax at a
rate no higher than 25 percent.
In general, the capital percentage is 30 percent, except as
provided in the case of application of an increased percentage
for capital-intensive business activities, in the case of
specified service activities, and in the case of application of
the rule for capital-intensive specified service activities.
The capital percentage is reduced if the portion of net
business income represented by the sum of wages, director's
fees, guaranteed payments and amounts received from a
partnership other than in the individual's capacity as a
partner, that are properly attributable to a business activity
exceeds the difference between 100 percent and the capital
percentage. For example, if net business income from an
individual's active business activity conducted through an S
corporation is 100, including 75 of wages that the S
corporation pays the individual, the otherwise applicable
capital percentage is reduced from 30 percent to 25 percent.
Increased percentage for capital-intensive business
activities.--A taxpayer may elect the application of an
increased percentage with respect to any active business
activity other than a specified service activity (described
below). The election applies for the taxable year it is made
and each of the next four taxable years. The election is to be
made no later than the due date (including extensions) of the
return for the taxable year made, and is irrevocable. The
percentage under the election is the applicable percentage
(described below) for the five taxable years of the election.
Specified service activities.--In the case of an active
business activity that is a specified service activity,
generally the capital percentage is 0 and the percentage of any
net business loss from the specified service activity that is
taken into account as qualified business income is 0 percent.
A specified service activity means any trade or business
activity involving the performance of services in the fields of
health, law, engineering, architecture, accounting, actuarial
science, performing arts, consulting, athletics, financial
services, brokerage services, any trade or business where the
principal asset of such trade or business is the reputation or
skill of one or more of its employees, or investing, trading,
or dealing in securities, partnership interests, or
commodities. For this purpose a security and a commodity have
the meanings provided in the rules for the mark-to-market
accounting method for dealers in securities (sections 475(c)(2)
and 475(e)(2), respectively).
Capital-intensive specified service activities.--A taxpayer
may elect the application of an exception with respect to any
active business activity that is specified service activity,
provided the applicable percentage (described below) for the
taxable year is at least 10 percent. If the election is validly
made, the capital percentage and the percentage of net business
loss with respect to the activity are not 0 percent, but
rather, the applicable percentage for the taxable year.
Calculation of applicable percentage.--The applicable
percentage is the percentage applied in lieu of the capital
percentage in the case of either of the foregoing elections.
The applicable percentage (not the capital percentage) then
determines the portion of the net business income or loss from
the activity for the taxable year that is taken into account in
determining qualified business income subject to Federal income
tax at a rate no higher than 25 percent.
The applicable percentage is determined by dividing (1) the
specified return on capital for the activity for the taxable
year, by (2) the taxpayer's net business income derived from
that activity for that taxable year. The specified return on
capital for any active business activity is determined by
multiplying a deemed rate of return, the short-term AFR plus 7
percentage points, times the asset balance for the activity for
the taxable year, and reducing the product by interest expense
deducted with respect to the activity for the taxable year. The
asset balance for this purpose is the adjusted basis of
property used in connection with the activity as of the end of
the taxable year, but without taking account of basis
adjustments for bonus depreciation under section 168(k) or
expensing under section 179. In the case of an active business
activity conducted through a partnership or S corporation, the
taxpayer takes into account his distributive share of the asset
balance of the partnership's or S corporation's property used
in connection with the activity. Regulatory authority is
provided to ensure that in determining asset balance, no amount
is taken into account for more than one activity.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017. A transition rule provides that for
fiscal year taxpayers whose taxable year includes December 31,
2017, a proportional benefit of the reduced rate under the
provision is allowed for the period beginning January 1, 2018,
and ending on the day before the beginning of the taxable year
beginning after December 31, 2017.
B. Simplification and Reform of Family and Individual Tax Credits
1. Enhancement of child tax credit and new family tax credit (sec. 1101
of the bill and sec. 24 of the Code)
PRESENT LAW
An individual may claim a tax credit for each qualifying
child under the age of 17. The amount of the credit per child
is $1,000. A child who is not a citizen, national, or resident
of the United States cannot be a qualifying child.
The aggregate amount of child credits that may be claimed
is phased out for individuals with income over certain
threshold amounts. Specifically, the otherwise allowable child
tax credit is reduced by $50 for each $1,000 (or fraction
thereof) of modified adjusted gross income (``AGI'') over
$75,000 for single individuals or heads of households, $110,000
for married individuals filing joint returns, and $55,000 for
married individuals filing separate returns. For purposes of
this limitation, modified AGI includes certain otherwise
excludable income earned by U.S. citizens or residents living
abroad or in certain U.S. territories.
The credit is allowable against both the regular tax and
the alternative minimum tax (``AMT''). To the extent the child
credit exceeds the taxpayer's tax liability, the taxpayer is
eligible for a refundable credit\39\ (the ``additional child
tax credit'') equal to 15 percent of earned income in excess of
$3,000 (the ``earned income'' formula).
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\39\The refundable credit may not exceed the maximum credit per
child of $1,000.
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Families with three or more children may determine the
additional child tax credit using the ``alternative formula,''
if this results in a larger credit than determined under the
earned income formula. Under the alternative formula, the
additional child tax credit equals the amount by which the
taxpayer's Social Security taxes exceed the taxpayer's earned
income credit (``EIC'').
Earned income is defined as the sum of wages, salaries,
tips, and other taxable employee compensation plus net self-
employment earnings. At the taxpayer's election, combat pay may
be treated as earned income for these purposes. Unlike the EIC,
which also includes the preceding items in its definition of
earned income, the additional child tax credit is based only on
earned income to the extent it is included in computing taxable
income. For example, some ministers' parsonage allowances are
considered self-employment income, and thus are considered
earned income for purposes of computing the EIC, but the
allowances are excluded from gross income for individual income
tax purposes, and thus are not considered earned income for
purposes of the additional child tax credit since the income is
not included in taxable income.
Any credit or refund allowed or made to an individual under
this provision (including to any resident of a U.S. possession)
is not taken into account as income and is not be taken into
account as resources for the month of receipt and the following
two months for purposes of determining eligibility of such
individual or any other individual for benefits or assistance,
or the amount or extent of benefits or assistance, under any
Federal program or under any State or local program financed in
whole or in part with Federal funds.
REASONS FOR CHANGE
The Committee believes that it is important to provide an
increased tax benefit for families raising children, as well as
to ensure that all members of a household are accounted for in
determining families' ability to pay income tax. The Committee
believes that an expanded child tax credit and a new family tax
credit are an equitable means of achieving this goal.
EXPLANATION OF PROVISION
The provision expands the child tax credit into a new
family tax credit. The family credit consists of a $1,600
credit per qualifying child under the age of 17, and a $300
credit for each of the taxpayer (both spouses in the case of
married taxpayers filing a joint return) and each dependent of
the taxpayer who is not a qualifying child under age 17.
The provision generally retains the present-law definition
of dependent. However, under the provision, a qualifying child
is eligible for the $1,600 credit only if such child is a
citizen or national of the United States.
The family credit phases out at AGI of $230,000 for married
taxpayers filing joint returns and $115,000 for other
individuals. The credit is refundable under rules similar to
the present law additional child tax credit. That is, to the
extent the credit exceeds the taxpayer's tax liability, the
taxpayer is eligible for a refundable credit equal to 15
percent of earned income in excess of $3,000.\40\ The
refundable credit is limited to $1,000 times the number of
qualifying children under the age of 17 claimed on the return.
This $1,000 per child dollar limitation is indexed for
inflation, with a base year of 2017, rounding up to the nearest
$100. Accordingly, in 2018 the limitation will be $1,100.
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\40\The alternate formula described in the present law section
applies to the refundable portion of the family credit as well.
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The provision requires that the taxpayer include the name
and taxpayer identification number of each qualifying child and
dependent on the tax return for each taxable year.
The $300 credit for the taxpayer, spouse, and non-child
dependents of the taxpayer expires for taxable years beginning
after December 31, 2022.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
2. Repeal of credit for the elderly and permanently disabled (sec.
1102(a) of the bill and sec. 22 of the Code)
PRESENT LAW
Certain taxpayers who are over the age of 65 or retired on
account of permanent and total disability may claim a
nonrefundable credit. The maximum credit is 15 percent of
$5,000 for a return where one individual qualifies and $7,500
on a joint return where both spouses qualify.\41\ Thus, the
maximum credit amounts are $750 and $1,125, respectively.
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\41\Sec. 22(a).
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The credit base is reduced by one half of the amount by
which the taxpayer's adjusted gross income exceeds $7,500 if
the taxpayer is unmarried, $10,000 if the taxpayer is married
and files a joint return, or $5,000 if the taxpayer is married
and files a separate return.\42\ Thus, the credit base is
phased down to zero when adjusted gross income exceeds $17,500
for an unmarried person, $20,000 for a married couple filing a
joint return where only one spouse qualifies for the credit,
$25,000 for a joint return where both spouses qualify, and
$12,500 for a married person filing a separate return.
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\42\Sec. 22(d).
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Additionally, the credit base is reduced by certain items
of income otherwise exempt from tax: (1) benefits under Title
II of the Social Security Act; (2) retirement benefits under
the Railroad Retirement Act of 1974; (3) disability benefits
paid by the Veterans Administration, except for benefits
payable on account of personal injuries or sickness resulting
from active service in the Armed Forces; and (4) pensions,
annuities, and disability benefits exempted from tax by any
provision not in the Code.\43\
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\43\Sec. 22(c)(3).
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To qualify for the credit, a taxpayer must, at the end of
the taxable year, be at least 65 years old or retired on
account of permanent and total disability.\44\ Permanent and
total disability exists if, at the time of retirement, the
taxpayer was ``unable to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than 12 months.\45\
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\44\Sec. 22(b).
\45\Sec. 22(e)(3).
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REASONS FOR CHANGE
The Committee recognizes that, because the parameters of
the credit for the elderly and permanently disabled are not
indexed for inflation, under present law virtually no taxpayers
benefit from the credit. Accordingly, repealing the credit
makes the system simpler by reducing outdated and unnecessary
provisions in the Code and in IRS forms and publications.
EXPLANATION OF PROVISION
The provision repeals the credit for the elderly and
permanently disabled.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2017.
3. Termination of credit for interest on certain home mortgages (sec.
1102(b) of the bill and sec. 25 of the Code)
PRESENT LAW
Qualified governmental units can elect to exchange all or a
portion of their qualified mortgage bond authority for
authority to issue mortgage credit certificates (``MCCs'').\46\
MCCs entitle homebuyers to a nonrefundable income tax credit
for a specified percentage of interest paid on mortgage loans
on their principal residences. The tax credit provided by the
MCC may be carried forward three years. Once issued, an MCC
generally remains in effect as long as the residence being
financed is the certificate-recipient's principal residence.
MCCs generally are subject to the same eligibility and targeted
area requirements as qualified mortgage bonds.\47\
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\46\Sec. 25.
\47\Sec. 143.
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REASONS FOR CHANGE
As the bill repeals the authority to issue qualified
private activity bonds,\48\ including qualified mortgage bonds,
the Committee believes it is an appropriate conforming change
to also terminate the related mortgage credit certificate
program.
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\48\Sec. 3601 of the bill, infra.
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EXPLANATION OF PROVISION
No credit is allowed with respect to any MCC issued after
December 31, 2017.
EFFECTIVE DATE
The provision applies to taxable years ending after
December 31, 2017. Credits continue for interest paid on
mortgage loans on principal residences for which MCCs have been
issued on or before December 31, 2017.
4. Repeal of credit for plug-in electric drive motor vehicles (sec.
1102(c) of the bill and sec. 30d of the Code)
PRESENT LAW
A credit is available for new four-wheeled vehicles
(excluding low speed vehicles and vehicles weighing 14,000
pounds or more) propelled by a battery with at least 4
kilowatt-hours of electricity that can be charged from an
external source.\49\ The base credit is $2,500 plus $417 for
each kilowatt-hour of additional battery capacity in excess of
4 kilowatt-hours (for a maximum credit of $7,500). Qualified
vehicles are subject to a 200,000 vehicle-permanufacturer
limitation. Once the limitation has been reached the credit is
phased down over four calendar quarters.
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\49\Sec. 30D.
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the credit for plug-in electric drive
motor vehicles, makes the system simpler and fairer for all
families and individuals, and allows for lower tax rates. The
Committee further believes that repeal of this provision is
consistent with streamlining the tax code, broadening the tax
base, lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the credit for plug-in electric drive
motor vehicles.
EFFECTIVE DATE
The provision is effective for vehicles placed in service
in taxable years beginning after December 31, 2017.
5. Modification of taxpayer identification number requirements for the
child tax credit, earned income credit, and american opportunity credit
(sec. 1103 of the bill and secs. 24, 25A and 32 of the Code)
PRESENT LAW
Earned income credit
Low and moderate-income taxpayers may be eligible for the
refundable earned income credit (``EIC''). Eligibility for the
EIC is based on the taxpayer's earned income, adjusted gross
income, investment income, filing status, and work status in
the United States. The amount of the EIC is based on the
presence and number of qualifying children in the worker's
family, as well as on adjusted gross income and earned income.
The earned income credit generally equals a specified
percentage of earned income\50\ up to a maximum dollar amount.
The maximum amount applies over a certain income range and then
diminishes to zero over a specified phase-out range. For
taxpayers with earned income (or adjusted gross income
(``AGI''), if greater) in excess of the beginning of the phase-
out range, the maximum EIC amount is reduced by the phase-out
rate multiplied by the amount of earned income (or AGI, if
greater) in excess of the beginning of the phase-out range. For
taxpayers with earned income (or AGI, if greater) in excess of
the end of the phase-out range, no credit is allowed.
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\50\Earned income is defined as (1) wages, salaries, tips, and
other employee compensation, but only if such amounts are includible in
gross income, plus (2) the amount of the individual's net self-
employment earnings.
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An individual is not eligible for the EIC if the aggregate
amount of disqualified income of the taxpayer for the taxable
year exceeds $3,450 (for 2017). This threshold is indexed for
inflation. Disqualified income is the sum of: (1) interest
(taxable and tax-exempt); (2) dividends; (3) net rent and
royalty income (if greater than zero); (4) capital gains net
income; and (5) net passive income (if greater than zero) that
is not self-employment income.
The EIC is a refundable credit, meaning that if the amount
of the credit exceeds the taxpayer's Federal income tax
liability, the excess is payable to the taxpayer as a direct
transfer payment.
Child tax credit\51\
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\51\See description of sec. 1101 of the bill for the provision's
modifications to the child tax
credit.
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An individual may claim a tax credit of $1,000 for each
qualifying child under the age of 17. A child who is not a
citizen, national, or resident of the United States cannot be a
qualifying child.
The aggregate amount of allowable child credits is phased
out for individuals with income over certain threshold amounts.
Specifically, the otherwise allowable aggregate child tax
credit (``CTC'') amount is reduced by $50 for each $1,000 (or
fraction thereof) of modified adjusted gross income (``modified
AGI'') over $75,000 for single individuals or heads of
households, $110,000 for married individuals filing joint
returns, and $55,000 for married individuals filing separate
returns. For purposes of this limitation, modified AGI includes
certain otherwise excludable income\52\ earned by U.S. citizens
or residents living abroad or in certain U.S. territories.
