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                          HOUSE OF REPRESENTATIVES 

 1st Session    }                                           { 115-466               
                                                            
_______________________________________________________________________


                         TAX CUTS AND JOBS ACT

                               __________


                           CONFERENCE REPORT

                              TO ACCOMPANY

                                 H.R. 1


             [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



              December 15, 2017.--Ordered to be printed
              
              
              
                      U.S. GOVERNMENT PUBLISHING OFFICE
                
27-788                         WASHINGTON: 2017              
              
              
              
              
                            C O N T E N T S

                              ----------                              
                                                                   Page
CONFERENCE REPORT................................................     1
JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE.......   191
TITLE I--INDIVIDUAL TAX REFORM...................................   191
          A. Reduction and Simplification of Individual Income 
              Tax Rates (sec. 1001 of the House bill, sec. 11001 
              of the Senate amendment, and sec. 1 of the Code)...   191
              1. Increase in standard deduction (sec. 1002 of the 
                  House bill, sec. 11021 of the Senate amendment, 
                  and sec. 63 of the Code).......................   201
              2. Repeal of the deduction for personal exemptions 
                  (sec. 1003 of the House bill, sec. 11041 of the 
                  Senate amendment, and sec. 151 of the Code)....   202
              3. Alternative inflation adjustment (secs. 1001 and 
                  1005 of the House bill, sec. 11002 of the 
                  Senate amendment, and sec. 1 of the Code)......   204
          B. Treatment of Business Income of Individuals, Trusts, 
              and Estates........................................   205
              1. Deduction for qualified business income (sec. 
                  1004 of the House bill, sec. 11011 of the 
                  Senate amendment, and sec. 199A of the Code)...   205
          C. Simplification and Reform of Family and Individual 
              Tax Credits........................................   225
              1. Enhancement of child tax credit and new family 
                  credit (sec. 1101 of the House bill, sec. 11022 
                  of the Senate amendment, and sec. 24 of the 
                  Code)..........................................   225
              2. Credit for the elderly and permanently disabled 
                  (sec. 1102(a) of the House bill and sec. 22 of 
                  the Code)......................................   228
              3. Repeal of credit for plug-in electric drive 
                  motor vehicles (sec. 1102(c) of the House bill 
                  and sec. 30D of the Code)......................   229
              4. Termination of credit for interest on certain 
                  home mortgages (sec. 1102(b) of the House bill 
                  and sec. 25 of the Code).......................   229
              5. Modification of taxpayer identification number 
                  requirements for the child tax credit, earned 
                  income credit, and American Opportunity credit 
                  (sec. 1103 of the House bill, sec. 11022 of the 
                  Senate amendment and secs. 24, 25A and 32 of 
                  the Code)......................................   230
              6. Procedures to reduce improper claims of earned 
                  income credit (sec. 1104 of the House bill and 
                  new secs. 32(c)(2)(B)(vii) and 6011(i) of the 
                  Code)..........................................   233
              7. Certain income disallowed for purposes of the 
                  earned income tax credit (sec. 1105 of the 
                  House 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)...........................   235
              8. Limitation on losses for taxpayers other than 
                  corporations (sec. 11012 of the Senate 
                  amendment and sec. 461(l) of the Code).........   238
              9. Reform of American opportunity tax credit and 
                  repeal of lifetime learning credit (sec. 1201 
                  of the House bill and sec. 25A of the Code)....   240
              10. Consolidation and modification of education 
                  savings rules (sec. 1202 of the House bill, 
                  sec. 11033 of the Senate amendment, and secs. 
                  529 and 530 of the Code).......................   241
              11. Reforms to discharge of certain student loan 
                  indebtedness (sec. 1203 of the House bill, sec. 
                  11031 of the Senate amendment, and sec. 108 of 
                  the Code)......................................   246
              12. Repeal of deduction for student loan interest 
                  (sec. 1204 of the House bill and sec. 221 of 
                  the Code)......................................   248
              13. Repeal of deduction for qualified tuition and 
                  related expenses (sec. 1204 of the House bill 
                  and sec. 222 of the Code)......................   249
              14. Repeal of exclusion for qualified tuition 
                  reductions (sec. 1204 of the House bill and 
                  sec. 117(d) of the Code).......................   249
              15. Repeal of exclusion for interest on United 
                  States savings bonds used for higher education 
                  expenses (sec. 1204 of the House bill and sec. 
                  135 of the Code)...............................   250
              16. Repeal of exclusion for educational assistance 
                  programs (sec. 1204 of the House bill and sec. 
                  127 of the Code)...............................   251
              17. Rollovers between qualified tuition programs 
                  and qualified ABLE programs (sec. 1205 of the 
                  House bill, sec. 11025 of the Senate amendment 
                  and secs. 529 and 529A of the Code)............   252
              18. Repeal of overall limitation on itemized 
                  deductions (sec. 1301 of the House bill, sec. 
                  11046 of the Senate amendment, and sec. 68 of 
                  the Code)......................................   255
          D. Simplification and Reform of Deductions and 
              Exclusions.........................................   256
              1. Modification of deduction for home mortgage 
                  interest (sec. 1302 of the House bill, sec. 
                  11043 of the Senate amendment, and sec. 163(h) 
                  of the Code)...................................   256
              2. Modification of deduction for taxes not paid or 
                  accrued in a trade or business (sec. 1303 of 
                  the House bill, sec. 11042 of the Senate 
                  amendment, and sec. 164 of the Code)...........   259
              3. Repeal of deduction for personal casualty and 
                  theft losses (sec. 1304 of the House bill, sec. 
                  11044 of the Senate amendment, and sec. 165 of 
                  the Code)......................................   261
              4. Limitation on wagering losses (sec. 1305 of the 
                  House bill, sec. 11051 of the Senate amendment, 
                  and sec. 165 of the Code)......................   262
              5. Modifications to the deduction for charitable 
                  contributions (sec. 1306 of the House bill, 
                  secs. 11023, 13703, and 13704 of the Senate 
                  amendment, and sec. 170 of the Code)...........   263
              6. Repeal of Certain Miscellaneous Itemized 
                  Deductions Subject to the Two-Percent Floor 
                  (secs. 1307 and 1312 of the House bill, sec. 
                  11045 of the Senate amendment, and secs. 62, 67 
                  and 212 of the Code)...........................   273
              7. Repeal of deduction for medical expenses (sec. 
                  1308 of the House bill, sec. 11028 of the 
                  Senate amendment and sec. 213 of the Code).....   276
              8. Repeal of deduction for alimony payments and 
                  corresponding inclusion in gross income (sec. 
                  1309 of the House bill and secs. 61, 71, and 
                  215 of the Code)...............................   277
              9. Repeal of deduction for moving expenses (sec. 
                  1310 of the House bill, sec. 11050 of the 
                  Senate amendment, and sec. 217 of the Code)....   278
              10. Termination of deduction and exclusions for 
                  contributions to medical savings accounts (sec. 
                  1311 of the House bill, secs. 106(b) and 220 of 
                  the Code)......................................   279
              11. Denial of deduction for performing artists and 
                  certain officials; Modification of deduction 
                  for educator expenses (sec. 1312 of the House 
                  bill, sec. 11032 of the Senate amendment and 
                  sec. 62 of the Code)...........................   281
              12. Suspension of exclusion for qualified bicycle 
                  commuting reimbursement (sec. 11048 of the 
                  Senate amendment and secs. 132(f) of the Code).   282
              13. Limitation on exclusion for employer-provided 
                  housing (sec. 1401 of the House bill and sec. 
                  119 of the Code)...............................   283
              14. Modification of exclusion of gain on sale of a 
                  principal residence (sec. 1402 of the House 
                  bill, sec. 11047 of the Senate amendment, and 
                  sec. 121 of the Code)..........................   284
              15. Sunset of exclusion for dependent care 
                  assistance programs (sec. 1404 of the House 
                  bill and sec. 129 of the Code).................   285
              16. Repeal of exclusion for qualified moving 
                  expense reimbursement (sec. 1405 of the House 
                  bill, sec. 11049 of the Senate amendment, and 
                  sec. 132(g) of the Code).......................   286
              17. Repeal of exclusion for adoption assistance 
                  programs (sec. 1406 of the House bill and sec. 
                  137 of the Code)...............................   286
           E. Simplification and Reform of Savings, Pensions, 
              Retirement.........................................   288
              1. Repeal of special rule permitting 
                  recharacterization of IRA contributions (sec. 
                  1501 of the House bill, sec. 13611 of the 
                  Senate amendment, and sec. 408A of the Code)...   288
              2. Reduction in minimum age for allowable in-
                  service distributions (sec. 1502 of the House 
                  bill and secs. 401 and 457 of the Code)........   291
              3. Modification of rules governing hardship 
