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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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \20\Sec. 704(b)(2).
    \21\Treas. Reg. sec. 1.704-1(b)(2).
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \41\Sec. 22(a).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \42\Sec. 22(d).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \43\Sec. 22(c)(3).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \46\Sec. 25.
    \47\Sec. 143.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \48\Sec. 3601 of the bill, infra.
---------------------------------------------------------------------------

                        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.
---------------------------------------------------------------------------
    \49\Sec. 30D.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \67\Sec. 32(c)(2)(A).
    \68\Sec. 32(c)(2)(B).
---------------------------------------------------------------------------
            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.
---------------------------------------------------------------------------
    \69\Sec. 6031 through 6060.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \73\Sec. 6051(a).
    \74\Sec. 6041A.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \75\Sec. 6050W.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \76\Sec. 6041(d).
    \77\Sec. 6071(d).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \78\Sec. 6721.
    \79\Sec. 6722.
    \80\Sec. 6723.
    \81\Sec. 6724.
---------------------------------------------------------------------------
            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).
---------------------------------------------------------------------------

                           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\
---------------------------------------------------------------------------
    \85\Sec. 25A(b)(2)(D).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \86\Sec. 25A(a)(2).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \88\Sec. 530.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \95\Sec. 108(f).
---------------------------------------------------------------------------
    Student loans eligible for this special rule must be made 
to an individual to assist the individual in attending an 
educational institution that normally maintains a regular 
faculty and curriculum and normally has a regularly enrolled 
body of students in attendance at the place where its education 
activities are regularly carried on. Loan proceeds may be used 
not only for tuition and required fees, but also to cover room 
and board expenses. The loan must be made by (1) the United 
States (or an instrumentality or agency thereof), (2) a State 
(or any political subdivision thereof), (3) certain tax-exempt 
public benefit corporations that control a State, county, or 
municipal hospital and whose employees have been deemed to be 
public employees under State law, or (4) an educational 
organization that originally received the funds from which the 
loan was made from the United States, a State, or a tax-exempt 
public benefit corporation.
    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\
---------------------------------------------------------------------------
    \96\15 U.S.C. 1650(7).
---------------------------------------------------------------------------
    Under the provision, the discharge of a loan as described 
above is excluded from gross income if the discharge was 
pursuant to the death or total and permanent disability of the 
student.\97\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

                             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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \101\Sec. 221(b)(1).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \102\Sec. 222(a).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \103\Sec. 222(b)(2)(B).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \106\Sec. 135.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

                           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\
---------------------------------------------------------------------------

    \110\For a description of qualified tuition programs (also known as 
529 plans), see the description of sec. 1203 of the bill.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \111\Sec. 529A.
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \117\No inference may be drawn from a disability certification for 
purposes of eligibility for Social Security, SSI or Medicaid benefits.
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------

                             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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \122\Sec. 163(h)(1).
    \123\Sec. 163(h)(2)(D) and (h)(3).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \130\Sec. 164(a)(4).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \132\Sec. 165(c).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \133\Pub. L. No. 115-63.
---------------------------------------------------------------------------

                             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\
---------------------------------------------------------------------------
    \134\Sec. 165(d).
---------------------------------------------------------------------------

                           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).
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------

                             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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \138\Secs. 170(f)(3)(A) (income tax), 2055(e)(2) (estate tax), and 
2522(c)(2) (gift tax).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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).
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \145\Sec. 170(b)(1)(G).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \153\Sec. 170(b)(1)(E).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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\
---------------------------------------------------------------------------
    \159\Sec. 170(e)(5).
    \160\Sec. 170(e)(5)(B).
    \161\Sec. 170(e)(5)(C).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \162\Sec. 170(e)(3).
    \163\Sec. 170(e)(3)(A)(i)-(iii).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

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.
---------------------------------------------------------------------------
    \175\Sec. 170(f)(17).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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\
---------------------------------------------------------------------------
    \177\Sec. 6115.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \178\Sec. 170(f)(11).
---------------------------------------------------------------------------
            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\
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------

                           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\
---------------------------------------------------------------------------
    \183\Secs. 215(a), 61(a)(8) and 71(a).
    \184\Sec. 71(c).
---------------------------------------------------------------------------

                           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.
---------------------------------------------------------------------------
    \185\245 U.S. 151 (1917).
---------------------------------------------------------------------------

                             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.
---------------------------------------------------------------------------
    \186\Sec. 217(a).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \187\Sec. 217(g).
    \188\Sec. 217(g)(2).
---------------------------------------------------------------------------
    Present law provides income exclusions for various benefits 
provided to members of the Armed Forces.\189\
---------------------------------------------------------------------------
    \189\Sec. 134.
---------------------------------------------------------------------------

                           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 reimbursements of employee business expenses are excluded from 
income and under which an above-the-line deduction applies to expenses 
of members of a reserve component of the Armed Forces.
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    In addition, whether property or services provided by an 
employer are excluded as a working condition fringe is 
determined without regard to the provision. That is, the same 
standard as under present law applies for this purpose.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2017.