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\52\Sec. 911.
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The child tax credit is allowable against both the regular
tax and the alternative minimum tax (``AMT''). To the extent
the credit exceeds the taxpayer's tax liability, the taxpayer
is eligible for a refundable credit (the ``additional child tax
credit'') equal to 15 percent of earned income in excess of a
threshold dollar amount of $3,000 (the ``earned income''
formula).
Families with three or more qualifying children may
determine the additional child tax credit using the
``alternative formula'' if this results in a larger credit than
determined under the earned income formula. Under the
alternative formula, the additional child tax credit equals the
amount by which the taxpayer's Social Security taxes exceed the
taxpayer's EIC.
As with the EIC, earned income is defined as the sum of
wages, salaries, tips, and other taxable employee compensation
plus net self-employment earnings. Unlike the EIC, the
additional child tax credit is based on earned income only to
the extent it is included in computing taxable income. For
example, some ministers' parsonage allowances are considered
self-employment income and thus are considered earned income
for purposes of computing the EIC, but the allowances are
excluded from gross income for individual income tax purposes
and thus are not considered earned income for purposes of the
additional child tax credit.
American Opportunity credit\53\
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\53\See description of sec. 1201 of the bill for the provision's
modifications to the American Opportunity credit.
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The American Opportunity credit provides individuals with a
tax credit of up to $2,500 per eligible student per year for
qualified tuition and related expenses (including course
materials) paid for each of the first four years of the
student's post-secondary education in a degree or certificate
program. The credit rate is 100 percent on the first $2,000 of
qualified tuition and related expenses, and 25 percent on the
next $2,000 of qualified tuition and related expenses.
The American Opportunity credit is phased out ratably for
taxpayers with modified AGI between $80,000 and $90,000
($160,000 and $180,000 for married taxpayers filing a joint
return). The credit may be claimed against a taxpayer's AMT
liability.
Forty percent of a taxpayer's otherwise allowable modified
credit is refundable. A refundable credit is a credit which, if
the amount of the credit exceeds the taxpayer's Federal income
tax liability, the excess is payable to the taxpayer as a
direct transfer payment.
No credit is allowed to a taxpayer who fails to include the
taxpayer identification number of the student to whom the
qualified tuition and related expenses relate.
Taxpayer identification number requirements
Any individual filing a U.S. tax return is required to
state his or her taxpayer identification number on such return.
Generally, a taxpayer identification number is the individual's
Social Security number (``SSN'').\54\ However, in the case of
an individual who is not eligible to be issued an SSN, but who
has a tax filing obligation, the Internal Revenue Service
(``IRS'') issues an individual taxpayer identification number
(``ITIN'') for use in connection with the individual's tax
filing requirements.\55\ An individual who is eligible to
receive an SSN may not obtain an ITIN for purposes of his or
her tax filing obligations.\56\ An ITIN does not provide
eligibility to work in the United States or claim Social
Security benefits.
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\54\Sec. 6109(a).
\55\Treas. Reg. Sec. 301.6109-1(d)(3)(i).
\56\Treas. Reg. Sec. 301.6109-1(d)(3)(ii).
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Examples of individuals who are not eligible for SSNs, but
potentially need ITINs in order to file U.S. returns include a
nonresident alien filing a claim for a reduced withholding rate
under a U.S. income tax treaty, a nonresident alien required to
file a U.S. tax return,\57\ an individual who is a U.S.
resident alien under the substantial presence test and who
therefore must file a U.S. tax return,\58\ a dependent or
spouse of the prior two categories of individuals, or a
dependent or spouse of a nonresident alien visa holder.
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\57\For instance, in the case of an individual that has income
which is effectively connected with a United States trade or business,
such as the performance of personal services in the United States.
\58\Such an individual would have a filing requirement without
regard to whether the individual is lawfully present or has work
authorization.
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An individual is ineligible for the EIC (but not the child
tax credit) if he or she does not include a valid SSN and the
qualifying child's valid SSN (and, if married, the spouse's
SSN) on his or her tax return. For these purposes, the Code
defines an SSN as a Social Security number issued to an
individual, other than an SSN issued to an individual solely
for the purpose of applying for or receiving federally funded
benefits.\59\ If an individual fails to provide a correct
taxpayer identification number, such omission will be treated
as a mathematical or clerical error by the IRS.
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\59\Sec. 205(c)(2)(B)(i)(II) (and that portion of sec.
205(c)(2)(B)(i)(III) relating to it) of the Social Security Act.
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A taxpayer who resides with a qualifying child may not
claim the EIC with respect to the qualifying child if such
child does not have a valid SSN. The taxpayer also is
ineligible for the EIC for workers without children because he
or she resides with a qualifying child. However, if a taxpayer
has two or more qualifying children, some of whom do not have a
valid SSN, the taxpayer may claim the EIC based on the number
of qualifying children for whom there are valid SSNs.
REASONS FOR CHANGE
The Committee believes that it is important to ensure that
refundable and other credits are not being claimed
fraudulently. The Committee believes that requiring Social
Security numbers as the identifying number for taxpayers and
children will substantially lower the overpayment rate on these
credits.
EXPLANATION OF PROVISION
Under the provision, any qualifying child claimed by the
taxpayer on the tax return must use, as that child's
identifying number, a Social Security number that is valid for
employment in the United States in order to be eligible for the
CTC. Under the provision, if a child's identifying number was
other than a Social Security number (such as an ITIN), the
taxpayer would be eligible to receive the $300 credit for
dependents other than qualifying children, assuming such child
otherwise qualified as a dependent of the taxpayer.\60\
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\60\See description of sec. 1101 of the bill.
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Additionally, under the provision, taxpayers who use as
their taxpayer identification number a Social Security number
issued for non-work reasons, such as for purposes of receiving
Federal benefits or for any other reason, are not eligible for
the EIC.
Lastly, under the provision, in order to claim the American
Opportunity credit, the identification number provided with
respect to the student to whom the tuition and related expenses
relate must be a Social Security number.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2017.
6. Procedures to reduce improper claims of earned income credit (sec.
1104 of the bill and new secs. 32(c)(2)(B)(vii) and 6011(i) of the
Code)
PRESENT LAW
Earned income credit
Low-and moderate-income workers may be eligible for the
refundable earned income credit (``EIC''). Eligibility for the
EIC is based on earned income, adjusted gross income (``AGI''),
investment income, filing status, number of children, and
immigration and work status in the United States. The maximum
amount of the EIC applies over a certain income range and then
diminishes to zero over a specified phaseout range. The EIC is
a refundable credit, meaning that if the amount of the credit
exceeds the taxpayer's Federal income tax liability, the excess
is payable to the taxpayer as a direct transfer payment.
The EIC generally equals a specified percentage of earned
income up to a maximum dollar amount. Earned income is the sum
of employee compensation includible in gross income (generally
the amount reported in Box 1 of Form W-2, Wage and Tax
Statement, discussed below) plus net earnings from self-
employment determined with regard to the deduction for one-half
of self-employment taxes.\61\ Special rules apply in computing
earned income for purposes of the EIC.\62\ Net earnings from
self-employment generally includes the gross income derived by
an individual from any trade or business carried on by the
individual, less the deductions attributable to the trade or
business that are allowed under the self-employment tax rules,
plus the individual's distributive share of income or loss from
any trade or business of a partnership in which the individual
is a partner.\63\
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\61\Sec. 32(c)(2)(A).
\62\Sec. 32(c)(2)(B).
\63\Sec. 1402(a); Chief Counsel Advice 200022051.
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Employment taxes and quarterly reporting by employers
Employment taxes include employer and employee taxes on
employee wages under the Federal Insurance Contributions Act
(``FICA'') and income taxes required to be withheld by
employers from employee wages (``income tax withholding'').\64\
Income tax withholding rates vary depending on the amount of
wages paid, the length of the payroll period, and the number of
withholding allowances claimed by the employee. Employers are
required also to withhold the employee share of FICA tax from
employee wages. For these purposes, wages is defined broadly to
include all remuneration, subject to exceptions specifically
provided in the relevant statutory provisions.
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\64\Secs. 3101-3128 (FICA) and 3401-3404 (income tax withholding).
Employment taxes also include taxes under the Railroad Retirement Act
(``RRTA''), sections 3201-3241, and tax under the Federal Unemployment
Taxes Act (``FUTA''), sections 3301-3311. Sections 3501-3510 provide
additional employment tax rules.
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Employers generally submit quarterly reports to IRS on Form
941, Employer's Quarterly Federal Tax Return, showing the
number of employees to whom wages were paid during the quarter,
the total wages paid to employees, total FICA taxes (employer
and employee) on the wages, and total income tax withheld from
the wages.\65\ In addition, by January 31 after the end of a
calendar year, an employer must provide each employee with Form
W-2, Wage and Tax Statement, showing the total wages paid to
the employee during the calendar year and certain other
information.\66\ The information contained on each employee's
W-2 is also provided to the IRS, accompanied by Form W-3,
Transmittal of Wage and Tax Statements, showing the total
number of Forms W-2 and aggregate information for all
employees, such as aggregate wages reported on Forms W-2. IRS
then compares the W-3 wage totals to the Form 941 (or Form 944)
wage totals.
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\65\Treas. Secs. 31.6011(a)-1(a)(1), 31.6011(a)-4(a)(1),
31.6011(a)-1(a)(5). If the total amount of FICA taxes and withheld
income tax for a year is $1,000 or less, instead of filing Form 941 for
each quarter, the employer is permitted file annually on Form 944,
Employer's Annual Federal Tax Return. Separate forms and filing
requirement apply with respect to RRTA and FUTA taxes.
\66\Sec. 6051(a). Employees are required to include a copy of Form
W-2 when filing their income tax returns.
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REASONS FOR CHANGE
The Committee recognizes that overclaims and overpayments
are prevalent in the EIC program. The Committee further
recognizes that the overwhelming majority of individuals making
overclaims were not eligible for the credit. The Committee
believes that these overclaims and overpayments can be
significantly reduced by making it clear that taxpayers are
required to claim all allowable deductions in determining
earned income and by providing the IRS additional quarterly
wage information on every taxpayer-employee such that the IRS
will be able to verify reported income before any refundable
EIC payment is made.
EXPLANATION OF PROVISION
Modification of the definition of ``earned income''
The provision clarifies that a taxpayer is required to
claim all allowable deductions in computing net earnings from
self-employment for EIC purposes.
Quarterly reporting of wages by employers
The provision modifies employer reporting requirements
associated with the deduction and withholding of certain
employment taxes on wages. Under the provision, employers must
report, along with the aggregate wages paid and employment
taxes collected on Form 941 or Form 944, the name and address
of each employee and the amount of reportable wages received by
each of those employees.
EFFECTIVE DATE
Modification of the definition of ``earned income''
The provision applies to taxable years ending after the
date of enactment.
Quarterly reporting of wages by employers
The provision applies to taxable years ending after the
date of enactment, subject to the authority of the Secretary to
delay for such period as the Secretary determines to be
reasonable to allow adequate time to modify systems to permit
compliance with the additional reporting requirements.
7. Certain income disallowed for purposes of the earned income tax
credit (sec. 1105 of the bill, new secs. 32(n) and 32(c)(2)(C) of the
Code, and secs. 6051, 6052, 6041(a), and 6050(w) of the Code)
PRESENT LAW
Earned income credit
Low-and moderate-income workers may be eligible for the
refundable earned income credit (``EIC''). Eligibility for the
EIC is based on earned income, adjusted gross income (``AGI''),
investment income, filing status, number of children, and
immigration and work status in the United States. The maximum
amount of the EIC applies over a certain income range and then
diminishes to zero over a specified phaseout range. The EIC is
a refundable credit, meaning that if the amount of the credit
exceeds the taxpayer's Federal income tax liability, the excess
is payable to the taxpayer as a direct transfer payment.
The EIC generally equals a specified percentage of earned
income up to a maximum dollar amount. Earned income is the sum
of employee compensation includible in gross income plus net
earnings from self-employment determined with regard to the
deduction for one-half of self-employment taxes.\67\ Special
rules apply in computing earned income for purposes of the
EIC.\68\
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\67\Sec. 32(c)(2)(A).
\68\Sec. 32(c)(2)(B).
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Information reporting
Present law imposes a variety of information reporting
requirements on participants in certain transactions.\69\ These
requirements are intended to assist taxpayers in preparing
their income tax returns and to help the Internal Revenue
Service (``IRS'') determine whether such returns are correct
and complete.
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\69\Sec. 6031 through 6060.
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The primary provision governing information reporting by
payors requires an information return by every person engaged
in a trade or business who makes payments aggregating $600 or
more in any taxable year to a single payee in the course of the
payor's trade or business.\70\ Payments to corporations
generally are excepted from this requirement. Payments subject
to reporting include fixed or determinable income or
compensation, but do not include payments for goods or certain
enumerated types of payments that are subject to other specific
reporting requirements.\71\ Detailed rules are provided for the
reporting of various types of investment income, including
interest, dividends, and gross proceeds from brokered
transactions (such as a sale of stock) paid to U.S.
persons.\72\
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\70\The information return generally is submitted electronically as
a Form-1099 or Form-1096, although certain payments to beneficiaries or
employees may require use of Forms W-3 or W-2, respectively. Treas.
Reg. sec. 1.6041-1(a)(2).
\71\Sec. 6041(a) requires reporting as to fixed or determinable
gains, profits, and income (other than payments to which section
6042(a)(1), 6044(a)(1), 6047(c), 6049(a), or 6050N(a) applies and other
than payments with respect to which a statement is required under
authority of section 6042(a), 6044(a)(2) or 6045). These payments
excepted from section 6041(a) include most interest, royalties, and
dividends.
\72\Secs. 6042 (dividends), 6045 (broker reporting) and 6049
(interest) and the Treasury regulations thereunder.
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Special information reporting requirements exist for
employers required to deduct and withhold tax from employees'
income.\73\ In addition, any service recipient engaged in a
trade or business and paying for services is required to make a
return according to regulations when the aggregate of payments
is $600 or more.\74\
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\73\Sec. 6051(a).
\74\Sec. 6041A.
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There are also information reporting requirements for
merchant acquiring entities and third party settlement
organizations with respect to payments made in settlement of
payment card transactions and third party payment network
transactions occurring in that calendar year.\75\
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\75\Sec. 6050W.
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The payor of amounts described above is required to provide
the recipient of the payment with an annual statement showing
the aggregate payments made and contact information for the
payor.\76\ The statement must be supplied to taxpayers by the
payors by January 31 of the following calendar year.\7\ Payors
generally must file the information return with the IRS on or
before January 31 of the year following the calendar year to
which such returns relate.\77\
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\76\Sec. 6041(d).
\77\Sec. 6071(d).
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Failure to comply with the information reporting
requirements results in penalties, which may include a penalty
for failure to file the information return,\78\ to furnish
payee statements,\79\ or to comply with other various reporting
requirements.\80\ No penalty is imposed if the failure is due
to reasonable cause.\81\ Any person who is required to file an
information return, but who fails to do so on or before the
prescribed filing date is subject to a penalty that varies
based on when, if at all, the correct information return is
filed and the correct payee statement is furnished.