                  distributions (sec. 1503 of the House bill and 
                  secs. 401 and 403 of the Code).................   292
              4. Modification of rules relating to hardship 
                  withdrawals from cash or deferred arrangements 
                  (sec. 1504 of the bill, sec. 11033(c) of the 
                  Senate amendment, and sec. 401 of the Code)....   293
              5. Extended rollover period for the rollover of 
                  plan loan offset amounts in certain cases (sec. 
                  1505 of the bill, sec. 13613 of the Senate 
                  amendment, and sec. 402 of the Code)...........   294
              6. Modification of nondiscrimination rules for 
                  certain plans providing benefits or 
                  contributions to older, longer service 
                  participants (sec. 1506 of the House bill and 
                  sec. 401 of the Code)..........................   296
              7. Modification of rules applicable to length of 
                  service award programs for bona fide public 
                  safety volunteers (sec. 13612 of the Senate 
                  amendment and sec. 457(e) of the Code).........   306
          F. Modifications to Estate, Gift, and Generation-
              Skipping Transfers Taxes (secs 1601 and 1602 of the 
              House bill, sec. 11061 of the Senate amendment, and 
              secs. 2001 and 2010 of the Code)...................   307
          G. Alternative Minimum Tax (sec. 2001 of the House 
              bill, sec. 12001 of the Senate amendment, and secs. 
              53 and 55-59 of the Code)..........................   317
          H. Elimination of Shared Responsibility Payment for 
              Individuals Failing to Maintain Minimal Essential 
              Coverage (sec. 11081 of the Senate amendment and 
              sec. 5000A of the Code)............................   323
          I. Other Provisions....................................   325
              1. Temporarily allow increased contributions to 
                  ABLE accounts, and allow contributions to be 
                  eligible for saver's credit (sec. 11024 of the 
                  Senate amendment and sec. 529A of the Code)....   325
              2. Extension of time limit for contesting IRS levy 
                  (sec. 11071 of the Senate amendment and secs. 
                  6343 and 6532 of the Code).....................   329
              3. Treatment of certain individuals performing 
                  services in the Sinai Peninsula of Egypt (sec. 
                  11026 of the Senate amendment and secs. 2, 112, 
                  692, 2201, 3401, 4253, 6013, and 7508 of the 
                  Code)..........................................   330
              4. Modifications of user fees requirements for 
                  installment agreements (sec. 11073 of the 
                  Senate amendment and new sec. 6159(f) of the 
                  Code)..........................................   331
              5. Relief for 2016 disaster areas (sec. 11029 of 
                  the Senate amendment and secs. 72(t), 165, 401-
                  403, 408, 457, and 3405 of the Code)...........   332
              6. Attorneys' fees relating to awards to 
                  whistleblowers (sec. 11078 of the Senate 
                  amendment and sec. 62(a)(21) of the Code)......   335
              7. Clarification of whistleblower awards (sec. 
                  11079 of the Senate amendment and new sec. 
                  7623(c) of the Code)...........................   336
              8. Exclusion from gross income of certain amounts 
                  received by wrongly incarcerated individuals 
                  (sec. 11027 of the Senate amendment and sec. 
                  139F of the Code)..............................   340
BUSINESS TAX REFORM..............................................   341
          A. Tax Rates...........................................   341
              1. Reduction in corporate tax rate (sec. 3001 of 
                  the House bill, secs. 13001 and 13002 of the 
                  Senate amendment, and secs. 11 and 243 of the 
                  Code)..........................................   341
          B. Cost Recovery.......................................   346
              1. Increased expensing (sec. 3101 of the House 
                  bill, secs. 13201 and 13311 of the Senate 
                  amendment, and sec. 168(k) of the Code)........   346
              2. Modifications to depreciation limitations on 
                  luxury automobiles and personal use property 
                  (sec. 13202 of the Senate amendment and sec. 
                  280F of the Code)..............................   357
              3. Modifications of treatment of certain farm 
                  property (sec. 13203 of the Senate amendment 
                  and sec. 168 of the Code)......................   360
              4. Applicable recovery period for real property 
                  (sec. 13204 of the Senate amendment and sec. 
                  168 of the Code)...............................   362
              5. Use of alternative depreciation system for 
                  electing farming businesses (sec. 13205 of the 
                  Senate amendment and sec. 168 of the Code).....   367
              6. Expensing of certain costs of replanting citrus 
                  plants lost by reason of casualty (sec. 13207 
                  of the Senate amendment and sec. 263A of the 
                  Code)..........................................   370
          C. Small Business Reforms..............................   372
              1. Expansion of section 179 expensing (sec. 3201 of 
                  the House bill, sec. 13101 of the Senate 
                  amendment, and sec. 179 of the Code)...........   372
              2. Small business accounting method reform and 
                  simplification (sec. 3202 of the House bill, 
                  secs. 13102 through 13105 of the Senate 
                  amendment, and secs. 263A, 448, 460, and 471 of 
                  the Code)......................................   375
              3. Modification of treatment of S corporation 
                  conversions to C corporations (sec. 3204 of the 
                  House bill, sec. 13543 of the Senate amendment, 
                  and secs. 481 and 1371 of the Code)............   382
          D. Reform of Business Related Exclusions, Deductions, 
              etc................................................   385
              1. Interest (secs. 3203 and 3301 of the House bill, 
                  secs. 13301 and 13311 of the Senate amendment, 
                  and sec. 163(j) of the Code)...................   385
              2. Modification of net operating loss deduction 
                  (sec. 3302 of the House bill, sec. 13302 of the 
                  Senate amendment, and sec. 172 of the Code)....   393
              3. Like-kind exchanges of real property (sec. 3303 
                  of the House bill, and sec. 13303 of the Senate 
                  amendment, and sec. 1031 of the Code)..........   394
              4. Revision of treatment of contributions to 
                  capital (sec. 3304 of the House bill and sec. 
                  118 of the Code)...............................   397
              5. Repeal of deduction for local lobbying expenses 
                  (sec. 3305 of the House bill, sec. 13308 of the 
                  Senate amendment, and sec. 162(e) of the Code).   399
              6. Repeal of deduction for income attributable to 
                  domestic production activities (sec. 3306 of 
                  the House bill, sec. 13305 of the Senate 
                  amendment, and sec. 199 of the Code)...........   400
              7. Entertainment, etc. expenses (sec. 3307 of the 
                  House bill, sec. 13304 of the Senate amendment, 
                  and sec. 274 of the Code)......................   402
              8. Repeal of exclusion, etc., for employee 
                  achievement awards (sec. 1403 of the House 
                  bill, sec. 13310 of the Senate amendment, and 
                  secs. 74(c) and 274(j) of the Code)............   407
              9. Unrelated business taxable income increased by 
                  amount of certain fringe benefit expenses for 
                  which deduction is disallowed (sec. 3308 of the 
                  House bill and sec. 512 of the Code)...........   408
              10. Limitation on deduction for FDIC premiums (sec. 
                  3309 of the House bill, sec. 13531 of the 
                  Senate amendment, and sec. 162 of the Code)....   410
              11. Repeal of rollover of publicly traded 
                  securities gain into specialized small business 
                  investment companies (sec. 3310 of the House 
                  bill and sec. 1044 of the Code)................   412
              12. Certain self-created property not treated as a 
                  capital asset (sec. 3311 of the House bill and 
                  sec. 1221 of the Code).........................   413
              13. Repeal of special rule for sale or exchange of 
                  patents (sec. 3312 of the House bill and sec. 
                  1235 of the Code)).............................   414
              14. Repeal of technical termination of partnerships 
                  (sec. 3313 of the House bill and sec. 708(b) of 
                  the Code)......................................   415
              15. Recharacterization of certain gains in the case 
                  of partnership profits interests held in 
                  connection with performance of investment 
                  services (sec. 3314 of the House bill, sec. 
                  13310 of the Senate amendment, and secs. 1061 
                  and 83 of the Code)............................   416
              16. Amortization of research and experimental 
                  expenditures (sec. 3315 of the House bill, sec. 
                  13206 of the Senate amendment, and sec. 174 of 
                  the Code)......................................   423
              17. Certain special rules for taxable year of 
                  inclusion (sec. 13221 of the Senate amendment 
                  and sec. 451 of the Code)......................   425
              18. Denial of deduction for certain fines, 
                  penalties, and other amounts (sec. 13306 of the 
                  Senate amendment and sec. 162(f) and new sec. 
                  6050X of the Code).............................   430
              19. Denial of deduction for settlements subject to 
                  nondisclosure agreements paid in connection 
                  with sexual harassment or sexual abuse (sec. 
                  13307 of the Senate amendment and new sec. 
                  162(q) of the Code)............................   431
              20. Uniform treatment of expenses in contingency 
                  fee cases (sec. 3316 of the House bill and new 
                  sec. 162(q) of the Code).......................   432
          E. Reform of Business Credits..........................   433
              1. Repeal of credit for clinical testing expenses 
                  for certain drugs for rare diseases or 
                  conditions (sec. 3401 of the House bill, sec. 
                  13401 of the Senate amendment, and sec. 45C of 
                  the Code)......................................   433