  E. Simplification and Reform of Exclusions and Taxable Compensation


1. Limitation on exclusion for employer-provided housing (sec. 1401 of 
                   the bill and sec. 119 of the Code)


                              PRESENT LAW

    The value of lodging furnished to an employee, spouse, or 
dependents by or on behalf of an employer for the convenience 
of the employer (referred to as ``employer-provided lodging'') 
is excludible from the employee's gross income, but only if the 
employee is required to accept the lodging on the business 
premises of the employer as a condition of employment.\205\ 
Special rules apply with respect to employees living in foreign 
camps\206\ and lodging furnished by certain educational 
institutions to employees.\207\ Amounts attributable to 
employer-provided lodging that are excludible from gross income 
for income tax purposes are also excluded from wages for 
employment tax purposes.
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    \205\Sec. 119(a).
    \206\Sec. 119(c).
    \207\Sec. 119(d).
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                           REASONS FOR CHANGE

    The Committee believes that limiting the exclusion for 
employer-provided housing broadens the tax base, closes 
loopholes, and allows for lower tax rates. The Committee 
further believes that limiting the exclusion accomplishes these 
goals without placing undue burden on lower income taxpayers, 
achieving simplicity and fairness for all individuals and 
families.

                        EXPLANATION OF PROVISION

    The provision limits the amount that may be excluded from 
gross income for employer-provided lodging to $50,000 ($25,000 
in the case of a married individual filing a separate return), 
subject to a phase-out based on the employee's level of 
compensation. The exclusion is phased out by $1 for every $2 
earned above the indexed compensation threshold. For 2017, this 
compensation threshold is $120,000.\208\ The provision also 
denies any exclusion for employer-provided housing provided to 
5% owners,\209\ regardless of their compensation level.
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    \208\The compensation threshold is that amount in effect under 
section 414(q)(1)(B)(i).
    \209\As defined in section 416(i)(1)(B)(i).
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    In addition, the exclusion does not apply to more than one 
residence at any given time. In the case of spouses filing a 
joint return, the one residence limit may be applied separately 
to each spouse for a period during which the spouses reside in 
separate residences provided in connection with their 
respective employments.
    Those amounts that are not excludible from gross income for 
income tax purposes will also not be excluded from wages for 
employment tax purposes.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2017.

 2. Modification of exclusion of gain on sale of a principal residence 
            (sec. 1402 of the bill and sec. 121 of the Code)


                              PRESENT LAW

    A taxpayer who is an individual may exclude up to $250,000 
($500,000 if married filing a joint return) of gain realized on 
the sale or exchange of a principal residence. To be eligible 
for the exclusion, the taxpayer must have owned and used the 
residence as a principal residence for at least two of the five 
years ending on the date of the sale or exchange. A taxpayer 
who fails to meet these requirements by reason of a change of 
place of employment, health, or, to the extent provided under 
regulations, unforeseen circumstances, is able to exclude an 
amount equal to the fraction of the $250,000 ($500,000 if 
married filing a joint return) that is equal to the fraction of 
the two years that the ownership and use requirements are met.
    The exclusion under this provision may not be claimed for 
more than one sale or exchange during any two-year period.

                           REASONS FOR CHANGE

    The Committee believes that the exclusion on proceeds from 
the sale of a principal residence is intended to prevent 
longtime homeowners from recognizing a gain upon an infrequent 
and important transaction, and to allow those individuals to 
use the full proceeds of the home sale to purchase another 
home. The Committee believes that present-law the rule allowing 
individuals to live in their home for only two out of the prior 
five years to qualify for the exclusion has allowed individuals 
to cycle between building homes and living in those homes while 
they build the next, selling the lived-in home and qualifying 
for the exclusion on the proceeds. Such use takes advantage of 
the exclusion in a manner that was not intended.
    The Committee further believes that high income taxpayers 
should not be eligible for the exclusion.

                        EXPLANATION OF PROVISION

    The provision extends the length of time a taxpayer must 
own and use a residence to qualify for this exclusion. 
Specifically, the exclusion is available only if the taxpayer 
has owned and used the residence as a principal residence for 
at least five of the eight years ending on the date of the sale 
or exchange. A taxpayer who fails to meet these requirements by 
reason of a change of place of employment, health, or, to the 
extent provided under regulations, unforeseen circumstances is 
able to exclude an amount equal to the fraction of the $250,000 
($500,000 if married filing a joint return) that is equal to 
the fraction of the five years that the ownership and use 
requirements are met.
    The provision limits the exclusion so that the exclusion 
may not apply to more than one sale or exchange during any 
five-year period.
    The provision phases-out the exclusion by one dollar for 
every dollar a taxpayer's AGI exceeds $250,000 ($500,000 if 
married filing a joint return). For purposes of this provision, 
AGI is measured using the average of the taxpayer's AGI in the 
year of sale (excluding any income from the sale of the home) 
and the prior two taxable years before the sale.

                             EFFECTIVE DATE

    The provision is effective for sales and exchanges after 
December 31, 2017.

  3. Repeal of exclusion, etc., for employee achievement awards (sec. 
        1403 of the bill and secs. 74(c) and 274(j) of the Code)


                              PRESENT LAW

    An employer's deduction for the cost of an employee 
achievement award is limited to a certain amount.\210\ Employee 
achievement awards that are deductible by an employer (or would 
be deductible but for the fact that the employer is a tax-
exempt organization) are excludible from an employee's gross 
income.\211\ Amounts that are excludible from gross income 
under section 74(c) for income tax purposes are als