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\78\Sec. 6721.
\79\Sec. 6722.
\80\Sec. 6723.
\81\Sec. 6724.
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Books or records
Every person liable for any tax imposed by the Code, or for
the collection thereof, must keep such records, render such
statements, make such returns, and comply with such rules and
regulations as the Secretary may from time to time
prescribe.\82\ Whenever necessary, the Secretary may require
any person, by notice served upon that person or by
regulations, to make such returns, render such statements, or
keep such records, as the Secretary deems sufficient to show
whether or not that person is liable for tax. Persons subject
to income tax are required to keep books or records sufficient
to establish the amount of gross income, deductions, credits,
or other matters required to be shown by that person in any
return of such tax or information.\83\ The books or records are
required to be kept available at all times for inspection by
the IRS, and must be retained so long as the contents thereof
may become material in the administration of any internal
revenue law.\84\
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\82\Sec. 6001.
\83\Treas. sec. 1.6001-1(a).
\84\Treas. sec. 1.6001-1(e).
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REASONS FOR CHANGE
The Committee recognizes that overclaims and overpayments
are prevalent in the EIC program. The Committee further
recognizes that the overwhelming majority of individuals making
overclaims were not eligible for the credit. The Committee
believes that these overclaims and overpayments can be
significantly reduced by limiting earned income for purposes of
the EIC to amounts that can be verified by third party
reporting or the taxpayer.
EXPLANATION OF PROVISION
The provision limits earned income for purposes of the
earned income credit to amounts substantiated by the taxpayer
on statements furnished or returns filed under third party
information reporting requirements, or amounts substantiated by
the taxpayer's books and records. The authority of the IRS to
make returns, render statements, or keep records and, pursuant
to the Code, to make corresponding adjustments to income to
reflect substantiated amounts for purposes other than the EIC
remains unaffected by this provision.
EFFECTIVE DATE
The provision is effective for taxable years ending after
the date of enactment.
C. Simplification and Reform of Education Incentives
1. Reform of American Opportunity tax credit and repeal of Lifetime
Learning credit (sec. 1201 of the bill and sec. 25A of the Code)
PRESENT LAW
American Opportunity credit
The American Opportunity credit provides individuals with a
tax credit of up to $2,500 per eligible student per year for
qualified tuition and related expenses (including course
materials) paid for each of the first four years of the
student's post-secondary education in a degree or certificate
program. The credit rate is 100 percent on the first $2,000 of
qualified tuition and related expenses, and 25 percent on the
next $2,000 of qualified tuition and related expenses. The
credit may not be claimed for more than four taxable years with
respect to any student.
The American Opportunity credit is phased out ratably for
taxpayers with modified AGI between $80,000 and $90,000
($160,000 and $180,000 for married taxpayers filing a joint
return). The credit may be claimed against a taxpayer's AMT
liability.
Forty percent of a taxpayer's otherwise allowable modified
credit is refundable. A refundable credit is a credit which, if
the amount of the credit exceeds the taxpayer's Federal income
tax liability, the excess is payable to the taxpayer as a
direct transfer payment.
A taxpayer may not claim the American Opportunity credit if
the qualified tuition and related expenses for the enrollment
or attendance of a student, if such student has been convicted
of a Federal or State felony offense consisting of the
possession or distribution of a controlled substance before the
end of the taxable year.\85\
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\85\Sec. 25A(b)(2)(D).
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Lifetime learning credit
Individual taxpayers may be eligible to claim a
nonrefundable credit, the Lifetime Learning credit, against
Federal income taxes equal to 20 percent of qualified tuition
and related expenses incurred during the taxable year on behalf
of the taxpayer, the taxpayer's spouse, or any dependents. Up
to $10,000 of qualified tuition and related expenses per
taxpayer return are eligible for the Lifetime Learning credit
(i.e., the maximum credit per taxpayer return is $2,000).
In contrast to the American Opportunity credit, a taxpayer
may claim the Lifetime Learning credit for an unlimited number
of taxable years.\86\ Also in contrast to the American
Opportunity credit, the maximum amount of the Lifetime Learning
credit that may be claimed on a taxpayer's return does not vary
based on the number of students in the taxpayer's family--that
is, the American Opportunity credit is computed on a per-
student basis while the Lifetime Learning credit is computed on
a family-wide basis. The Lifetime Learning credit amount that a
taxpayer may otherwise claim is phased out ratably for
taxpayers with modified AGI between $56,000 and $66,000
($112,000 and $132,000 for married taxpayers filing a joint
return) in 2017.
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\86\Sec. 25A(a)(2).
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REASONS FOR CHANGE
The Committee believes that it is important to provide
access to affordable, high-quality higher education. Combining
the American Opportunity credit with elements of the Lifetime
Learning Credit will continue to serve to make college more
affordable, while also streamlining these tax provisions so
that they are easier for families to apply--an important step
towards consolidating duplicative Code provisions and
simplifying the Code. The Committee believes that these changes
will make the system simpler and fairer for all families and
individuals.
EXPLANATION OF PROVISION
The provision modifies the American Opportunity credit\87\
by providing that a credit may be claimed with respect to a
student for five taxable years (rather than four taxable years
under present law). For a credit claimed with respect to the
student's fifth taxable year, the credit is half the value of
the American Opportunity credit that is applicable to the first
four taxable years (the refundable portion of the credit is 40-
percent of the half-value credit). Additionally, the provision
allows a student to claim the American Opportunity credit for
any of the first five years of postsecondary education.
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\87\The provision also repeals the Hope credit, a precursor to the
American Opportunity credit which since 2009 has been largely
superseded in the Code by the American Opportunity credit.
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The operation of this provision is as follows. Assume that
a student enters college in the Fall of 2018, attending for
eight consecutive semesters, such that the student graduates in
the Spring of 2022. Assume that qualifying tuition and fees for
each semester is in excess of $5,000. For each of taxable years
2018, 2019, 2020 and 2021, an individual claiming the credit on
behalf of the student would be eligible for the maximum credit
of $2,500 (of which $1,000 is refundable). For taxable year
2022, a taxpayer claiming the credit on behalf of the student
may be eligible for a $1,250 credit (of which $500 is
refundable). Alternatively, if no credit were claimed with
respect to the student in 2022, and the student were to decide
to attend graduate school in the Fall of 2024, the student may
claim the half-value fifth year credit ($1,250 ($500
refundable)) for the 2024 taxable year.
The provision repeals the lifetime learning credit.
EFFECTIVE DATE
The proposal applies to taxable years beginning after
December 31, 2017.
2. Consolidation and modification of education savings rules (sec. 1202
of the bill and secs. 529 and 530 of the Code)
PRESENT LAW
Coverdell education savings accounts
A Coverdell education savings account is a trust or
custodial account created exclusively for the purpose of paying
qualified education expenses of a named beneficiary.\88\ Annual
contributions to Coverdell education savings accounts may not
exceed $2,000 per designated beneficiary and may not be made
after the designated beneficiary reaches age 18 (except in the
case of a special needs beneficiary). The contribution limit is
phased out for taxpayers with modified AGI between $95,000 and
$110,000 ($190,000 and $220,000 for married taxpayers filing a
joint return); the AGI of the contributor, and not that of the
beneficiary, controls whether a contribution is permitted by
the taxpayer.
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\88\Sec. 530.
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Earnings on contributions to a Coverdell education savings
account generally are subject to tax when withdrawn.\89\
However, distributions from a Coverdell education savings
account are excludable from the gross income of the distributee
(i.e., the student) to the extent that the distribution does
not exceed the qualified education expenses incurred by the
beneficiary during the year the distribution is made. The
earnings portion of a Coverdell education savings account
distribution not used to pay qualified education expenses is
includible in the gross income of the distributee and generally
is subject to an additional 10-percent tax.\90\
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\89\In addition, Coverdell education savings accounts are subject
to the unrelated business income tax imposed by section 511.
\90\This 10-percent additional tax does not apply if a distribution
from an education savings account is made on account of the death or
disability of the designated beneficiary, or if made on account of a
scholarship received by the designated beneficiary.
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Tax-free (and free of additional 10-percent tax) transfers
or rollovers of account balances from one Coverdell education
savings account benefiting one beneficiary to another Coverdell
education savings account benefiting another beneficiary (as
well as redesignations of the named beneficiary) are permitted,
provided that the new beneficiary is a member of the family of
the prior beneficiary and is under age 30 (except in the case
of a special needs beneficiary). In general, any balance
remaining in a Coverdell education savings account is deemed to
be distributed within 30 days after the date that the
beneficiary reaches age 30 (or, if the beneficiary dies before
attaining age 30, within 30 days of the date that the
beneficiary dies).
Qualified education expenses include qualified elementary
and secondary expenses and qualified higher education expenses.
Such qualified education expenses generally include only out-
of-pocket expenses. They do not include expenses covered by
employer-provided educational assistance or scholarships for
the benefit of the beneficiary that are excludable from gross
income.
The term qualified elementary and secondary school
expenses, means expenses for: (1) tuition, fees, academic
tutoring, special needs services, books, supplies, and other
equipment incurred in connection with the enrollment or
attendance of the beneficiary at a public, private, or
religious school providing elementary or secondary education
(kindergarten through grade 12) as determined under State law;
(2) room and board, uniforms, transportation, and supplementary
items or services (including extended day programs) required or
provided by such a school in connection with such enrollment or
attendance of the beneficiary; and (3) the purchase of any
computer technology or equipment (as defined in section
170(e)(6)(F)(i)) or internet access and related services, if
such technology, equipment, or services are to be used by the
beneficiary and the beneficiary's family during any of the
years the beneficiary is in elementary or secondary school.
Computer software primarily involving sports, games, or hobbies
is not considered a qualified elementary and secondary school
expense unless the software is predominantly educational in
nature.
The term qualified higher education expenses includes
tuition, fees, books, supplies, and equipment required for the
enrollment or attendance of the designated beneficiary at an
eligible education institution, regardless of whether the
beneficiary is enrolled at an eligible educational institution
on a full-time, half-time, or less than half-time basis.\91\
Moreover, qualified higher education expenses include certain
room and board expenses for any period during which the
beneficiary is at least a half-time student. Qualified higher
education expenses include expenses with respect to
undergraduate or graduate-level courses. In addition, qualified
higher education expenses include amounts paid or incurred to
purchase tuition credits (or to make contributions to an
account) under a qualified tuition program for the benefit of
the beneficiary of the Coverdell education savings account.\92\
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\91\Qualified higher education expenses are defined in the same
manner as for qualified tuition programs.
\92\Sec. 530(b)(2)(B).
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Section 529 qualified tuition programs
In general
A qualified tuition program is a program established and
maintained by a State or agency or instrumentality thereof, or
by one or more eligible educational institutions, which
satisfies certain requirements and under which a person may
purchase tuition credits or certificates on behalf of a
designated beneficiary that entitle the beneficiary to the
waiver or payment of qualified higher education expenses of the
beneficiary (a ``prepaid tuition program''). Section 529
provides specified income tax and transfer tax rules for the
treatment of accounts and contracts established under qualified
tuition programs.\93\ In the case of a program established and
maintained by a State or agency or instrumentality thereof, a
qualified tuition program also includes a program under which a
person may make contributions to an account that is established
for the purpose of satisfying the qualified higher education
expenses of the designated beneficiary of the account, provided
it satisfies certain specified requirements (a ``savings
account program''). Under both types of qualified tuition
programs, a contributor establishes an account for the benefit
of a particular designated beneficiary to provide for that
beneficiary's higher education expenses.
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\93\For purposes of this description, the term ``account'' is used
interchangeably to refer to a prepaid tuition benefit contract or a
tuition savings account established pursuant to a qualified tuition
program.
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In general, prepaid tuition contracts and tuition savings
accounts established under a qualified tuition program involve
prepayments or contributions made by one or more individuals
for the benefit of a designated beneficiary. Decisions with
respect to the contract or account are typically made by an
individual who is not the designated beneficiary. Qualified
tuition accounts or contracts generally require the designation
of a person (generally referred to as an ``account owner'')\94\
whom the program administrator (oftentimes a third party
administrator retained by the State or by the educational
institution that established the program) may look to for
decisions, recordkeeping, and reporting with respect to the
account established for a designated beneficiary. The person or
persons who make the contributions to the account need not be
the same person who is regarded as the account owner for
purposes of administering the account. Under many qualified
tuition programs, the account owner generally has control over
the account or contract, including the ability to change
designated beneficiaries and to withdraw funds at any time and
for any purpose. Thus, in practice, qualified tuition accounts
or contracts generally involve a contributor, a designated
beneficiary, an account owner (who oftentimes is not the
contributor or the designated beneficiary), and an
administrator of the account or contract.
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\94\Section 529 refers to contributors and designated
beneficiaries, but does not define or otherwise refer to the term
``account owner,'' which is a commonly used term among qualified
tuition programs.
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Qualified higher education expenses
For purposes of receiving a distribution from a qualified
tuition program that qualifies for favorable tax treatment
under the Code, qualified higher education expenses means
tuition, fees, books, supplies, and equipment required for the
enrollment or attendance of a designated beneficiary at an
eligible educational institution, and expenses for special
needs services in the case of a special needs beneficiary that
are incurred in connection with such enrollment or attendance.
Qualified higher education expenses generally also include room
and board for students who are enrolled at least half-time.
Qualified higher education expenses include the purchase of any
computer technology or equipment, or Internet access or related
services, if such technology or services were to be used
primarily by the beneficiary during any of the years a
beneficiary is enrolled at an eligible institution.
Contributions to qualified tuition programs
Contributions to a qualified tuition program must be made
in cash. Section 529 does not impose a specific dollar limit on
the amount of contributions, account balances, or prepaid
tuition benefits relating to a qualified tuition account;
however, the program is required to have adequate safeguards to
prevent contributions in excess of amounts necessary to provide
for the beneficiary's qualified higher education expenses.
Contributions generally are treated as a completed gift
eligible for the gift tax annual exclusion. Contributions are
not tax deductible for Federal income tax purposes, although
they may be deductible for State income tax purposes. Amounts
in the account accumulate on a tax-free basis (i.e., income on
accounts in the plan is not subject to current income tax).
A qualified tuition program may not permit any contributor
to, or designated beneficiary under, the program to direct
(directly or indirectly) the investment of any contributions
(or earnings thereon) more than two times in any calendar year,
and must provide separate accounting for each designated
beneficiary. A qualified tuition program may not allow any
interest in an account or contract (or any portion thereof) to
be used as security for a loan.
REASONS FOR CHANGE
The Committee believes that expanding and strengthening the
529 program will help families have the ability to save for
future college expenses. Additionally, the Committee believes
that replacing Coverdell savings accounts with an expanded 529
program that allows individuals to save for primary and
secondary school tuition is an important step towards
consolidating duplicative Code provisions and simplifying the
Code.
EXPLANATION OF PROVISION
Under the provision, no new contributions are permitted
into Coverdell savings accounts after December 31, 2017.
However, rollovers of account balances from one Coverdell
education savings account to another pre-existing Coverdell
education savings account benefiting another beneficiary remain
permitted after this date. Additionally, the provision allows
section 529 plans to receive rollover contributions from
Coverdell education savings accounts.