              2. Repeal of employer-provided child care credit 
                  (sec. 3402 of the House bill and sec. 42F of 
                  the Code)......................................   434
              3. Rehabilitation credit (sec. 3403 of the House 
                  bill, sec. 13402 of the Senate amendment, and 
                  sec. 47 of the Code)...........................   435
              4. Repeal of work opportunity tax credit (sec. 3404 
                  of the House bill and sec. 51 of the Code).....   436
              5. Repeal of deduction for certain unused business 
                  credits (sec. 3405 of the House bill, sec. 
                  13403 of the Senate amendment, and sec. 196 of 
                  the Code)......................................   438
              6. Termination of new markets tax credit (sec. 3406 
                  of the House bill and sec. 45D of the Code)....   439
              7. Repeal of credit for expenditures to provide 
                  access to disabled individuals (sec. 3407 of 
                  the House bill and sec. 44 of the Code)........   441
              8. Modification of credit for portion of employer 
                  social security taxes paid with respect to 
                  employee tips (sec. 3408 of the House bill and 
                  sec. 45B of the Code)..........................   442
              9. Employer credit for paid family and medical 
                  leave (sec. 13403 of the Senate amendment, and 
                  new sec. 45S of the Code)......................   443
          F. Energy Credits......................................   445
              1. Modifications to credit for electricity produced 
                  from certain renewable resources (sec. 3501 of 
                  the House bill and sec. 45 of the Code)........   445
              2. Modification of the energy investment tax credit 
                  (sec. 3502 of the House bill and sec. 48 of the 
                  Code)..........................................   446
              3. Extension and phaseout of residential energy 
                  efficient property credit (sec. 3503 of the 
                  House bill and sec. 25D of the Code)...........   450
              4. Repeal of enhanced oil recovery credit (sec. 
                  3504 of the House bill and sec. 43 of the Code)   452
              5. Repeal of credit for producing oil and gas from 
                  marginal wells (sec. 3505 of the House bill and 
                  sec. 45I of the Code)..........................   452
              6. Modification of credit for production from 
                  advanced nuclear power facilities (sec. 3506 of 
                  the House bill and sec. 45J of the Code).......   453
          G. Bond Reforms........................................   455
              1. Termination of private activity bonds (sec. 3601 
                  of the bill and sec. 103 of the Code)..........   455
              2. Repeal of advance refunding bonds (sec. 3602 of 
                  the bill, sec. 13532 of the Senate amendment, 
                  and sec. 149(d) of the Code)...................   458
              3. Repeal of tax credit bonds (sec. 3603 of the 
                  bill and secs. 54A, 54B, 54C, 54D, 54E, 54F and 
                  6431 of the Code)..............................   459
              4. No tax-exempt bonds for professional stadiums 
                  (sec. 3604 of the bill and sec. 103 of the 
                  Code)..........................................   462
          H. Insurance...........................................   464
              1. Net operating losses of life insurance companies 
                  (sec. 3701 of the House bill, sec. 13511 of the 
                  Senate amendment, and sec. 810 of the Code)....   464
              2. Repeal of small life insurance company deduction 
                  (sec. 3702 of the House bill, sec. 13512 of the 
                  Senate amendment, and sec. 806 of the Code)....   465
              3. Surtax on life insurance company taxable income 
                  (sec. 3703 of the House bill and sec. 801 of 
                  the Code)......................................   466
              4. Adjustment for change in computing reserves 
                  (sec. 3704 of the House bill, sec. 13513 of the 
                  Senate amendment, and sec. 807 of the Code)....   466
              5. Repeal of special rule for distributions to 
                  shareholders from pre-1984 policyholders 
                  surplus account (sec. 3705 of the House bill, 
                  sec. 13514 of the Senate amendment, and sec. 
                  815 of the Code)...............................   467
              6. Modification of proration rules for property and 
                  casualty insurance companies (sec. 3706 of the 
                  House bill, sec. 13515 of the Senate amendment, 
                  and sec. 832 of the Code)......................   469
              7. Modification of discounting rules for property 
                  and casualty insurance companies (sec. 3707 of 
                  the House bill and sec. 832 of the Code).......   470
              8. Repeal of special estimated tax payments (sec. 
                  3708 of the House bill, sec. 13516 of the 
                  Senate amendment, and sec. 847 of the Code)....   473
              9. Computation of life insurance tax reserves (sec. 
                  13517 of the Senate amendment and sec. 807 of 
                  the Code)......................................   476
              10. Modification of rules for life insurance 
                  proration for purposes of determining the 
                  dividends received deduction (sec. 13518 of the 
                  Senate amendment and sec. 812 of the Code).....   479
              11. Capitalization of certain policy acquisition 
                  expenses (sec. 13519 of the Senate amendment 
                  and sec. 848 of the Code)......................   482
              12. Tax reporting for life settlement transactions, 
                  clarification of tax basis of life insurance 
                  contracts, and exception to transfer for 
                  valuable consideration rules (secs. 13518 
                  through 13520 of the Senate amendment and secs. 
                  101, 1016, and 6050X of the Code)..............   483
          I. Compensation........................................   486
              1. Modification of limitation on excessive employee 
                  remuneration (sec. 3801 of the House bill, sec. 
                  13601 of the Senate amendment, and sec. 162(m) 
                  of the Code)...................................   486
              2. Excise tax on excess tax-exempt organization 
                  executive compensation (sec. 3802 of the House 
                  bill, sec. 13602 of the Senate amendment, and 
                  sec. 4960 of the Code).........................   491
              3. Treatment of qualified equity grants (sec. 3803 
                  of the House bill, sec. 13603 of the Senate 
                  amendment, and secs. 83, 3401, and 6051 of the 
                  Code)..........................................   494
              4. Increase in excise tax rate for stock 
                  compensation of insiders in expatriated 
                  corporations (sec. 13604 of the Senate 
                  amendment and sec. 4985 of the Code)...........   503
          J. Other Provisions....................................   509
              1. Treatment of gain or loss of foreign persons 
                  from sale or exchange of interests in 
                  partnerships engaged in trade or business 
                  within the United States (sec. 13501 of the 
                  Senate amendment and secs. 864(c) and 1446 of 
                  the Code)......................................   509
              2. Modification of the definition of substantial 
                  built-in loss in the case of transfer of 
                  partnership interest (sec. 13502 of the Senate 
                  amendment and sec. 743 of the Code)............   512
              3. Charitable contributions and foreign taxes taken 
                  into account in determining limitation on 
                  allowance of partner's share of loss (sec. 
                  13503 of the Senate amendment and sec. 704 of 
                  the Code)......................................   513
              4. Cost basis of specified securities determined 
                  without regard to identification (sec. 13533 of 
                  the Senate amendment and sec. 1012 of the Code)   515
              5. Expansion of qualifying beneficiaries of an 
                  electing small business trust (sec. 13541 of 
                  the Senate amendment and sec. 1361 of the Code)   517
              6. Charitable contribution deduction for electing 
                  small business trusts (sec. 13542 of the Senate 
                  amendment and sec. 642(c) of the Code).........   518
              7. Production period for beer, wine, and distilled 
                  spirits (sec. 13801 of the Senate amendment and 
                  sec. 263A of the Code).........................   519
              8. Reduced rate of excise tax on beer (sec. 13802 
                  of the Senate amendment and sec. 5051 of the 
                  Code)..........................................   520
              9. Transfer of beer between bonded facilities (sec. 
                  13803 of the Senate amendment and sec. 5414 of 
                  the Code)......................................   522
              10. Reduced rate of excise tax on certain wine 
                  (sec. 13804 of the Senate amendment and sec. 
                  5041 of the Code)..............................   524
              11. Adjustment of alcohol content level for 
                  application of excise tax rates (sec. 13805 of 
                  the Senate amendment and sec. 5041 of the Code)   526
              12. Definition of mead and low alcohol by volume 
                  wine (sec. 13806 of the Senate amendment and 
                  sec. 5041 of the Code).........................   527
              13. Reduced rate of excise tax on certain distilled 
                  spirits (sec. 13807 of the Senate amendment and 
                  sec. 5001 of the Code).........................   529
              14. Bulk distilled spirits (sec. 13808 of the 
                  Senate amendment and sec. 5212 of the Code)....   530
              15. Modification of tax treatment of Alaska Native 
                  Corporations and Settlement Trusts (sec. 13821 
                  of the Senate amendment and sec. 6039H and new 
                  secs. 139G and 247 of the Code)................   531
              16. Amounts paid for aircraft management services 
                  (sec. 13822 of the Senate amendment and sec. 
                  4261 of the Code)..............................   534
              17. Opportunity zones (sec. 13823 of the Senate 
                  amendment and new secs. 1400Z-1 and 1400Z-2 of 
                  the Code)......................................   537
              18. Provisions relating to the low-income housing 
                  credit (secs. 13411 and 13412 of the Senate 
                  amendment and sec. 42 of the Code).............   540
EXEMPT ORGANIZATIONS.............................................   542
          A. Unrelated Business Income Tax.......................   542
              1. Clarification of unrelated business income tax 
                  treatment of entities exempt from tax under 
                  section 501(a) (sec. 5001 of the House bill and 
                  sec. 511 of the Code)..........................   542
              2. Exclusion of research income from unrelated 
                  business taxable income limited to publicly 
                  available research (sec. 5002 of the House bill 
                  and sec. 512(b)(9) of the Code)................   543
              3. Unrelated business taxable income separately 
                  computed for each trade or business activity 
                  (sec. 13703 of the Senate amendment and sec. 
                  512(a) of the Code)............................   545
          B. Excise Taxes........................................   548
              1. Simplification of excise tax on private 
                  foundation investment income (sec. 5101 of the 
                  House bill and sec. 4940 of the Code)..........   548
              2. Private operating foundation requirements 
                  relating to operation of an art museum (sec. 
                  5102 of the House bill and sec. 4942(j) of the 
                  Code)..........................................   549
              3. Excise tax based on investment income of private 
                  colleges and universities (sec. 5103 of the 
                  House bill, sec. 13701 of the Senate amendment, 
                  and new sec. 4968 of the Code).................   552
              4. Provide an exception to the private foundation 
                  excess business holdings rules for 
                  philanthropic business holdings (sec. 5104 of 
                  the House bill and sec. 4943 of the Code)......   556
          C. Requirements for Organizations Exempt From Tax......   559
              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 House bill 
                  and sec. 501 of the Code)......................   559
              2. Additional reporting requirements for donor 
                  advised fund sponsoring organizations (sec. 
                  5202 of the House bill and sec. 6033 of the 
                  Code)..........................................   561
INTERNATIONAL TAX PROVISIONS.....................................   595
          A. Establishment of Participation Exemption System for 
              Taxation of Foreign Income.........................   595
              1. Deduction for foreign-source portion of 
                  dividends received by domestic corporations 
                  from specified 10-percent owned foreign 
                  corporations (sec. 4001 of the House bill, sec. 
                  14101 of the Senate amendment, and new sec. 
                  245A of the Code)..............................   595
              2. Modification of subpart F inclusion for 
                  increased investments in United States property 
                  (sec. 4002 of the House bill, sec. 14218 of the 
                  Senate amendment, and sec. 956 of the Code)....   600
              3. Special rules relating to sales or transfers 
                  involving specified 10-percent owned foreign 
                  corporations (sec. 4003 of the House bill, sec. 
                  14102 of the Senate Amendment and secs. 
                  367(a)(3)(C), 961, 1248 and new sec. 91 of the 
                  Code)..........................................   601
              4. Treatment of deferred foreign income upon 
                  transition to participation exemption system of 
                  taxation and deemed repatriation at two-tier 
                  rate (sec. 4004 of the House bill, sec. 14103 
                  of the Senate amendment, and secs. 78, 904, 907 
                  and 965 of the Code)...........................   606
              5. Election to increase percentage of domestic 
                  taxable income offset by overall domestic loss 
                  treated as foreign source (sec. 14305 of the 
                  Senate amendment and sec. 904(g) of the Code)..   622
          B. Rules Related to Passive and Mobile Income..........   622
              1. Deduction for foreign-derived intangible income 
                  and global intangible low-taxed income (sec. 
                  14202 of the Senate amendment and new sec. 250 
                  of the Code)...................................   622
              2. Special rules for transfers of intangible 
                  property from controlled foreign corporations 
                  to United States shareholders (sec. 14203 of 
                  the Senate amendment and new sec. 966 of the 
                  Code)..........................................   627
          C. Modifications Related to Foreign Tax Credit System..   628
              1. Repeal of section 902 indirect foreign tax 
                  credits; determination of section 960 credit on 
                  current year basis (sec. 4101 of the House 
                  bill, sec. 14301 of the Senate amendment, and 
                  secs. 902 and 960 of the Code).................   628
              2. Source of income from sales of inventory 
                  determined solely on basis of production 
                  activities (sec. 4102 of the House bill, sec. 
                  14304 of the Senate amendment, and sec. 863(b) 
                  of the Code)...................................   629
              3. Separate foreign tax credit limitation basket 
                  for foreign branch income (sec. 14302 of the 
                  Senate amendment and sec. 904 of the Code).....   630
              4. Acceleration of election to allocate interest, 
                  etc., on a worldwide basis (sec. 14303 of the 
                  Senate amendment and sec. 864 of the Code).....   630
          D. Modification of Subpart F Provisions................   631
              1. Repeal of inclusion based on withdrawal of 
                  previously excluded subpart F income from 
                  qualified investment (sec. 4201 of the House 
                  bill, sec. 14213 of the Senate amendment, and 
                  sec. 955 of the Code)..........................   631
              2. Repeal of treatment of foreign base company oil 
                  related income as subpart F income (sec. 4202 
                  of the House bill, sec. 14211 of the Senate 
                  amendment, and sec. 954(a) of the Code)........   631
              3. Inflation adjustment of de minimis exception for 
                  foreign base company income (sec. 4203 of the 
                  House bill, sec. 14212 of the Senate amendment, 
                  and sec. 954(b)(3) of the Code)................   632
              4. Look-thru rule for related controlled foreign 
                  corporations made permanent (sec. 4204 of the 
                  House bill, sec. 14217 of the Senate amendment, 
                  and sec. 954(c)(6) of the Code)................   632
              5. Modification of stock attribution rules for 
                  determining CFC status (sec. 4205 of the House 
                  bill, sec. 14214 of the Senate amendment, and 
                  secs. 318 and 958 of the Code).................   633
              6. Modification of definition of United States 
                  shareholder (sec. 14215 of the Senate amendment 
                  and sec. 951 of the Code)......................   634
              7. Elimination of requirement that corporation must 
                  be controlled for 30 days before subpart F 
                  inclusions apply (sec. 4206 of the House bill, 
                  sec. 14216 of the Senate amendment, and sec. 
                  951(a)(1) of the Code).........................   634
              8. Current year inclusion of foreign high return 
                  amounts or global intangible low-taxed income 
                  by United States shareholders (sec. 4301 of the 
                  House bill, sec. 14201 of the Senate amendment, 
                  and secs. 78 and 960 and new sec. 951A of the 
                  Code)..........................................   635
              9. Limitation on deduction of interest by domestic 
                  corporations which are members of an 
                  international group (sec. 4302 of the House 
                  bill, sec. 14221 of the Senate amendment, and 
                  new sec. 163(n) of the Code)...................   645
          E. Prevention of Base Erosion..........................   649
              1. Base erosion using deductible cross-border 
                  payments between affiliated companies (sec. 
                  4303 of the House bill and new secs. 4491 and 
                  6038E of the Code; sec. 14401 of the Senate 
                  amendment and secs. 6038A and 6038C and new 
                  secs. 59A and 59B of the Code).................   649
              2. Limitations on income shifting through 
                  intangible property transfers (sec. 14222 of 
                  the bill and secs. 367, 482, and 936 of the 
                  Code)..........................................   661
              3. Certain related party amounts paid or accrued in 
                  hybrid transactions or with hybrid entities 
                  (sec. 14223 of the Senate amendment and sec. 
                  267A of the Code)..............................   662
              4. Shareholders of surrogate foreign corporations 
                  not eligible not eligible for reduced rate on 
                  dividends (sec. 14225 of the Senate amendment 
                  and sec. 1 of the Code)........................   664
          F. Provisions Related to the Possessions of the United 
              States.............................................   664
              1. Extension of deduction allowable with respect to 
                  income attributable to domestic production 
                  activities in Puerto Rico (sec. 4401 of the 
                  House bill and sec. 199 of the Code)...........   664
              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 House 
                  bill and sec. 7652(f) of the Code).............   666
              3. Extension of American Samoa economic development 
                  credit (sec. 4403 of the House bill and sec. 
                  119 of Pub. L. No. 109-432)....................   667
          G. Other International Reforms.........................   669
              1. Restriction on insurance business exception to 
                  the passive foreign investment company rules 
                  (sec. 4501 of the House bill, sec. 14502 of the 
                  Senate amendment, and sec. 1297 of the Code)...   669
              2. Repeal of fair market value of interest expense 
                  apportionment (sec. 14503 of the Senate 
                  amendment and sec. 864 of the Code)............   672
              3. Modification to source rules involving 
                  possessions (sec. 14504 of the Senate amendment 
                  and sec. 865 of the Code)......................   672
TITLE II--JOINT EXPLANATORY STATEMENT............................   675
CONGRESSIONAL EARMARKS, LIMITED TAX BENEFITS, AND LIMITED TARIFF 
  BENEFITS.......................................................   676
TAX COMPLEXITY ANALYSIS..........................................   676