The provision modifies section 529 plans to allow such
plans to distribute not more than $10,000 in expenses for
tuition incurred during the taxable year in connection with the
enrollment or attendance of the designated beneficiary at a
public, private or religious elementary or secondary school.
This limitation applies on a per-student basis, rather than a
per-account basis. Thus, under the provision, although an
individual may be the designated beneficiary of multiple
accounts, that individual may receive a maximum of $10,000 in
distributions free of tax, regardless of whether the funds are
distributed from multiple accounts. Any excess distributions
received by the individual would be treated as a distribution
subject to tax under the general rules of section 529.
The provision also modifies section 529 plans to allow such
plan distributions to be used for certain expenses, including
books, supplies, and equipment, required for attendance in a
registered apprenticeship program. Registered apprenticeship
programs are apprenticeship programs registered and certified
with the Secretary of Labor.
Finally, the provision specifies that nothing in this
section shall prevent an unborn child from qualifying as a
designated beneficiary. For these purposes, an unborn child
means a child in utero, and the term child in utero means a
member of the species homo sapiens, at any stage of
development, who is carried in the womb.
EFFECTIVE DATE
The provision applies to contributions and distributions
made after December 31, 2017.
3. Reforms to discharge of certain student loan indebtedness (sec. 1203
of the bill and sec. 108(f) of the Code)
PRESENT LAW
Gross income generally includes the discharge of
indebtedness of the taxpayer. Under an exception to this
general rule, gross income does not include any amount from the
forgiveness (in whole or in part) of certain student loans,
provided that the forgiveness is contingent on the student's
working for a certain period of time in certain professions for
any of a broad class of employers.\95\
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\95\Sec. 108(f).
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Student loans eligible for this special rule must be made
to an individual to assist the individual in attending an
educational institution that normally maintains a regular
faculty and curriculum and normally has a regularly enrolled
body of students in attendance at the place where its education
activities are regularly carried on. Loan proceeds may be used
not only for tuition and required fees, but also to cover room
and board expenses. The loan must be made by (1) the United
States (or an instrumentality or agency thereof), (2) a State
(or any political subdivision thereof), (3) certain tax-exempt
public benefit corporations that control a State, county, or
municipal hospital and whose employees have been deemed to be
public employees under State law, or (4) an educational
organization that originally received the funds from which the
loan was made from the United States, a State, or a tax-exempt
public benefit corporation.
In addition, an individual's gross income does not include
amounts from the forgiveness of loans made by educational
organizations (and certain tax-exempt organizations in the case
of refinancing loans) out of private, nongovernmental funds if
the proceeds of such loans are used to pay costs of attendance
at an educational institution or to refinance any outstanding
student loans (not just loans made by educational
organizations) and the student is not employed by the lender
organization. In the case of such loans made or refinanced by
educational organizations (or refinancing loans made by certain
tax-exempt organizations), cancellation of the student loan
must be contingent on the student working in an occupation or
area with unmet needs and such work must be performed for, or
under the direction of, a tax-exempt charitable organization or
a governmental entity.
Finally, an individual's gross income does not include any
loan repayment amount received under the National Health
Service Corps loan repayment program, certain State loan
repayment programs, or any amount received by an individual
under any State loan repayment or loan forgiveness program that
is intended to provide for the increased availability of health
care services in underserved or health professional shortage
areas (as determined by the State).
REASONS FOR CHANGE
The Committee believes that the discharge of a student loan
in the case of an individual whose loan was discharged on
account of death or disability of the student borrower should
not be a taxable event.
EXPLANATION OF PROVISION
The provision modifies the exclusion of student loan
discharges from gross income, by including within the exclusion
certain discharges on account of death or disability. Loans
eligible for the exclusion under the provision are loans made
by (1) the United States (or an instrumentality or agency
thereof), (2) a State (or any political subdivision thereof),
(3) certain tax-exempt public benefit corporations that control
a State, county, or municipal hospital and whose employees have
been deemed to be public employees under State law, (4) an
educational organization that originally received the funds
from which the loan was made from the United States, a State,
or a tax-exempt public benefit corporation, or (5) private
education loans (for this purpose, private education loan is
defined in section 140(7) of the Consumer Protection Act).\96\
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\96\15 U.S.C. 1650(7).
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Under the provision, the discharge of a loan as described
above is excluded from gross income if the discharge was
pursuant to the death or total and permanent disability of the
student.\97\
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\97\Although the provision makes specific reference to those
provisions of the Higher Education Act of 1965 that discharge William
D. Ford Federal Direct Loan Program loans, Federal Family Education
Loan Program loans, and Federal Perkins Loan Program loans in the case
of death and total and permanent disability, the provision also
contains a catch-all exclusion in the case of a student loan discharged
on account of the death or total and permanent disability of the
student, in addition to those specific statutory references.
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Additionally, the provision modifies the gross income
exclusion for amounts received under the National Health
Service Corps loan repayment program or certain State loan
repayment programs to include any amount received by an
individual under the Indian Health Service loan repayment
program.\98\
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\98\Section 108 of the Indian Health Care Improvement Act
established the Indian Health Service loan repayment program to assure
a sufficient supply of trained health professionals needed to provide
health care services to Indians. Pub. L. No. 94-437, as amended by Pub.
L. No. 100-713, sec. 108, and Pub. L. No. 102-573, sec. 106, and as
amended, and permanently reauthorized by Pub. L. No. 111-148, sec.
10221.
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EFFECTIVE DATE
The provision applies to discharges of loans after, and
amounts received after, December 31, 2017.
4. Repeal of deduction for student loan interest (sec. 1204 of the bill
and sec. 221 of the Code)
PRESENT LAW
Certain individuals who have paid interest on qualified
education loans may claim an above-the-line deduction for such
interest expenses, subject to a maximum annual deduction
limit.\99\ Required payments of interest generally do not
include voluntary payments, such as interest payments made
during a period of loan forbearance. No deduction is allowed to
an individual if that individual is claimed as a dependent on
another taxpayer's return for the taxable year.\100\
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\99\Sec. 221.
\100\Sec. 221(c).
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A qualified education loan generally is defined as any
indebtedness incurred solely to pay for the costs of attendance
(including room and board) of the taxpayer, the taxpayer's
spouse, or any dependent of the taxpayer as of the time the
indebtedness was incurred in attending on at least a half-time
basis (1) eligible educational institutions, or (2)
institutions conducting internship or residency programs
leading to a degree or certificate from an institution of
higher education, a hospital, or a health care facility
conducting postgraduate training. The cost of attendance is
reduced by any amount excluded from gross income under the
exclusions for qualified scholarships and tuition reductions,
employer-provided educational assistance, interest earned on
education savings bonds, qualified tuition programs, and
Coverdell education savings accounts, as well as the amount of
certain other scholarships and similar payments.
The maximum allowable deduction per year is $2,500.\101\
For 2017, the deduction is phased out ratably for taxpayers
with AGI between $65,000 and $80,000 ($135,000 and $165,000 for
married taxpayers filing a joint return). The income phase-out
ranges are indexed for inflation and rounded to the next lowest
multiple of $5,000.
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\101\Sec. 221(b)(1).
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for student loan interest,
makes the system simpler and fairer for all families and
individuals, and allows for lower tax rates. The Committee
further believes that repeal of this provision is consistent
with streamlining the tax code, broadening the tax base,
lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the deduction for student loan
interest.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2017.
5. Repeal of deduction for qualified tuition and related expenses (sec.
1204 of the bill and sec. 222 of the Code)
PRESENT LAW
For taxable years beginning before January 1, 2017, an
individual is allowed an above-the-line deduction for qualified
tuition and related expenses for higher education paid by the
individual during the taxable year.\102\ Qualified tuition
includes tuition and fees required for the enrollment or
attendance by 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. The expenses must be in connection with
enrollment at an institution of higher education during the
taxable year, or with an academic term 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.
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\102\Sec. 222(a).
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The maximum deduction is $4,000 for an individual whose AGI
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
AGI does not exceed $80,000 ($160,000 in the case of a joint
return).\103\ No deduction is allowed for an individual whose
AGI exceeds the relevant AGI 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, 2016.
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\103\Sec. 222(b)(2)(B).
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for tuition, makes the
system simpler and fairer for all families and individuals, and
allows for lower tax rates. The Committee further believes that
repeal of this provision is consistent with streamlining the
tax code, broadening the tax base, lowering rates, and growing
the economy.
EXPLANATION OF PROVISION
The provision repeals the deduction for qualified tuition
and related expenses.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2017.
6. Repeal of exclusion for educational assistance programs (sec. 1204
of the bill and sec. 127 of the Code)
PRESENT LAW
Up to $5,250 annually of educational assistance provided by
an employer to an employee is excludible from the employee's
gross income, provided that certain requirements are
satisfied.\104\ Nondiscrimination rules\105\ apply and the
educational assistance must be provided pursuant to a separate
written plan of the employer. The exclusion applies to both
graduate and undergraduate courses, and applies only with
respect to education provided to the employee (i.e., it does
not apply to education provided to the spouse or a child of the
employee). Amounts that are excludible from gross income for
income tax purposes are also excluded from wages for employment
tax purposes.
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\104\Sec. 127(a).
\105\The employer's educational assistance program must not
discriminate in favor of highly compensated employees, within the
meaning of Sec. 414(q). In addition, no more than five percent of the
amounts paid or incurred by the employer during the year for
educational assistance under a qualified educational assistance program
can be provided for the class of individuals consisting of more-than-
five-percent owners of the employer and the spouses or dependents of
such more-than-five-percent owners.
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For purposes of the exclusion, educational assistance means
the payment by an employer of expenses incurred by or on behalf
of the employee for education of the employee including, but
not limited to, tuition, fees and similar payments, books,
supplies, and equipment. Educational assistance also includes
the provision by the employer of courses of instruction for the
employee (including books, supplies, and equipment).
Educational assistance does not include (1) tools or supplies
that may be retained by the employee after completion of a
course, (2) meals, lodging, or transportation, and (3) any
education involving sports, games, or hobbies.
REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the exclusion for educational assistance
programs, makes the system simpler and fairer for all families
and individuals, and allows for lower tax rates. The Committee
further believes that repeal of this provision is consistent
with streamlining the tax code, broadening the tax base,
lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the exclusions from gross income and
wages for educational assistance programs.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2017.
7. Repeal of exclusion for interest on United States savings bonds used
for higher education expenses (sec. 1204 of the bill and sec. 135 of
the Code)
PRESENT LAW
Interest earned on a qualified United States Series EE
savings bond issued after 1989 is excludable from gross income
if the proceeds of the bond upon redemption do not exceed
qualified higher education expenses paid by the taxpayer during
the taxable year.\106\ Qualified higher education expenses
include tuition and fees (but not room and board expenses)
required for the enrollment or attendance of the taxpayer, the
taxpayer's spouse, or a dependent of the taxpayer at certain
eligible higher educational institutions. The amount of
qualified higher education expenses taken into account for
purposes of the exclusion is reduced by the amount of such
expenses taken into account in determining the Hope, American
Opportunity, or Lifetime Learning credits claimed by any
taxpayer, or taken into account in determining an exclusion
from gross income for a distribution from a qualified tuition
program or a Coverdell education savings account, with respect
to a particular student for the taxable year.
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\106\Sec. 135.
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The exclusion is phased out for certain higher-income
taxpayers, determined by the taxpayer's modified AGI during the
year the bond is redeemed. For 2017, the exclusion is phased
out for taxpayers with modified AGI between $78,150 and $93,150
($117,250 and $147,250 for married taxpayers filing a joint
return). To prevent taxpayers from effectively avoiding the
income phaseout limitation through the purchase of bonds
directly in the child's name, the interest exclusion is
available only with respect to U.S. Series EE savings bonds
issued to taxpayers who are at least 24 years old.
REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the exclusion for interest on United
States savings bonds used for higher education expenses, makes
the system simpler and fairer for all families and individuals,
and allows for lower tax rates. The Committee further believes
that repeal of this provision is consistent with streamlining
the tax code, broadening the tax base, lowering rates, and
growing the economy.
EXPLANATION OF PROVISION
The provision repeals exclusion for interest on Series EE
savings bonds used for qualified higher education expenses.
EFFECTIVE DATE
The provision generally applies to taxable years beginning
after December 31, 2017.
8. Repeal of exclusion for qualified tuition reductions (sec. 1204 of
the bill and sec. 117(d) of the Code)
PRESENT LAW
Qualified tuition reductions for certain education provided
to employees (and their spouses and dependents\107\) of certain
educational organizations are excludible from gross
income.\108\ The tuition reduction is subject to
nondiscrimination rules.\109\ The exclusion generally applies
below the graduate level, and to teaching and research
assistants who are students at the graduate level, but does not
apply to any amount received by a student that represents
payment for teaching, research or other services by the student
required as a condition for receiving the tuition reduction.
Amounts that are excludible from gross income for income tax
purposes are also excluded from wages for employment tax
purposes.
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\107\Individuals described under the rules of Sec. 132(h).
\108\Educational organization described in section
170(b)(1)(A)(ii). Sec. 117(d)(2).
\109\The exclusion applies with respect to highly compensated
employees, within the meaning of Sec. 414(q), only if such tuition
reductions are available on substantially the same terms to each member
of a group of employees which is defined under a reasonable
classification established by the employer, such that the benefit does
not discriminate in favor of highly compensated employees.
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the exclusion for qualified tuition
reductions, makes the system simpler and fairer for all
families and individuals, and allows for lower tax rates. The
Committee further believes that repeal of this provision is
consistent with streamlining the tax code, broadening the tax
base, lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the exclusions from gross income and
wages for qualified tuition reductions.
EFFECTIVE DATE
The provision applies to amounts paid or incurred after
December 31, 2017.
9. Rollovers between qualified tuition programs and qualified ABLE
programs (sec. 1205 of the bill and secs. 529 and 529A of the Code)
PRESENT LAW\110\
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\110\For a description of qualified tuition programs (also known as
529 plans), see the description of sec. 1203 of the bill.
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Qualified ABLE programs
The Code provides for a tax-favored savings program
intended to benefit disabled individuals, known as qualified
ABLE programs.\111\ A qualified ABLE program is a program
established and maintained by a State or agency or
instrumentality thereof. A qualified ABLE program must meet the
following conditions: (1) under the provisions of the program,
contributions may be made to an account (an ``ABLE account''),
established for the purpose of meeting the qualified disability
expenses of the designated beneficiary of the account; (2) the
program must limit a designated beneficiary to one ABLE
account; and (3) the program must meet certain other
requirements discussed below. A qualified ABLE program is
generally exempt from income tax, but is otherwise subject to
the taxes imposed on the unrelated business income of tax-
exempt organizations.
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\111\Sec. 529A.
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A designated beneficiary of an ABLE account is the owner of
the ABLE account. A designated beneficiary must be an eligible
individual (defined below) who established the ABLE account and
who is designated at the commencement of participation in the
qualified ABLE program as the beneficiary of amounts paid (or
to be paid) into and from the program.
Contributions to an ABLE account must be made in cash and
are not deductible for Federal income tax purposes. Except in
the case of a rollover contribution from another ABLE account,
an ABLE account must provide that it may not receive aggregate
contributions during a taxable year in excess of the amount
under section 2503(b) of the Code (the annual gift tax
exemption). For 2017, this is $14,000.\112\ Additionally, a
qualified ABLE program must provide adequate safeguards to
ensure that ABLE account contributions do not exceed the limit
imposed on accounts under the qualified tuition program of the
State maintaining the qualified ABLE program. Amounts in the
account accumulate on a tax-deferred basis (i.e., income on
accounts under the program is not subject to current income
tax).
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\112\This amount is indexed for inflation. In the case that
contributions to an ABLE account exceed the annual limit, an excise tax
in the amount of six percent of the excess contribution to such account
is imposed on the designated beneficiary. Such tax does not apply in
the event that the trustee of such account makes a corrective
distribution of such excess amounts by the due date (including
extensions) of the individual's tax return for the year within the
taxable year.
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A qualified ABLE program may permit a designated
beneficiary to direct (directly or indirectly) the investment
of any contributions (or earnings thereon) no more than two
times in any calendar year and must provide separate accounting
for each designated beneficiary. A qualified ABLE program may
not allow any interest in the program (or any portion thereof)
to be used as security for a loan.
Distributions from an ABLE account are generally includible
in the distributee's income to the extent consisting of
earnings on the account.\113\ Distributions from an ABLE
account are excludable from income to the extent that the total
distribution does not exceed the qualified disability expenses
of the designated beneficiary during the taxable year. If a
distribution from an ABLE account exceeds the qualified
disability expenses of the designated beneficiary, a pro rata
portion of the distribution is excludable from income. The
portion of any distribution that is includible in income is
subject to an additional 10-percent tax unless the distribution
is made after the death of the beneficiary. Amounts in an ABLE
account may be rolled over without income tax liability to
another ABLE account for the same beneficiary\114\ or another
ABLE account for the designated beneficiary's brother, sister,
stepbrother or stepsister who is also an eligible individual.
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\113\The rules of section 72 apply in determining the portion of a
distribution that consists of earnings.
\114\For instance, if a designated beneficiary were to relocate to
a different State.
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Except in the case of an ABLE account established in a
different ABLE program for purposes of transferring ABLE
accounts,\115\ no more than one ABLE account may be established
by a designated beneficiary. Thus, once an ABLE account has
been established by a designated beneficiary, no account
subsequently established by such beneficiary shall be treated
as an ABLE account.
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\115\In which case the contributor ABLE account must be closed 60
days after the transfer to the new ABLE account is made.
---------------------------------------------------------------------------
A contribution to an ABLE account is treated as a completed
gift of a present interest to the designated beneficiary of the
account. Such contributions qualify for the per-donee annual
gift tax exclusion ($14,000 for 2017) and, to the extent of
such exclusion, are exempt from the generation skipping
transfer (``GST'') tax. A distribution from an ABLE account
generally is not subject to gift tax or GST tax.
Eligible individuals
As described above, a qualified ABLE program may provide
for the establishment of ABLE accounts only if those accounts
are established and owned by an eligible individual, such owner
referred to as a designated beneficiary. For these purposes, an
eligible individual is an individual either (1) for whom a
disability certification has been filed with the Secretary for
the taxable year, or (2) who is entitled to Social Security
Disability Insurance benefits or SSI benefits\116\ based on
blindness or disability, and such blindness or disability
occurred before the individual attained age 26.
---------------------------------------------------------------------------
\116\These are benefits, respectively, under Title II or Title XVI
of the Social Security Act.
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A disability certification means a certification to the
satisfaction of the Secretary, made by the eligible individual
or the parent or guardian of the eligible individual, that the
individual has a medically determinable physical or mental
impairment, which results in marked and severe functional
limitations, and which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than 12 months, or is blind (within the
meaning of section 1614(a)(2) of the Social Security Act). Such
blindness or disability must have occurred before the date the
individual attained age 26. Such certification must include a
copy of the diagnosis of the individual's impairment and be
signed by a licensed physician.\117\
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\117\No inference may be drawn from a disability certification for
purposes of eligibility for Social Security, SSI or Medicaid benefits.
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Qualified disability expenses
As described above, the earnings on distributions from an
ABLE account are excluded from income only to the extent total
distributions do not exceed the qualified disability expenses
of the designated beneficiary. For this purpose, qualified
disability expenses are any expenses related to the eligible
individual's blindness or disability which are made for the
benefit of the designated beneficiary. Such expenses include
the following expenses: education, housing, transportation,
employment training and support, assistive technology and
personal support services, health, prevention and wellness,
financial management and administrative services, legal fees,
expenses for oversight and monitoring, funeral and burial
expenses, and other expenses, which are approved by the
Secretary under regulations and consistent with the purposes of
section 529A.
Transfer to State
In the event that the designated beneficiary dies, subject
to any outstanding payments due for qualified disability
expenses incurred by the designated beneficiary, all amounts
remaining in the deceased designated beneficiary's ABLE account
not in excess of the amount equal to the total medical
assistance paid such individual under any State Medicaid plan
established under title XIX of the Social Security Act shall be
distributed to such State upon filing of a claim for payment by
such State. Such repaid amounts shall be net of any premiums
paid from the account or by or on behalf of the beneficiary to
the State's Medicaid Buy-In program.
Treatment of ABLE accounts under Federal programs
Any amounts in an ABLE account, and any distribution for
qualified disability expenses, shall be disregarded for
purposes of determining eligibility to receive, or the amount
of, any assistance or benefit authorized by any Federal means-
tested program. However, in the case of the SSI program, a
distribution for housing expenses is not disregarded, nor are
amounts in an ABLE account in excess of $100,000. In the case
that an individual's ABLE account balance exceeds $100,000,
such individual's SSI benefits shall not be terminated, but
instead shall be suspended until such time as the individual's
resources fall below $100,000. However, such suspension shall
not apply for purposes of Medicaid eligibility.
REASONS FOR CHANGE
ABLE programs can be viewed as an alternative to college
savings, allowing a parent to save for a child with a
disability in the same way a parent might save for a child to
go to college. The Committee believes that families should have
the flexibility to transition between these savings vehicles by
allowing amounts saved in a section 529 account to be
transferred to an ABLE account tax-free.''
EXPLANATION OF PROVISION
The provision allows for amounts from qualified tuition
programs (also known as 529 accounts) to be rolled over to an
ABLE account without penalty, provided that the ABLE account is
owned by the designated beneficiary of that 529 account, or a
member of such designated beneficiary's family.\118\ Such
rolled-over amounts count towards the overall limitation on
amounts that can be contributed to an ABLE account within a
taxable year.\119\ Any amount rolled over that is in excess of
this limitation shall be includible in the gross income of the
distributee in a manner provided by section 72.\120\
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\118\For these purposes, a member of the family means, with respect
to any designated beneficiary, the taxpayer's: (1) spouse; (2) child or
descendant of a child; (3) brother, sister, stepbrother or stepsister;
(4) father, mother or ancestor of either; (5) stepfather or stepmother;
(6) niece or nephew; (7) aunt or uncle; (8) in-law; (9) the spouse of
any individual described in (2)-(8); and (10) any first cousin of the
designated beneficiary.
\119\529A(b)(2)(B).
\120\529(c)(3)(A).
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EFFECTIVE DATE
The provision applies to distributions after December 31,
2017.
D. Simplification and Reform of Deductions
1. Repeal of overall limitation on itemized deductions (sec. 1301 of
the bill and sec. 68 of the Code)
PRESENT LAW
The total amount of most otherwise allowable itemized
deductions (other than the deductions for medical expenses,
investment interest and casualty, theft or gambling losses) is
limited for certain upper-income taxpayers.\121\ All other
limitations applicable to such deductions (such as the separate
floors) are first applied and, then, the otherwise allowable
total amount of itemized deductions is reduced by three percent
of the amount by which the taxpayer's adjusted gross income
exceeds a threshold amount.
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\121\Sec. 68.
---------------------------------------------------------------------------
For 2017, the threshold amounts are $261,500 for single
taxpayers, $287,650 for heads of household, $313,800 for
married couples filing jointly, and $156,900 for married
taxpayers filing separately. These threshold amounts are
indexed for inflation. The otherwise allowable itemized
deductions may not be reduced by more than 80 percent by reason
of the overall limit on itemized deductions.
REASONS FOR CHANGE
The Committee believes that the overall limitation on
itemized deductions has functioned as a hidden marginal tax
rate. In its mission to make the Code simpler, fairer, and more
transparent, the Committee believes that the provision should
be repealed.
EXPLANATION OF PROVISION
The provision repeals the overall limitation on itemized
deductions.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
2. Modification of deduction for home mortgage interest (sec. 1302 of
the bill and sec. 163(h) of the Code)
PRESENT LAW
As a general matter, personal interest is not
deductible.\122\ Qualified residence interest is not treated as
personal interest and is allowed as an itemized deduction,
subject to limitations.\123\ Qualified residence interest means
interest paid or accrued during the taxable year on either
acquisition indebtedness or home equity indebtedness. A
qualified residence means the taxpayer's principal residence
and one other residence of the taxpayer selected to be a
qualified residence. A qualified residence can be a house,
condominium, cooperative, mobile home, house trailer, or boat.
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\122\Sec. 163(h)(1).
\123\Sec. 163(h)(2)(D) and (h)(3).
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Acquisition indebtedness
Acquisition indebtedness is indebtedness that is incurred
in acquiring, constructing, or substantially improving a
qualified residence of the taxpayer and which secures the
residence. The maximum amount treated as acquisition
indebtedness is $1 million ($500,000 in the case of a married
person filing a separate return).
Acquisition indebtedness also includes indebtedness from
the refinancing of other acquisition indebtedness but only to
the extent of the amount (and term) of the refinanced
indebtedness. Thus, for example, if the taxpayer incurs
$200,000 of acquisition indebtedness to acquire a principal
residence and pays down the debt to $150,000, the taxpayer's
acquisition indebtedness with respect to the residence cannot
thereafter be increased above $150,000 (except by indebtedness
incurred to substantially improve the residence).
Interest on acquisition indebtedness is allowable in
computing alternative minimum taxable income. However, in the
case of a second residence, the acquisition indebtedness may
only be incurred with respect to a house, apartment,
condominium, or a mobile home that is not used on a transient
basis.
Home equity indebtedness
Home equity indebtedness is indebtedness (other than
acquisition indebtedness) secured by a qualified residence.
The amount of home equity indebtedness may not exceed
$100,000 ($50,000 in the case of a married individual filing a
separate return) and may not exceed the fair market value of
the residence reduced by the acquisition indebtedness.
Interest on home equity indebtedness is not deductible in
computing alternative minimum taxable income.
Interest on qualifying home equity indebtedness is
deductible, regardless of how the proceeds of the indebtedness
are used. For example, personal expenditures may include health
costs and education expenses for the taxpayer's family members
or any other personal expenses such as vacations, furniture, or
automobiles. A taxpayer and a mortgage company can contract for
the home equity indebtedness loan proceeds to be transferred to
the taxpayer in a lump sum payment (e.g., a traditional
mortgage), a series of payments (e.g., a reverse mortgage), or
the lender may extend the borrower a line of credit up to a
fixed limit over the term of the loan (e.g., a home equity line
of credit).
Thus, the aggregate limitation on the total amount of a
taxpayer's acquisition indebtedness and home equity
indebtedness with respect to a taxpayer's principal residence
and a second residence that may give rise to deductible
interest is $1,100,000 ($550,000, for married persons filing a
separate return).
REASONS FOR CHANGE
The Committee believes that scaling back existing tax
incentives, including the home mortgage interest deduction,
makes the system simpler and fairer for all families and
individuals, and allows for lower tax rates. The Committee
further believes that modification of this provision is
consistent with streamlining the tax code, broadening the tax
base, lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision modifies the home mortgage interest deduction
in the following ways.
First, under the provision, only interest paid on
indebtedness used to acquire, construct or substantially
improve the taxpayer's principal residence may be included in
the calculation of the deduction. Thus, under the provision, a
taxpayer receives no deduction for interest paid on
indebtedness used to acquire a second home.
Second, under the provision, a taxpayer may treat no more
than $500,000 as principal residence acquisition indebtedness
($250,000 in the case of married taxpayers filing separately).
In the case of principal residence acquisition indebtedness
incurred before the date of introduction (November 2, 2017),
this limitation is $1,000,000 ($500,000 in the case of married
taxpayers filing separately).\124\ Although the term principal
residence acquisition indebtedness is not defined in the
statute, it is intended that this ``grandfathering'' provision
apply only with respect to indebtedness incurred with respect
to a taxpayer's principal residence.
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\124\Special rules apply in the case of indebtedness from
refinancing existing principal residence acquisition indebtedness.
Specifically, the $1,000,000 ($500,000 in the case of married taxpayers
filing separately) limitation continues to apply to any indebtedness
incurred on or after November 2, 2017, to refinance qualified residence
indebtedness incurred before that date to the extent the amount of the
indebtedness resulting from the refinancing does not exceed the amount
of the refinanced indebtedness. Thus, the maximum dollar amount that
may be treated as principal residence acquisition indebtedness will not
decrease by reason of a refinancing.
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Last, under the provision, interest paid on home equity
indebtedness is not treated as qualified residence interest,
and thus is not deductible. This is the case regardless of when
the home equity indebtedness was incurred.
EFFECTIVE DATE
The provision is effective for interest paid or accrued in
taxable years beginning after December 31, 2017.
3. Modification of deduction for taxes not paid or accrued in a trade
or business (sec. 1303 of the bill and sec. 164(b) of the Code)
PRESENT LAW
Individuals are permitted a deduction for certain taxes
paid or accrued, whether or not incurred in a taxpayer's trade
or business. These taxes are: (i) State and local real and
foreign property taxes;\125\ (ii) State and local personal
property taxes;\126\ (iii) State, local, and foreign income,
war profits, and excess profits taxes.\127\ 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 for
State and local income taxes.\128\
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\125\Sec. 164(a)(1).
\126\Sec. 164(a)(2).
\127\Sec. 164(a)(3). A foreign tax credit, in lieu of a deduction,
is allowable for foreign taxes if the taxpayer so elects.
\128\Sec. 164(b)(5).
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Property taxes may be allowed as a deduction in computing
adjusted gross income if incurred in connection with property
used in a trade or business; otherwise they are an itemized
deduction. In the case of State and local income taxes, the
deduction is an itemized deduction notwithstanding that the tax
may be imposed on profits from a trade or business.\129\
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\129\See H. Rep. No. 1365 to accompany Individual Income Tax Bill
of 1944 (78th Cong., 2d. Sess.), reprinted at 19 C.B. 839 (1944).
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Individuals also are permitted a deduction for Federal and
State generation skipping transfer tax (``GST tax'') imposed on
certain income distributions that are included in the gross
income of the distributee.\130\
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\130\Sec. 164(a)(4).
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In determining a taxpayer's alternative minimum taxable
income, no itemized deduction for property, income, or sales
tax is allowed.