115th Congress }                                          {   Report
                        HOUSE OF REPRESENTATIVES
 1st Session   }                                          {   115-466

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

 
                         TAX CUTS AND JOBS ACT

                                _______
                                

               December 15, 2017.--Ordered to be printed

                                _______
                                

  Mr. Brady of Texas, from the Committee of Conference, submitted the 
                               following

                           CONFERENCE REPORT

                         [To accompany H.R. 1]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
1), to provide for reconciliation pursuant to titles II and V 
of the concurrent resolution on the budget for fiscal year 
2018, having met, after full and free conference, have agreed 
to recommend and do recommend to their respective Houses as 
follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

                                TITLE I

SEC. 11000. SHORT TITLE, ETC.

    (a) Short Title.--This title may be cited as the ``Tax Cuts 
and Jobs Act''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this title 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.

                   Subtitle A--Individual Tax Reform

                        PART I--TAX RATE REFORM

SEC. 11001. MODIFICATION OF RATES.

    (a) In General.--Section 1 is amended by adding at the end 
the following new subsection:
    ``(j) Modifications for Taxable Years 2018 Through 2025.--
            ``(1) In general.--In the case of a taxable year 
        beginning after December 31, 2017, and before January 
        1, 2026--
                    ``(A) subsection (i) shall not apply, and
                    ``(B) this section (other than subsection 
                (i)) shall be applied as provided in paragraphs 
                (2) through (6).
            ``(2) Rate tables.--
                    ``(A) Married individuals filing joint 
                returns and surviving spouses.--The following 
                table shall be applied in lieu of the table 
                contained in subsection (a):


 
       ``If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $19,050.....................  10% of taxable income.
Over $19,050 but not over $77,400....  $1,905, plus 12% of the excess
                                        over $19,050.
Over $77,400 but not over $165,000...  $8,907, plus 22% of the excess
                                        over $77,400.
Over $165,000 but not over $315,000..  $28,179, plus 24% of the excess
                                        over $165,000.
Over $315,000 but not over $400,000..  $64,179, plus 32% of the excess
                                        over $315,000.
Over $400,000 but not over $600,000..  $91,379, plus 35% of the excess
                                        over $400,000.
Over $600,000........................  $161,379, plus 37% of the excess
                                        over $600,000.