REASONS FOR CHANGE
The Committee believe that scaling back existing tax
incentives, including the deduction for State and local taxes,
makes the system simpler and fairer for all families and
individuals, and allows for lower tax rates. The Committee
further believes that modification of this provision to apply
only to real property taxes is consistent with streamlining the
tax code, broadening the tax base, lowering rates, and growing
the economy.
EXPLANATION OF PROVISION
Under the provision, in the case of an individual, as a
general matter, State, local, and foreign property taxes and
State and local sales taxes are allowed as a deduction only
when paid or accrued in carrying on a trade or business, or an
activity described in section 212 (relating to expenses for the
production of income).\131\ Thus, the provision allows only
those deductions for State, local, and foreign property taxes,
and sales taxes, that are presently deductible in computing
income on an individual's Schedule C, Schedule E, or Schedule F
on such individual's tax return. Thus, for instance, in the
case of property taxes, an individual may deduct such items
only if these taxes were imposed on business assets (such as
residential rental property).
---------------------------------------------------------------------------
\131\The proposal does not modify the deductibility of GST tax
imposed on certain income distributions.
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The provision contains an exception to the above-stated
rule in the case of real property taxes. Under this exception,
an individual may claim an itemized deduction of up to $10,000
($5,000 for married taxpayer filing a separate return) for
property taxes paid or accrued in the taxable year, in addition
to any property taxes deducted in carrying on a trade or
business or an activity described in section 212. Foreign real
property taxes may not be deducted under this exception.
Under the provision, in the case of an individual, State
and local income, war profits, and excess profits taxes are not
allowable as a deduction.
It is intended that persons required to report refunds of
State and local income taxes under section 6050E should no
longer be required to report such refunds of tax relating to
taxable years beginning after December 31, 2017. A technical
amendment may be needed to reflect this intent.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
4. Repeal of deduction for personal casualty and theft losses (sec.
1304 of the bill and sec. 165 of the Code)
PRESENT LAW
A taxpayer may generally claim a deduction for any loss
sustained during the taxable year, not compensated by insurance
or otherwise. For individual taxpayers, deductible losses must
be incurred in a trade or business or other profit-seeking
activity or consist of property losses arising from fire,
storm, shipwreck, or other casualty, or from theft.\132\
Personal casualty or theft losses are deductible only if they
exceed $100 per casualty or theft. In addition, aggregate net
casualty and theft losses are deductible only to the extent
they exceed 10 percent of an individual taxpayer's adjusted
gross income.
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\132\Sec. 165(c).
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for personal casualty and
theft losses, makes the system simpler and fairer for all
families and individuals, and allows for lower tax rates. The
Committee further believes that repeal of this provision is
consistent with streamlining the tax code, broadening the tax
base, lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the deduction for personal casualty
and theft losses. However, notwithstanding the repeal of the
deduction, the provision retains the benefit of the deduction,
as modified by the Disaster Tax Relief and Airport and Airway
Extension Act of 2017,\133\ for those individuals who sustained
a personal casualty loss arising from hurricanes Harvey, Irma,
or Maria.
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\133\Pub. L. No. 115-63.
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EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
5. Limitation on wagering losses (sec. 1305 of the bill and sec. 165 of
the Code)
PRESENT LAW
Losses sustained during the taxable year on wagering
transactions are allowed as a deduction only to the extent of
the gains during the taxable year from such transactions.\134\
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\134\Sec. 165(d).
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REASONS FOR CHANGE
The Committee believes that the scope of the limitation on
wagering losses should be broadened to cover expenses incurred
in the conduct of the individual's gambling activity.
EXPLANATION OF PROVISION
The provision clarifies the scope of ``losses from wagering
transactions'' as that term is used in section 165(d). Under
the provision, this term includes any deduction otherwise
allowable under chapter 1 of the Code incurred in carrying on
any wagering transaction.
The provision is intended to clarify that the limitation on
losses from wagering transactions applies not only to the
actual costs of wagers incurred by an individual, but to other
expenses incurred by the individual in connection with the
conduct of that individual's gambling activity.\135\ The
provision clarifies, for instance, an individual's otherwise
deductible expenses in traveling to or from a casino are
subject to the limitation under section 165(d).
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\135\The provision thus reverses the result reached by the Tax
Court in Ronald A. Mayo v. Commissioner, 136 T.C. 81 (2011). In that
case, the Court held that a taxpayer's expenses incurred in the conduct
of the trade or business of gambling, other than the cost of wagers,
were not limited by sec. 165(d), and were thus deductible under sec.
162(a).
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EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
6. Modifications to the deduction for charitable contributions (sec.
1306 of the bill and sec. 170 of the Code)
PRESENT LAW
In general
The Internal Revenue Code allows taxpayers to reduce their
income tax liability by taking deductions for contributions to
certain organizations, including charities, Federal, State,
local, and Indian tribal governments, and certain other
organizations.
To be deductible, a charitable contribution generally must
meet several threshold requirements. First, the recipient of
the transfer must be eligible to receive charitable
contributions (i.e., an organization or entity described in
section 170(c)). Second, the transfer must be made with
gratuitous intent and without the expectation of a benefit of
substantial economic value in return. Third, the transfer must
be complete and generally must be a transfer of a donor's
entire interest in the contributed property (i.e., not a
contingent or partial interest contribution). To qualify for a
current year charitable deduction, payment of the contribution
must be made within the taxable year.\136\ Fourth, the transfer
must be of money or property--contributions of services are not
deductible.\137\ Finally, the transfer must be substantiated
and in the proper form.
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\136\Sec. 170(a)(1).
\137\For example, as discussed in greater detail below, the value
of time spent volunteering for a charitable organization is not
deductible. Incidental expenses such as mileage, supplies, or other
expenses incurred while volunteering for a charitable organization,
however, may be deductible.
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As discussed below, special rules limit the deductibility
of a taxpayer's charitable contributions in a given year to a
percentage of income, and those rules, in part, turn on whether
the organization receiving the contributions is a public
charity or a private foundation. Other special rules determine
the deductible value of contributed property for each type of
property.
Contributions of partial interests in property
In general
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 while retaining an interest
in that property or transferring an interest in that property
to a noncharity for less than full and adequate
consideration.\138\ This rule of nondeductibility, often
referred to as the partial interest rule, generally prohibits a
charitable deduction for contributions of income interests,
remainder interests, or rights to use property.
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\138\Secs. 170(f)(3)(A) (income tax), 2055(e)(2) (estate tax), and
2522(c)(2) (gift tax).
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A charitable contribution deduction generally is not
allowable for a contribution of a future interest in tangible
personal property.\139\ For this purpose, a future interest is
one ``in which a donor purports to give tangible personal
property to a charitable organization, but has an
understanding, arrangement, agreement, etc., whether written or
oral, with the charitable organization that has the effect of
reserving to, or retaining in, such donor a right to the use,
possession, or enjoyment of the property.''\140\
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\139\Sec. 170(a)(3).
\140\Treas. Reg. sec. 1.170A-5(a)(4). Treasury regulations provide
that section 170(a)(3), which generally denies a deduction for a
contribution of a future interest in tangible personal property, has
``no application in respect of a transfer of an undivided present
interest in property. For example, a contribution of an undivided one-
quarter interest in a painting with respect to which the donee is
entitled to possession during three months of each year shall be
treated as made upon the receipt by the donee of a formally executed
and acknowledged deed of gift. However, the period of initial
possession by the donee may not be deferred in time for more than one
year.'' Treas. Reg. sec. 1.170A-5(a)(2).
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A gift of an undivided portion of a donor's entire interest
in property generally is not treated as a nondeductible gift of
a partial interest in property.\141\ For this purpose, an
undivided portion of a donor's entire interest in property must
consist of a fraction or percentage of each and every
substantial interest or right owned by the donor in such
property and must extend over the entire term of the donor's
interest in such property.\142\ A gift generally is treated as
a gift of an undivided portion of a donor's entire interest in
property if the donee is given the right, as a tenant in common
with the donor, to possession, dominion, and control of the
property for a portion of each year appropriate to its interest
in such property.\143\
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\141\Sec. 170(f)(3)(B)(ii).
\142\Treas. Reg. sec. 1.170A-7(b)(1).
\143\Treas. Reg. sec. 1.170A-7(b)(1).
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Other exceptions to the partial interest rule are provided
for, among other interests: (1) remainder interests in
charitable remainder annuity trusts, charitable remainder
unitrusts, and pooled income funds; (2) present interests in
the form of a guaranteed annuity or a fixed percentage of the
annual value of the property; (3) a remainder interest in a
personal residence or farm; and (4) qualified conservation
contributions.
Qualified conservation contributions
Qualified conservation contributions are not subject to the
partial interest rule, which generally bars deductions for
charitable contributions of partial interests in property.\144\
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 (generally, a
conservation easement). 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.
---------------------------------------------------------------------------
\144\Secs. 170(f)(3)(B)(iii) and 170(h).
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Percentage limits on charitable contributions
Individual taxpayers
Charitable contributions by individual taxpayers are
limited to a specified percentage of the individual's
contribution base. The contribution base is the taxpayer's
adjusted gross income (``AGI'') for a taxable year,
disregarding any net operating loss carryback to the year under
section 172.\145\ In general, more favorable (higher)
percentage limits apply to contributions of cash and ordinary
income property than to contributions of capital gain property.
More favorable limits also generally apply to contributions to
public charities (and certain operating foundations) than to
contributions to nonoperating private foundations.
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\145\Sec. 170(b)(1)(G).
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More specifically, the deduction for charitable
contributions by an individual taxpayer of cash and property
that is not appreciated to a charitable organization described
in section 170(b)(1)(A) (public charities, private foundations
other than nonoperating private foundations, and certain
governmental units) may not exceed 50 percent of the taxpayer's
contribution base. Contributions of this type of property to
nonoperating private foundations generally may be deducted up
to the lesser of 30 percent of the taxpayer's contribution base
or the excess of (i) 50 percent of the contribution base over
(ii) the amount of contributions subject to the 50 percent
limitation.
Contributions of appreciated capital gain property to
public charities and other organizations described in section
170(b)(1)(A) generally are deductible up to 30 percent of the
taxpayer's contribution base (after taking into account
contributions other than contributions of capital gain
property). An individual may elect, however, to bring all these
contributions of appreciated 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 appreciated capital gain property to nonoperating private
foundations are deductible up to the lesser of 20 percent of
the taxpayer's contribution base or the excess of (i) 30
percent of the contribution base over (ii) the amount of
contributions subject to the 30 percent limitation.
Finally, contributions that are for the use of (not to) the
donee charity get less favorable percentage limits.
Contributions of capital gain property for the use of public
charities and other organizations described in section
170(b)(1)(A) also are limited to 20 percent of the taxpayer's
contribution base. Property contributed for the use of an
organization generally has been interpreted to mean property
contributed in trust for the organization.\146\ Charitable
contributions of income interests (where deductible) also
generally are treated as contributions for the use of the donee
organization.
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\146\Rockefeller v. Commissioner, 676 F.2d 35, 39 (2d Cir. 1982).
Table 3--CHARITABLE CONTRIBUTION PERCENTAGE LIMITS FOR INDIVIDUAL TAXPAYERS\147\
----------------------------------------------------------------------------------------------------------------
Ordinary Capital Gain
Income Capital Gain Property for
Property and Property to the the use of the
Cash Recipient\148\ Recipient
----------------------------------------------------------------------------------------------------------------
Public Charities, Private Operating Foundations, and Private 50% 30%\149\ 20%
Distributing Foundations......................................
Nonoperating Private Foundations............................... 30% 20% 20%
----------------------------------------------------------------------------------------------------------------
\147\Percentages shown are the percentage of an individual's contribution base.
\148\Capital gain property contributed to public charities, private operating foundations, or private
distributing foundations will be subject to the 50-percent limitation if the donor elects to reduce the fair
market value of the property by the amount that would have been long-term capital gain if the property had
been sold.
\149\Certain qualified conservation contributions to public charities (generally, conservation easements),
qualify for more generous contribution limits. In general, the 30-percent limit applicable to contributions of
capital gain property is increased to 100 percent if the individual making the qualified conservation
contribution is a qualified farmer or rancher or to 50 percent if the individual is not a qualified farmer or
rancher.
Corporate taxpayers
A corporation generally may deduct charitable contributions
up to 10 percent of the corporation's taxable income for the
year.\150\ For this purpose, taxable income is determined
without regard to: (1) the charitable contributions deduction;
(2) any net operating loss carryback to the taxable year; (3)
deductions for dividends received; (4) deductions for dividends
paid on certain preferred stock of public utilities; and (5)
any capital loss carryback to the taxable year.\151\
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\150\Sec. 170(b)(2)(A).
\151\Sec. 170(b)(2)(C).
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Carryforwards of excess contributions
Charitable contributions that exceed the applicable
percentage limit generally may be carried forward for up to
five years.\152\ In general, contributions carried over from a
prior year are taken into account after contributions for the
current year that are subject to the same percentage limit.
Excess contributions made for the use of (rather than to) an
organization generally may not be carried forward.
---------------------------------------------------------------------------
\152\Sec. 170(d).
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Qualified conservation contributions
Preferential percentage limits and carryforward rules apply
for qualified conservation contributions.\153\ In general, the
30-percent contribution base limitation on contributions of
capital gain property by individuals does not apply to
qualified conservation contributions. Instead, individuals may
deduct the fair market value of any qualified conservation
contribution to an organization described in section
170(b)(1)(A) (generally, public charities) 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. Individuals
are allowed to carry forward any qualified conservation
contributions that exceed the 50-percent limitation for up to
15 years. 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.
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\153\Sec. 170(b)(1)(E).
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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.\154\
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\154\Sec. 170(b)(2)(B).
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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.
Valuation of charitable contributions
In general
For purposes of the income tax charitable deduction, the
value of property contributed to charity may be limited to the
fair market value of the property, the donor's tax basis in the
property, or in some cases a different amount.
Charitable contributions of cash are deductible in the
amount contributed, subject to the percentage limits discussed
above. In addition, a taxpayer generally may deduct the full
fair market value of long-term capital gain property
contributed to charity.\155\ Contributions of tangible personal
property also generally are deductible at fair market value if
the use by the recipient charitable organization is related to
its tax-exempt purpose.
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\155\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. Sec. 170(e)(1)(A).
---------------------------------------------------------------------------
In certain other cases, however, section 170(e) limits the
deductible value of the contribution of appreciated property to
the donor's tax basis in the property. This limitation of the
property's deductible value to basis generally applies, for
example, for: (1) contributions of inventory or other ordinary
income or short-term capital gain property;\156\ (2)
contributions of tangible personal property if the use by the
recipient charitable organization is unrelated to the
organization's tax-exempt purpose;\157\ and (3) contributions
to or for the use of a private foundation (other than certain
private operating foundations).\158\
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\156\Sec. 170(e). Special rules, discussed below, apply for certain
contributions of inventory and other property.
\157\Sec. 170(e)(1)(B)(i)(I).
\158\Sec. 170(e)(1)(B)(ii). Certain contributions of patents or
other intellectual property also generally are limited to the donor's
basis in the property. Sec. 170(e)(1)(B)(iii). However, a special rule
permits additional charitable deductions beyond the donor's tax basis
in certain situations.
---------------------------------------------------------------------------
For contributions of qualified appreciated stock, the
above-described rule that limits the value of property
contributed to or for the use of a private nonoperating
foundation to the taxpayer's basis in the property does not
apply; therefore, subject to certain limits, contributions of
qualified appreciated stock to a nonoperating private
foundation may be deducted at fair market value.\159\ Qualified
appreciated stock is stock that is capital gain property and
for which (as of the date of the contribution) market
quotations are readily available on an established securities
market.\160\ A contribution of qualified appreciated stock
(when increased by the aggregate amount of all prior such
contributions by the donor of stock in the corporation)
generally does not include a contribution of stock to the
extent the amount of the stock contributed exceeds 10 percent
(in value) of all of the outstanding stock of the
corporation.\161\
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\159\Sec. 170(e)(5).
\160\Sec. 170(e)(5)(B).
\161\Sec. 170(e)(5)(C).
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Contributions of property with a fair market value that is
less than the donor's tax basis generally are deductible at the
fair market value of the property.
Enhanced deduction rules for certain contributions of
inventory and other property
Although most charitable contributions of property are
valued at fair market value or the donor's tax basis in the
property, certain statutorily described contributions of
appreciated inventory and other property qualify for an
enhanced deduction valuation that exceeds the donor's tax basis
in the property, but which is less than the fair market value
of the property.
As discussed above, a taxpayer's deduction for charitable
contributions of inventory property generally is limited to the
taxpayer's basis (typically, cost) in the inventory, or if
less, the fair market value of the property. For certain
contributions of inventory, however, C corporations (but not
other taxpayers) 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.\162\ To be eligible for the
enhanced deduction value, the contributed property generally
must be inventory of the taxpayer, 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.\163\ Contributions to organizations that are not
described in section 501(c)(3), such as governmental entities,
do not qualify for this enhanced deduction.
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\162\Sec. 170(e)(3).
\163\Sec. 170(e)(3)(A)(i)-(iii).
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To use the enhanced deduction provision, the taxpayer must
establish that the fair market value of the donated item
exceeds basis.
A taxpayer engaged in a trade or business, whether or not a
C corporation, is eligible to claim the enhanced deduction for
certain donations of food inventory.\164\
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\164\Sec. 170(e)(3)(C).
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Selected statutory rules for specific types of
contributions
Special statutory rules limit the deductible value (and
impose enhanced reporting obligations on donors) of charitable
contributions of certain types of property, including vehicles,
intellectual property, and clothing and household items. Each
of these rules was enacted in response to concerns that some
taxpayers did not accurately report--and in many instances
overstated--the value of the property for purposes of claiming
a charitable deduction.
Vehicle donations.--Under present law, the amount of
deduction for charitable contributions of vehicles (generally
including automobiles, boats, and airplanes for which the
claimed value exceeds $500 and excluding inventory property)
depends upon the use of the vehicle by the donee organization.
If the donee organization sells the vehicle without any
significant intervening use or material improvement of such
vehicle by the organization, the amount of the deduction may
not exceed the gross proceeds received from the sale. In other
situations, a fair market value deduction may be allowed.
Patents and other intellectual property.--If a taxpayer
contributes a patent or other intellectual property (other than
certain copyrights or inventory)\165\ to a charitable
organization, the taxpayer's initial charitable deduction is
limited to the lesser of the taxpayer's basis in the
contributed property or the fair market value of the
property.\166\ In addition, the taxpayer generally is permitted
to deduct, as a charitable contribution, certain additional
amounts in the year of contribution or in subsequent taxable
years based on a specified percentage of the qualified donee
income received or accrued by the charitable donee with respect
to the contributed intellectual property. For this purpose,
qualified donee income includes net income received or accrued
by the donee that properly is allocable to the intellectual
property itself (as opposed to the activity in which the
intellectual property is used).\167\
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\165\Under present and prior law, certain copyrights are not
considered capital assets, such that the charitable deduction for such
copyrights generally is limited to the taxpayer's basis. See sec.
1221(a)(3), 1231(b)(1)(C).
\166\Sec. 170(e)(1)(B)(iii).
\167\The present-law rules allowing additional charitable
deductions for qualified donee income were enacted as part of the
American Jobs Creation Act of 2004, and are effective for contributions
made after June 3, 2004. For a more detailed description of these
rules, see Joint Committee on Taxation, General Explanation of Tax
Legislation Enacted in the 108th Congress (JCS-5-05), May 2005, pp.
457-461.
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Clothing and household items.--Charitable contributions of
clothing and household items generally are subject to the
charitable deduction rules applicable to tangible personal
property. If such contributed property is appreciated property
in the hands of the taxpayer, and is not used to further the
donee's exempt purpose, the deduction is limited to basis. In
most situations, however, clothing and household items have a
fair market value that is less than the taxpayer's basis in the
property. Because property with a fair market value less than
basis generally is deductible at the property's fair market
value, taxpayers generally may deduct only the fair market
value of most contributions of clothing or household items,
regardless of whether the property is used for exempt or
unrelated purposes by the donee organization. Furthermore, a
special rule generally provides that no deduction is allowed
for a charitable contribution of clothing or a household item
unless the item is in good used or better condition. The
Secretary is authorized to deny by regulation a deduction for
any contribution of clothing or a household item that has
minimal monetary value, such as used socks and used
undergarments. Notwithstanding the general rule, a charitable
contribution of clothing or household items not in good used or
better condition with a claimed value of more than $500 may be
deducted if the taxpayer includes with the taxpayer's return a
qualified appraisal with respect to the property.\168\
Household items include furniture, furnishings, electronics,
appliances, linens, and other similar items. Food, paintings,
antiques, and other objects of art, jewelry and gems, and
certain collections are excluded from the special rules
described in the preceding paragraph.\169\
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\168\As is discussed above, the charitable contribution
substantiation rules generally require a qualified appraisal where the
claimed value of a contribution is more than $5,000.
\169\The special rules concerning the deductibility of clothing and
household items were enacted as part of the Pension Protection Act of
2006, P.L. 109-280 (August 17, 2006), and are effective for
contributions made after August 17, 2006. For a more detailed
description of these rules, see Joint Committee on Taxation, General
Explanation of Tax Legislation Enacted in the 109th Congress (JCS-1-
07), January 17, 2007, pp. 597-600.
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College athletic seating rights.--In general, where a
taxpayer receives or expects to receive a substantial return
benefit for a payment to charity, the payment is not deductible
as a charitable contribution. However, special rules apply to
certain payments to institutions of higher education in
exchange for which the payor receives the right to purchase
tickets or seating at an athletic event. Specifically, the
payor may treat 80 percent of a payment as a charitable
contribution where: (1) the amount is paid to or for the
benefit of an institution of higher education (as defined in
section 3304(f)) described in section (b)(1)(A)(ii) (generally,
a school with a regular faculty and curriculum and meeting
certain other requirements), and (2) such amount would be
allowable as a charitable deduction but for the fact that the
taxpayer receives (directly or indirectly) as a result of the
payment the right to purchase tickets for seating at an
athletic event in an athletic stadium of such institution.\170\
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\170\Sec. 170(l).
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Use of a vehicle when volunteering for a charity
Unreimbursed out-of-pocket expenditures made incident to
providing donated services to a qualified charitable
organization--such as out-of-pocket transportation expenses
necessarily incurred in performing donated services--may
qualify as a charitable contribution.\171\ No charitable
contribution deduction is allowed for traveling expenses
(including expenses for meals and lodging) while away from
home, whether paid directly or by reimbursement, unless there
is no significant element of personal pleasure, recreation, or
vacation in such travel.\172\
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\171\Treas. Reg. sec. 1.170A-1(g).
\172\Sec. 170(j).
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In determining the amount treated as a charitable
contribution where a taxpayer operates a vehicle in providing
donated services to a charity, the taxpayer either may track
and deduct actual out-of-pocket expenditures or, in the case of
a passenger automobile, may use the charitable standard mileage
rate. The charitable standard mileage rate is set by statute at
14 cents per mile.\173\ The taxpayer may also deduct (under
either computation method), any parking fees and tolls incurred
in rendering the services, but may not deduct any amount
(regardless of the computation method used) for general repair
or maintenance expenses, depreciation, insurance, registration
fees, etc. Regardless of the computation method used, the
taxpayer must keep reliable written records of expenses
incurred. For example, where a taxpayer uses the charitable
standard mileage rate to determine a deduction, the IRS has
stated that the taxpayer generally must maintain records of
miles driven, time, place (or use), and purpose of the mileage.
If the charitable standard mileage rate is not used to
determine the deduction, the taxpayer generally must maintain
reliable written records of actual expenses incurred.\174\
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\173\Sec. 170(i).
\174\In lieu of actual operating expenses, an optional standard
mileage rate may be used in computing deductible transportation
expenses for medical purposes (section 213) or for work-related moving
(section 217). The standard mileage rates for medical and moving
purposes generally cover only out-of-pocket operating expenses
(including gasoline and oil) directly related to the use of the
automobile. Such rates do not include costs that are not deductible for
medical or moving purposes, such as general maintenance expenses,
depreciation, insurance, and registration fees. The medical and moving
standard mileage rates are determined by the IRS and updated
periodically. For expenses paid or incurred on or after January 1,
2017, the rate for both such purposes is 17 cents per mile. IRS Notice
2016-79.
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Substantiation and other formal requirements
In general
A donor who claims a deduction for a charitable
contribution must maintain reliable written records regarding
the contribution, regardless of the value or amount of such
contribution.\175\ In the case of a charitable contribution of
money, regardless of the amount, applicable recordkeeping
requirements are satisfied only if the donor maintains as a
record of the contribution a bank record or a written
communication from the donee showing the name of the donee
organization, the date of the contribution, and the amount of
the contribution. In such cases, the recordkeeping requirements
may not be satisfied by maintaining other written records.
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\175\Sec. 170(f)(17).
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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) to the taxpayer in consideration for the
contribution.\176\
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\176\Such acknowledgement must include the amount of cash and a
description (but not value) of any property other than cash
contributed, whether the donee provided any goods or services in
consideration for the contribution, and a good faith estimate of the
value of any such goods or services. Sec. 170(f)(8).
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In addition, any charity receiving 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 is deductible as a charitable
contribution.\177\
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\177\Sec. 6115.
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If the total charitable deduction claimed for noncash
property is more than $500, the taxpayer must attach a
completed Form 8283 (Noncash Charitable Contributions) to the
taxpayer's return or the deduction is not allowed.\178\ In
general, taxpayers are required to obtain a qualified appraisal
for donated property with a value of more than $5,000, and to
attach an appraisal summary to the tax return.
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\178\Sec. 170(f)(11).
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Exception for certain contributions reported by the donee
organization
Subsection 170(f)(8)(D) provides an exception to the
contemporaneous written acknowledgment requirement described
above. Under the exception, a contemporaneous written
acknowledgment is not required if the donee organization files
a return, on such form and in accordance with such regulations
as the Secretary may prescribe, that includes the same content.
``[T]he section 170(f)(8)(D) exception is not available unless
and until the Treasury Department and the IRS issue final
regulations prescribing the method by which donee reporting may
be accomplished.''\179\ No such final regulations have been
issued.\180\
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\179\See IRS, Notice of Proposed Rulemaking, Substantiation
Requirement for Certain Contributions, REG-138344-13 (October 13,
2015), I.R.B. 2015-41 (preamble).
\180\In October 2015, the IRS issued proposed regulations that, if
finalized, would have implemented the section 170(f)(8)(D) exception to
the contemporaneous written acknowledgment requirement. The proposed
regulations provided that a return filed by a donee organization under
section 170(f)(8)(D) must include, in addition to the information
generally required on a contemporaneous written acknowledgment: (1) the
name and address of the donee organization; (2) the name and address of
the donor; and (3) the taxpayer identification number of the donor. In
addition, the return must be filed with the IRS (with a copy provided
to the donor) on or before February 28 of the year following the
calendar year in which the contribution was made. Under the proposed
regulations, donee reporting would have been optional and would have
been available solely at the discretion of the donee organization. The
proposed regulations were withdrawn in January 2016. See Prop. Treas.
Reg. sec 1.170A-13(f)(18).
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REASONS FOR CHANGE
The Committee believes that a robust charitable sector is
vital to our economy, and that charitable giving is critical to
ensuring that the sector thrives. For this reason, the
Committee believes that it is desirable to provide additional
incentives for taxpayers to provide monetary and volunteer
support to charities. Increasing the charitable percentage
limit for cash contributions to public charities will encourage
taxpayers to provide essential monetary support to front-line
charities. Allowing the charitable standard mileage rate to be
adjusted for inflation will encourage the volunteer support
that charities need to carry out their missions. At the same
time, the Committee believes that taxpayers should only be
permitted a charitable deduction commensurate with the value of
assets given to charity. For this reason, the provision
eliminates the special rule under present law that allows
taxpayers to take a charitable deduction for 80 percent of an
amount contributed to a college or university in exchange for
the right to purchase stadium seating and denies a deduction
for such contribution.
EXPLANATION OF PROVISION
The provision makes the following modifications to the
present law charitable deduction rules.
Increased percentage limits for contributions of cash to public
charities
The provision increases the income-based percentage limit
described in section 170(b)(1)(A) for certain charitable
contributions by an individual taxpayer of cash to public
charities and certain other organizations from 50 percent to 60
percent.
Charitable mileage rate adjusted for inflation
The provision repeals the statutory charitable mileage rate
and provides instead that the standard mileage rate used for
determining the charitable contribution deduction shall be a
rate which takes into account the variable costs of operating
an automobile. The intent of the provision is to allow the IRS
to determine, and make periodic adjustments to, the charitable
standard mileage rate, taking into account the types of costs
that are deductible under section 170 of the Code when
operating a vehicle in connection with providing volunteer
services (i.e., generally, the out-of-pocket operating expenses
(including gasoline and oil) directly related to the use of the
automobile for such purposes).
Denial of deduction for college athletic event seating rights
The provision amends section 170(l) to provide that no
charitable deduction shall be allowed for any amount described
in paragraph 170(l)(2), generally, a payment to an institution
of higher education in exchange for which the payor receives
the right to purchase tickets or seating at an athletic event,
as described in greater detail above.
Repeal of substantiation exception for certain contributions reported
by the donee organization
The provision repeals the section 170(f)(8)(D) exception to
the contemporaneous written acknowledgment requirement.
EFFECTIVE DATE
The provision is effective for contributions made in
taxable years beginning after December 31, 2017.
7. Repeal of deduction for tax preparation expenses (sec. 1307 of the
bill and sec. 212 of the Code)
PRESENT LAW
For regular income tax purposes, individuals are allowed an
itemized deduction for expenses for the production of income.
These expenses are defined as ordinary and necessary expenses
paid or incurred in a taxable year: (1) for the production or
collection of income; (2) for the management, conservation, or
maintenance of property held for the production of income; or
(3) in connection with the determination, collection, or refund
of any tax.\181\
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\181\Sec. 212.