                    ``(B) Heads of households.--The following 
                table shall be applied in lieu of the table 
                contained in subsection (b):


 
       ``If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $13,600.....................  10% of taxable income.
Over $13,600 but not over $51,800....  $1,360, plus 12% of the excess
                                        over $13,600.
Over $51,800 but not over $82,500....  $5,944, plus 22% of the excess
                                        over $51,800.
Over $82,500 but not over $157,500...  $12,698, plus 24% of the excess
                                        over $82,500.
Over $157,500 but not over $200,000..  $30,698, plus 32% of the excess
                                        over $157,500.
Over $200,000 but not over $500,000..  $44,298, plus 35% of the excess
                                        over $200,000.
Over $500,000........................  $149,298, plus 37% of the excess
                                        over $500,000.

                    ``(C) Unmarried individuals other than 
                surviving spouses and heads of households.--The 
                following table shall be applied in lieu of the 
                table contained in subsection (c):


 
       ``If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $9,525......................  10% of taxable income.
Over $9,525 but not over $38,700.....  $952.50, plus 12% of the excess
                                        over $9,525.
Over $38,700 but not over $82,500....  $4,453.50, plus 22% of the excess
                                        over $38,700.
Over $82,500 but not over $157,500...  $14,089.50, plus 24% of the
                                        excess over $82,500.
Over $157,500 but not over $200,000..  $32,089.50, plus 32% of the
                                        excess over $157,500.
Over $200,000 but not over $500,000..  $45,689.50, plus 35% of the
                                        excess over $200,000.
Over $500,000........................  $150,689.50, plus 37% of the
                                        excess over $500,000.

                    ``(D) Married individuals filing separate 
                returns.--The following table shall be applied 
                in lieu of the table contained in subsection 
                (d):


 
       ``If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $9,525......................  10% of taxable income.
Over $9,525 but not over $38,700.....  $952.50, plus 12% of the excess
                                        over $9,525.
Over $38,700 but not over $82,500....  $4,453.50, plus 22% of the excess
                                        over $38,700.
Over $82,500 but not over $157,500...  $14,089.50, plus 24% of the
                                        excess over $82,500.
Over $157,500 but not over $200,000..  $32,089.50, plus 32% of the
                                        excess over $157,500.
Over $200,000 but not over $300,000..  $45,689.50, plus 35% of the
                                        excess over $200,000.
Over $300,000........................  $80,689.50, plus 37% of the
                                        excess over $300,000.

                    ``(E) Estates and trusts.--The following 
                table shall be applied in lieu of the table 
                contained in subsection (e):


 
       ``If taxable income is:                    The tax is:
------------------------------------------------------------------------
Not over $2,550......................  10% of taxable income.
Over $2,550 but not over $9,150......  $255, plus 24% of the excess over
                                        $2,550.
Over $9,150 but not over $12,500.....  $1,839, plus 35% of the excess
                                        over $9,150.
Over $12,500.........................  $3,011.50, plus 37% of the excess
                                        over $12,500.

                    ``(F) References to rate tables.--Any 
                reference in this title to a rate of tax under 
                subsection (c) shall be treated as a reference 
                to the corresponding rate bracket under 
                subparagraph (C) of this paragraph, except that 
                the reference in section 3402(q)(1) to the 
                third lowest rate of tax applicable under 
                subsection (c) shall be treated as a reference 
                to the fourth lowest rate of tax under 
                subparagraph (C).
            ``(3) Adjustments.--
                    ``(A) No adjustment in 2018.--The tables 
                contained in paragraph (2) shall apply without 
                adjustment for taxable years beginning after 
                December 31, 2017, and before January 1, 2019.
                    ``(B) Subsequent years.--For taxable years 
                beginning after December 31, 2018, the 
                Secretary shall prescribe tables which shall 
                apply in lieu of the tables contained in 
                paragraph (2) in the same manner as under 
                paragraphs (1) and (2) of subsection (f) 
                (applied without regard to clauses (i) and (ii) 
                of subsection (f)(2)(A)), except that in 
                prescribing such tables--
                            ``(i) subsection (f)(3) shall be 
                        applied by substituting `calendar year 
                        2017' for `calendar year 2016' in 
                        subparagraph (A)(ii) thereof,
                            ``(ii) subsection (f)(7)(B) shall 
                        apply to any unmarried individual other 
                        than a surviving spouse or head of 
                        household, and
                            ``(iii) subsection (f)(8) shall not 
                        apply.
            ``(4) Special rules for certain children with 
        unearned income.--
                    ``(A) In general.--In the case of a child 
                to whom subsection (g) applies for the taxable 
                year, the rules of subparagraphs (B) and (C) 
                shall apply in lieu of the rule under 
                subsection (g)(1).
                    ``(B) Modifications to applicable rate 
                brackets.--In determining the amount of tax 
                imposed by this section for the taxable year on 
                a child described in subparagraph (A), the 
                income tax table otherwise applicable under 
                this subsection to the child shall be applied 
                with the following modifications:
                            ``(i) 24-percent bracket.--The 
                        maximum taxable income which is taxed 
                        at a rate below 24 percent shall not be 
                        more than the sum of--
                                    ``(I) the earned taxable 
                                income of such child, plus
                                    ``(II) the minimum taxable 
                                income for the 24-percent 
                                bracket in the table under 
                                paragraph (2)(E) (as adjusted 
                                under paragraph (3)) for the 
                                taxable year.
                            ``(ii) 35-percent bracket.--The 
                        maximum taxable income which is taxed 
                        at a rate below 35 percent shall not be 
                        more than the sum of--
                                    ``(I) the earned taxable 
                                income of such child, plus
                                    ``(II) the minimum taxable 
                                income for the 35-percent 
                                bracket in the table under 
                                paragraph (2)(E) (as adjusted 
                                under paragraph (3)) for the 
                                taxable year.
                            ``(iii) 37-percent bracket.--The 
                        maximum taxable income which is taxed 
                        at a rate below 37 percent shall not be 
                        more than the sum of--
                                    ``(I) the earned taxable 
                                income of such child, plus
                                    ``(II) the minimum taxable 
                                income for the 37-percent 
                                bracket in the table under 
                                paragraph (2)(E) (as adjusted 
                                under paragraph (3)) for the 
                                taxable year.
                    ``(C) Coordination with capital gains 
                rates.--For purposes of applying section 1(h) 
                (after the modifications under paragraph 
                (5)(A))--
                            ``(i) the maximum zero rate amount 
                        shall not be more than the sum of--
                                    ``(I) the earned taxable 
                                income of such child, plus
                                    ``(II) the amount in effect 
                                under paragraph (5)(B)(i)(IV) 
                                for the taxable year, and
                            ``(ii) the maximum 15-percent rate 
                        amount shall not be more than the sum 
                        of--
                                    ``(I) the earned taxable 
                                income of such child, plus
                                    ``(II) the amount in effect 
                                under paragraph (5)(B)(ii)(IV) 
                                for the taxable year.
                    ``(D) Earned taxable income.--For purposes 
                of this paragraph, the term `earned taxable 
                income' means, with respect to any child for 
                any taxable year, the taxable income of such 
                child reduced (but not below zero) by the net 
                unearned income (as defined in subsection 
                (g)(4)) of such child.
            ``(5) Application of current income tax brackets to 
        capital gains brackets.--
                    ``(A) In general.--Section 1(h)(1) shall be 
                applied--
                            ``(i) by substituting `below the 
                        maximum zero rate amount' for `which 
                        would (without regard to this 
                        paragraph) be taxed at a rate below 25 
                        percent' in subparagraph (B)(i), and
                            ``(ii) by substituting `below the 
                        maximum 15-percent rate amount' for 
                        `which would (without regard to this 
                        paragraph) be taxed at a rate below 
                        39.6 percent' in subparagraph 
                        (C)(ii)(I).
                    ``(B) Maximum amounts defined.--For 
                purposes of applying section 1(h) with the 
                modifications described in subparagraph (A)--
                            ``(i) Maximum zero rate amount.--
                        The maximum zero rate amount shall be--
                                    ``(I) in the case of a 
                                joint return or surviving 
                                spouse, $77,200,
                                    ``(II) in the case of an 
                                individual who is a head of 
                                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 subclause (I), and
                                    ``(IV) in the case of an 
                                estate or trust, $2,600.
                            ``(ii) Maximum 15-percent rate 
                        amount.--The maximum 15-percent rate 
                        amount 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 clauses (i) and (ii) of 
                subparagraph (B) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under subsection 
                        (f)(3) 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.
                If any increase under this subparagraph is not 
                a multiple of $50, such increase shall be 
                rounded to the next lowest multiple of $50.
            ``(6) Section 15 not to apply.--Section 15 shall 
        not apply to any change in a rate of tax by reason of 
        this subsection.''.
    (b) Due Diligence Tax Preparer Requirement With Respect to 
Head of Household Filing Status.--Subsection (g) of section 
6695 is amended to read as follows:
    ``(g) Failure to Be Diligent in Determining Eligibility for 
Certain Tax Benefits.--Any person who is a tax return preparer 
with respect to any return or claim for refund who fails to 
comply with due diligence requirements imposed by the Secretary 
by regulations with respect to determining--
            ``(1) eligibility to file as a head of household 
        (as defined in section 2(b)) on the return, or
            ``(2) eligibility for, or the amount of, the credit 
        allowable by section 24, 25A(a)(1), or 32,
shall pay a penalty of $500 for each such failure.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11002. INFLATION ADJUSTMENTS BASED ON CHAINED CPI.

    (a) In General.--Subsection (f) of section 1 is amended by 
striking paragraph (3) and by inserting after paragraph (2) the 
following new paragraph:
            ``(3) 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 CPI for calendar year 
                        2016, multiplied by the amount 
                        determined under subparagraph (B).
                    ``(B) Amount determined.--The amount 
                determined under this clause is the amount 
                obtained by dividing--
                            ``(i) the C-CPI-U for calendar year 
                        2016, by
                            ``(ii) the CPI for calendar year 
                        2016.
                    ``(C) Special rule for adjustments with a 
                base year after 2016.--For purposes of any 
                provision of this title which provides for the 
                substitution of a year after 2016 for `2016' in 
                subparagraph (A)(ii), subparagraph (A) shall be 
                applied by substituting `the C-CPI-U for 
                calendar year 2016' for `the CPI for calendar 
                year 2016' and all that follows in clause (ii) 
                thereof.''.
    (b) C-CPI-U.--Subsection (f) of section 1 is amended by 
striking paragraph (7), by redesignating paragraph (6) as 
paragraph (7), and by inserting after paragraph (5) the 
following new paragraph:
            ``(6) 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.''.
    (c) Application to Permanent Tax Tables.--
            (1) In general.--Section 1(f)(2)(A) is amended to 
        read as follows:
                    ``(A) except as provided in paragraph (8), 
                by increasing the minimum and maximum dollar 
                amounts for each bracket for which a tax is 
                imposed under such table by the cost-of-living 
                adjustment for such calendar year, determined--
                            ``(i) except as provided in clause 
                        (ii), by substituting `1992' for `2016' 
                        in paragraph (3)(A)(ii), and
                            ``(ii) in the case of adjustments 
                        to the dollar amounts at which the 36 
                        percent rate bracket begins or at which 
                        the 39.6 percent rate bracket begins, 
                        by substituting `1993' for `2016' in 
                        paragraph (3)(A)(ii),''.
            (2) Conforming amendments.--Section 1(i) is 
        amended--
                    (A) by striking ``for `1992' in 
                subparagraph (B)'' in paragraph (1)(C) and 
                inserting ``for `2016' in subparagraph 
                (A)(ii)'', and
                    (B) by striking ``subsection (f)(3)(B) 
                shall be applied by substituting `2012' for 
                `1992''' in paragraph (3)(C) and inserting 
                ``subsection (f)(3)(A)(ii) shall be applied by 
                substituting `2012' for `2016'''.
    (d) Application to Other Internal Revenue Code of 1986 
Provisions.--
            (1) The following sections are each amended by 
        striking ``for `calendar year 1992' in subparagraph 
        (B)'' and inserting ``for `calendar year 2016' in 
        subparagraph (A)(ii)'':
                    (A) Section 23(h)(2).
                    (B) Paragraphs (1)(A)(ii) and (2)(A)(ii) of 
                section 25A(h).
                    (C) Section 25B(b)(3)(B).
                    (D) Subsection (b)(2)(B)(ii)(II), and 
                clauses (i) and (ii) of subsection (j)(1)(B), 
                of section 32.
                    (E) Section 36B(f)(2)(B)(ii)(II).
                    (F) Section 41(e)(5)(C)(i).
                    (G) Subsections (e)(3)(D)(ii) and 
                (h)(3)(H)(i)(II) of section 42.
                    (H) Section 45R(d)(3)(B)(ii).
                    (I) Section 55(d)(4)(A)(ii).
                    (J) Section 62(d)(3)(B).
                    (K) Section 63(c)(4)(B).
                    (L) Section 125(i)(2)(B).
                    (M) Section 135(b)(2)(B)(ii).
                    (N) Section 137(f)(2).
                    (O) Section 146(d)(2)(B).
                    (P) Section 147(c)(2)(H)(ii).
                    (Q) Section 151(d)(4)(B).
                    (R) Section 179(b)(6)(A)(ii).
                    (S) Subsections (b)(5)(C)(i)(II) and 
                (g)(8)(B) of section 219.
                    (T) Section 220(g)(2).
                    (U) Section 221(f)(1)(B).
                    (V) Section 223(g)(1)(B).
                    (W) Section 408A(c)(3)(D)(ii).
                    (X) Section 430(c)(7)(D)(vii)(II).
                    (Y) Section 512(d)(2)(B).
                    (Z) Section 513(h)(2)(C)(ii).
                    (AA) Section 831(b)(2)(D)(ii).
                    (BB) Section 877A(a)(3)(B)(i)(II).
                    (CC) Section 2010(c)(3)(B)(ii).
                    (DD) Section 2032A(a)(3)(B).
                    (EE) Section 2503(b)(2)(B).
                    (FF) Section 4261(e)(4)(A)(ii).
                    (GG) Section 5000A(c)(3)(D)(ii).
                    (HH) Section 6323(i)(4)(B).
                    (II) Section 6334(g)(1)(B).
                    (JJ) Section 6601(j)(3)(B).
                    (KK) Section 6651(i)(1).
                    (LL) Section 6652(c)(7)(A).
                    (MM) Section 6695(h)(1).
                    (NN) Section 6698(e)(1).
                    (OO) Section 6699(e)(1).
                    (PP) Section 6721(f)(1).
                    (QQ) Section 6722(f)(1).
                    (RR) Section 7345(f)(2).
                    (SS) Section 7430(c)(1).
                    (TT) Section 9831(d)(2)(D)(ii)(II).
            (2) Sections 41(e)(5)(C)(ii) and 68(b)(2)(B) are 
        each amended--
                    (A) by striking ``1(f)(3)(B)'' and 
                inserting ``1(f)(3)(A)(ii)'', and
                    (B) by striking ``1992'' and inserting 
                ``2016''.
            (3) Section 42(h)(6)(G) is amended--
                    (A) by striking ``for `calendar year 
                1987''' in clause (i)(II) and inserting ``for 
                `calendar year 2016' in subparagraph (A)(ii) 
                thereof'', and
                    (B) by striking ``if the CPI for any 
                calendar year'' and all that follows in clause 
                (ii) and inserting ``if the C-CPI-U for any 
                calendar year (as defined in section 1(f)(6)) 
                exceeds the C-CPI-U for the preceding calendar 
                year by more than 5 percent, the C-CPI-U for 
                the base calendar year shall be increased such 
                that such excess shall never be taken into 
                account under clause (i). In the case of a base 
                calendar year before 2017, the C-CPI-U for such 
                year shall be determined by multiplying the CPI 
                for such year by the amount determined under 
                section 1(f)(3)(B).''.
            (4) Section 59(j)(2)(B) is amended by striking 
        ``for `1992' in subparagraph (B)'' and inserting ``for 
        `2016' in subparagraph (A)(ii)''.
            (5) Section 132(f)(6)(A)(ii) is amended by striking 
        ``for `calendar year 1992''' and inserting ``for 
        `calendar year 2016' in subparagraph (A)(ii) thereof''.
            (6) Section 162(o)(3) is amended by striking 
        ``adjusted for changes in the Consumer Price Index (as 
        defined in section 1(f)(5)) since 1991'' and inserting 
        ``adjusted by increasing any such amount under the 1991 
        agreement by an amount equal to--
                    ``(A) such amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                by substituting `calendar year 1990' for 
                `calendar year 2016' in subparagraph (A)(ii) 
                thereof''.
            (7) So much of clause (ii) of section 213(d)(10)(B) 
        as precedes the last sentence is amended to read as 
        follows:
                            ``(ii) Medical care cost 
                        adjustment.--For purposes of clause 
                        (i), the medical care cost adjustment 
                        for any calendar year is the percentage 
                        (if any) by which--
                                    ``(I) the medical care 
                                component of the C-CPI-U (as 
                                defined in section 1(f)(6)) for 
                                August of the preceding 
                                calendar year, exceeds
                                    ``(II) such component of 
                                the CPI (as defined in section 
                                1(f)(4)) for August of 1996, 
                                multiplied by the amount 
                                determined under section 
                                1(f)(3)(B).''.
            (8) Subparagraph (B) of section 280F(d)(7) is 
        amended to read as follows:
                    ``(B) Automobile price inflation 
                adjustment.--For purposes of this paragraph--
                            ``(i) In general.--The automobile 
                        price inflation adjustment for any 
                        calendar year is the percentage (if 
                        any) by which--
                                    ``(I) the C-CPI-U 
                                automobile component for 
                                October of the preceding 
                                calendar year, exceeds
                                    ``(II) the automobile 
                                component of the CPI (as 
                                defined in section 1(f)(4)) for 
                                October of 1987, multiplied by 
                                the amount determined under 
                                1(f)(3)(B).
                            ``(ii) C-CPI-U automobile 
                        component.--The term `C-CPI-U 
                        automobile component' means the 
                        automobile component of the Chained 
                        Consumer Price Index for All Urban 
                        Consumers (as described in section 
                        1(f)(6)).''.
            (9) Section 911(b)(2)(D)(ii)(II) is amended by 
        striking ``for `1992' in subparagraph (B)'' and 
        inserting ``for `2016' in subparagraph (A)(ii)''.
            (10) Paragraph (2) of section 1274A(d) is amended 
        to read as follows:
            ``(2) Adjustment for inflation.--In the case of any 
        debt instrument arising out of a sale or exchange 
        during any calendar year after 1989, each dollar amount 
        contained in the preceding provisions of this section 
        shall be increased by an amount equal to--
                    ``(A) such amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                by substituting `calendar year 1988' for 
                `calendar year 2016' in subparagraph (A)(ii) 
                thereof.
        Any increase under the preceding sentence shall be 
        rounded to the nearest multiple of $100 (or, if such 
        increase is a multiple of $50, such increase shall be 
        increased to the nearest multiple of $100).''.
            (11) Section 4161(b)(2)(C)(i)(II) is amended by 
        striking ``for `1992' in subparagraph (B)'' and 
        inserting ``for `2016' in subparagraph (A)(ii)''.
            (12) Section 4980I(b)(3)(C)(v)(II) is amended by 
        striking ``for `1992' in subparagraph (B)'' and 
        inserting ``for `2016' in subparagraph (A)(ii)''.
            (13) Section 6039F(d) is amended by striking 
        ``subparagraph (B) thereof shall be applied by 
        substituting `1995' for `1992''' and inserting 
        ``subparagraph (A)(ii) thereof shall be applied by 
        substituting `1995' for `2016'''.
            (14) Section 7872(g)(5) is amended to read as 
        follows:
            ``(5) Adjustment of limit for inflation.--In the 
        case of any loan made during any calendar year after 
        1986, the dollar amount in paragraph (2) shall be 
        increased by an amount equal to--
                    ``(A) such amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                by substituting `calendar year 1985' for 
                `calendar year 2016' in subparagraph (A)(ii) 
                thereof.
        Any increase under the preceding sentence shall be 
        rounded to the nearest multiple of $100 (or, if such 
        increase is a multiple of $50, such increase shall be 
        increased to the nearest multiple of $100).''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