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for tax preparation
expenses, makes the system simpler and fairer for all families
and individuals, and allows for lower tax rates. The Committee
further believes that repeal of this provision is consistent
with streamlining the tax code, broadening the tax base,
lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the deduction for expenses in
connection with the determination, collection, or refund of any
tax.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
8. Repeal of deduction for medical expenses (sec. 1308 of the bill and
sec. 213 of the Code)
PRESENT LAW
Individuals may claim an itemized deduction for
unreimbursed medical expenses, but only to the extent that such
expenses exceed 10 percent of adjusted gross income.\182\ For
taxable years beginning before January 1, 2017, the 10-percent
threshold is reduced to 7.5 percent in the case of taxpayers
who have attained the age of 65 before the close of the taxable
year. In the case of married taxpayers, the 7.5 percent
threshold applies if either spouse has obtained the age of 65
before the close of the taxable year. For these taxpayers,
during these years, the threshold is 10 percent for AMT
purposes.
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\182\Sec. 213. The threshold was amended by the Patient Protection
and Affordable Care Act (Pub. L. No. 111-118). For taxable years
beginning before January 1, 2013, the threshold was 7.5 percent and 10
percent for alternative minimum tax (``AMT'') purposes.
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for unreimbursed medical
expenses, makes the system simpler and fairer for all families
and individuals, and allows for lower tax rates. The Committee
further believes that repeal of this provision is consistent
with streamlining the tax code, broadening the tax base,
lowering rates, and growing the economy.
EXPLANATION OF PROVISION
The provision repeals the deduction for unreimbursed
medical expenses.
EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
9. Repeal of deduction for alimony payments and corresponding inclusion
in gross income (sec. 1309 of the bill and secs. 61, 71, and 215 of the
Code)
PRESENT LAW
Alimony and separate maintenance payments are deductible by
the payor spouse and includible in income by the recipient
spouse.\183\ Child support payments are not treated as
alimony.\184\
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\183\Secs. 215(a), 61(a)(8) and 71(a).
\184\Sec. 71(c).
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REASONS FOR CHANGE
The Committee believes that the repeal of the deduction for
alimony payments from the payor spouse and repeal of the
corresponding inclusion in gross income by the recipient spouse
simplifies the tax code and prevents divorced couples from
reducing income tax through a specific form of payments
unavailable to married couples.
EXPLANATION OF PROVISION
Under the provision, alimony and separate maintenance
payments are not deductible by the payor spouse. The provision
repeals the Code provisions that specify that alimony and
separate maintenance payments are included in income. Thus, the
intent of the provision is to follow the rule of the United
States Supreme Court's holding in Gould v. Gould,\185\ in which
the Court held that such payments are not income to the
recipient. Income used for alimony payments is taxed at the
rates applicable to the payor spouse rather than the recipient
spouse. The treatment of child support is not changed.
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\185\245 U.S. 151 (1917).
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EFFECTIVE DATE
The provision is effective for any divorce or separation
instrument executed after December 31, 2017, or for any divorce
or separation instrument executed on or before December 31,
2017, and modified after that date, if the modification
expressly provides that the amendments made by this section
apply to such modification.
10. Repeal of deduction for moving expenses (sec. 1310 of the bill and
secs. 134 and 217 of the Code)
PRESENT LAW
Individuals are permitted an above-the-line deduction for
moving expenses paid or incurred during the taxable year in
connection with the commencement of work by the taxpayer as an
employee or as a self-employed individual at a new principal
place of work.\186\ Such expenses are deductible only if the
move meets certain conditions related to distance from the
taxpayer's previous residence and the taxpayer's status as a
full-time employee in the new location.
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\186\Sec. 217(a).
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Special rules apply in the case of a member of the Armed
Forces of the United States. In the case of any such individual
who is on active duty, who moves pursuant to a military order
and incident to a permanent change of station, the limitations
related to distance from the taxpayer's previous residence and
status as a full-time employee in the new location do not
apply.\187\ Additionally, any moving and storage expenses which
are furnished in kind to such an individual, spouse, or
dependents, or if such expenses are reimbursed or an allowance
for such expenses is provided, such amounts are excluded from
gross income.\188\ Rules also apply to exclude amounts
furnished to the spouse and dependents of such an individual in
the event that such individuals move to a location other than
to where the member of the Armed Forces is moving.
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\187\Sec. 217(g).
\188\Sec. 217(g)(2).
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Present law provides income exclusions for various benefits
provided to members of the Armed Forces.\189\
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\189\Sec. 134.
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for moving expenses, makes
the system simpler and fairer for all families and individuals,
and allows for lower tax rates. The Committee further believes
that repeal of this provision is consistent with streamlining
the tax code, broadening the tax base, lowering rates, and
growing the economy.
However, the Committee recognizes that special
circumstances apply to members of the Armed Forces, and thus
the provision retains the present law benefits relating to the
moving expenses of these taxpayers.
EXPLANATION OF PROVISION
The provision generally repeals the deduction for moving
expenses. The provision intends to retain tax benefits for the
moving expenses of members of the Armed Forces of the United
States.\190\ Thus, the provision retains the special rules
under present law that provide a exclusions for amounts
attributable to in-kind moving and storage expenses (and
reimbursements or allowances for these expenses) for members of
the Armed Forces (or their spouse or dependents) on active duty
that move pursuant to a military order and incident to a
permanent change of station.\191\
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\190\A technical amendment may be needed to reflect this intent for
the deduction for moving expenses for members of the Armed Forces.
\191\Under the provision, these exclusions are added to section
134.
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EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
11. Termination of deduction and exclusions for contributions to
medical savings accounts (sec. 1311 of the bill and secs. 106(b) and
220 of the Code)
PRESENT LAW
Archer MSAs
As of 1997, certain individuals are permitted to contribute
to an Archer MSA, which is a tax-exempt trust or custodial
account.\192\ Within limits, contributions to an Archer MSA are
deductible in determining adjusted gross income if made by an
individual and are excludible from gross income for income tax
purposes and wages for employment tax\193\ purposes if made by
the employer of an individual.\194\
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\192\Archer MSAs were originally called medical savings accounts or
MSAs.
\193\The FICA exclusion is provided under IRS Notice 96-53.
\194\Secs. 106(b) and 220.
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An individual is generally eligible for an Archer MSA if
the individual is covered by a high deductible health plan and
no other health plan other than a plan that provides certain
permitted insurance or permitted coverage. In addition, the
individual either must be an employee of a small employer
(generally an employer with 50 or fewer employees on average)
that provides the high deductible health plan or must be self-
employed or the spouse of a self-employed individual and the
high deductible health plan is not provided by the employer of
the individual or spouse.
For 2017, a high deductible health plan for purposes of
Archer MSA eligibility is a health plan with an annual
deductible of at least $2,250 and not more than $3,350 in the
case of self-only coverage and at least $4,500 and not more
than $6,750 in the case of family coverage. In addition, for
2017, the maximum out-of-pocket expenses with respect to
allowed costs must be no more than $4,500 in the case of self-
only coverage and no more than $8,250 in the case of family
coverage. Out-of-pocket expenses include deductibles, co-
payments, and other amounts (other than premiums) that the
individual must pay for covered benefits under the plan. A plan
does not fail to qualify as a high deductible health plan if
substantially all of the coverage under the plan is certain
permitted insurance or is coverage (whether provided through
insurance or otherwise) for accidents, disability, dental care,
vision care, or long-term care.
The maximum annual contribution that can be made to an
Archer MSA for a year is 65 percent of the annual deductible
under the individual's high deductible health plan in the case
of self-only coverage (65 percent of $3,350 for 2017) and 75
percent of the annual deductible in the case of family coverage
(75 percent of $6,750 for 2017), but in no case more than the
individual's compensation income. In addition, the maximum
contribution can be made only if the individual is covered by
the high deductible health plan for the full year.
Distributions from an Archer MSA for qualified medical
expenses are not includible in gross income. Distributions not
used for qualified medical expenses are includible in gross
income and subject to an additional 20-percent tax unless an
exception applies. A distribution from an Archer MSA may be
rolled over on a nontaxable basis to another Archer MSA or to a
health savings account and does not count against the
contribution limits.
After 2007, no new contributions can be made to Archer MSAs
except by or on behalf of individuals who previously had made
Archer MSA contributions and employees of small employers that
previously contributed to Archer MSAs (or at least 20 percent
of whose employees who were previously eligible to contribute
to Archer MSAs did so).
Health savings accounts
As of 2004, an individual with a high deductible health
plan (and no other health plan other than a plan that provides
certain permitted insurance or permitted coverage) generally
may contribute to a health savings account (``HSA''), which is
a tax-exempt trust or custodial account. HSAs provide similar
tax-favored savings treatment as Archer MSAs. That is, within
limits, contributions to an HSA are deductible in determining
adjusted gross income if made by an individual and are
excludable from gross income for income tax purposes and wages
for employment tax\195\ purposes if made by the employer of an
individual, and distributions for qualified medical expenses
are not includible in gross income.\196\ However, the rules for
HSAs are in various aspects more favorable than the rules for
Archer MSAs.\197\ For example, the availability of HSAs is not
limited to employees of small employers or self-employed
individuals and their spouses.
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\195\The FICA exclusion is provided under IRS Notice 2004-2.
\196\Secs. 106(d) and 223.
\197\Sections 4980E and 4980G respectively require an employer
making MSA or HSA contributions to make comparable contributions for
comparable participating employees. However, under section 4980G(d), an
employer may make larger HSA contributions for nonhighly compensated
employees.
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For 2017, a high deductible health plan for purposes of HSA
eligibility is a health plan with an annual deductible of at
least $1,300 in the case of self-only coverage and at least
$2,600 in the case of family coverage. In addition, for 2017,
the sum of the deductible and the maximum out-of-pocket
expenses with respect to allowed costs must be no more than
$6,550 in the case of self-only coverage and no more than
$13,100 in the case of family coverage. A plan does not fail to
qualify as a high deductible health plan for HSA purposes
merely because it does not have a deductible for preventive
care.
For 2017, the maximum aggregate annual contribution that
can be made to an HSA is $3,400 in the case of self-only
coverage and $6,750 in the case of family coverage. The annual
contribution limits are increased by $1,000 for individuals who
have attained age 55 by the end of the taxable year (referred
to as ``catch-up contributions''). The maximum amount that an
individual make contribute is reduced by the amount of any
contributions to the individual's Archer MSA and any excludable
HSA contributions made by the individual's employer. In some
cases, an individual may make the maximum HSA contribution,
even if the individual is covered by the high deductible health
plan for only part of the year. A distribution from an HSA may
be rolled over on a nontaxable basis to another HSA and does
not count against the contribution limits.
REASONS FOR CHANGE
The Committee recognizes that Archer MSAs provide fewer
benefits than HSAs. The termination of the deduction and
exclusions for contributions to Archer MSAs therefore
simplifies the Code by consolidating two similar tax-favored
accounts into a single account with more favorable benefits for
the taxpayer (i.e., HSAs).
EXPLANATION OF PROVISION
Under the provision, contributions to Archer MSAs for
taxable years beginning after December 31, 2017, are not
deductible or excludible from gross income and wages.\198\
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\198\The provision retains the requirement that an employer making
HSA contributions must make comparable contributions for comparable
participating employees, including the rule under which an employer may
make larger HSA contributions for nonhighly compensated employees. As
under present law, with respect to highly compensated employees, both
highly compensated employees and nonhighly compensated employees are to
be treated as comparable participating employees. (A technical
amendment is needed to the reference within new section 4980G(d)(3)(B)
to subparagraph (B), which should be a reference to subparagraph
(A)(ii).)
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EFFECTIVE DATE
The provision is effective for taxable years beginning
after December 31, 2017.
12. Denial of deduction for expenses attributable to the trade or
business of being an employee, expenses of teachers, performing artists
and certain officials (sec. 1312 of the bill and secs. 62, 67, and new
sec. 262A of the Code)
PRESENT LAW
In general, business expenses incurred by an employee are
deductible, but only as an itemized deduction and only to the
extent the expenses exceed two percent of adjusted gross
income.\199\ However, in the case of certain employees and
certain expenses, a deduction may be taken in determining
adjusted gross income (referred to as an ``above-the-line''
deduction), including expenses of qualified performing artists,
expenses of State or local government officials performing
services on a fee basis, and expenses of eligible
educators.\200\
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\199\Secs. 62(a)(1) and 67.
\200\Sec. 62(a)(2)(B), (C), and (D). Under section 62(a)(2)(A) and
(c), certain reimbursements of employee business expenses are excluded
from income. Under section 62(a)(2)(E), an above-the-line deduction
applies to expenses of members of a reserve component of the Armed
Forces.
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Present law and IRS guidance provide for numerous items
that may be deducted under this provision (subject to the two-
percent adjusted gross income floor). This non-exhaustive list
includes):\201\
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\201\See IRS Publication 529, ``Miscellaneous Deductions'' (2016),
p. 3.
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Business bad debt of an employee;
Business liability insurance premiums;
Damages paid to a former employer for
breach of an employment contract;
Depreciation on a computer a taxpayer's
employer requires him to use in his work;
Dues to a chamber of commerce if membership
helps the taxpayer do his job;
Dues to professional societies;
Educator expenses;\202\
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\202\Under a special provision, these expenses are deductible
``above the line'' up to $250.
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Home office or part of a taxpayer's home
used regularly and exclusively in the taxpayer's work;
Job search expenses in the taxpayer's
present occupation;
Laboratory breakage fees;
Legal fees related to the taxpayer's job;
Licenses and regulatory fees;
Malpractice insurance premiums;
Medical examinations required by an
employer;
Occupational taxes;
Passport for a business trip;
Repayment of an income aid payment received
under an employer's plan;
Research expenses of a college professor;
Rural mail carriers' vehicle expenses;
Subscriptions to professional journals and
trade magazines related to the taxpayer's work;
Tools and supplies used in the taxpayer's
work;
Travel, transportation, meals,
entertainment, gifts, and local lodging related to the
taxpayer's work;
Union dues and expenses;
Work clothes and uniforms if required and
not suitable for everyday use; and
Work-related education.
A working condition fringe provided to an employee is
excluded from the employee's income and wages.\203\ For this
purpose, a working condition fringe means property or services
provided to an employee to the extent that, if the employee
paid for the property or service, the payment would be
deductible as a business expense or depreciation.
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\203\Sec. 132(a)(3) and (d).
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REASONS FOR CHANGE
The Committee believes that the repeal of many existing tax
incentives, including the deduction for expenses attributable
to the trade or business of being an employee, and expenses of
teachers, performing artists, and certain officials, makes the
system simpler and fairer for all families and individuals, and
allows for lower tax rates. The Committee further believes that
repeal of this provision is consistent with streamlining the
tax code, broadening the tax base, lowering rates, and growing
the economy.
EXPLANATION OF PROVISION
Under the provision, business expenses incurred by an
employee are not deductible, other than expenses that are
deductible in determining adjusted gross income (that is,
above-the-line deductions).
In addition, the present-law provisions allowing above-the-
line deductions for expenses of qualified performing artists
and expenses of State or local government officials performing
services on a fee basis are repealed. The present-law provision
allowing an above-the-line deduction for expenses of eligible
educators is also repealed.\204\
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\204\The provision retains the present-law provisions under which
certain reim 