 PART II--DEDUCTION FOR QUALIFIED BUSINESS INCOME OF PASS-THRU ENTITIES

SEC. 11011. DEDUCTION FOR QUALIFIED BUSINESS INCOME.

    (a) In General.--Part VI of subchapter B of chapter 1 is 
amended by adding at the end the following new section:

``SEC. 199A. QUALIFIED BUSINESS INCOME.

    ``(a) In General.--In the case of a taxpayer other than a 
corporation, there shall be allowed as a deduction for any 
taxable year an amount equal to the sum of--
            ``(1) the lesser of--
                    ``(A) the combined qualified business 
                income amount of the taxpayer, or
                    ``(B) an amount equal to 20 percent of the 
                excess (if any) of--
                            ``(i) the taxable income of the 
                        taxpayer for the taxable year, over
                            ``(ii) the sum of any net capital 
                        gain (as defined in section 1(h)), plus 
                        the aggregate amount of the qualified 
                        cooperative dividends, of the taxpayer 
                        for the taxable year, plus
            ``(2) the lesser of--
                    ``(A) 20 percent of the aggregate amount of 
                the qualified cooperative dividends of the 
                taxpayer for the taxable year, or
                    ``(B) taxable income (reduced by the net 
                capital gain (as so defined)) of the taxpayer 
                for the taxable year.
The amount determined under the preceding sentence shall not 
exceed the taxable income (reduced by the net capital gain (as 
so defined)) of the taxpayer for the taxable year.
    ``(b) Combined Qualified Business Income Amount.--For 
purposes of this section--
            ``(1) In general.--The term `combined qualified 
        business income amount' means, with respect to any 
        taxable year, an amount equal to--
                    ``(A) the sum of the amounts determined 
                under paragraph (2) for each qualified trade or 
                business carried on by the taxpayer, plus
                    ``(B) 20 percent of the aggregate amount of 
                the qualified REIT dividends and qualified 
                publicly traded partnership income of the 
                taxpayer for the taxable year.
            ``(2) Determination of deductible amount for each 
        trade or business.--The amount determined under this 
        paragraph with respect to any qualified trade or 
        business is the lesser of--
                    ``(A) 20 percent of the taxpayer's 
                qualified business income with respect to the 
                qualified trade or business, or
                    ``(B) the greater of--
                            ``(i) 50 percent of the W-2 wages 
                        with respect to the qualified trade or 
                        business, or
                            ``(ii) the sum of 25 percent of the 
                        W-2 wages with respect to the qualified 
                        trade or business, plus 2.5 percent of 
                        the unadjusted basis immediately after 
                        acquisition of all qualified property.
            ``(3) Modifications to limit based on taxable 
        income.--
                    ``(A) Exception from limit.--In the case of 
                any taxpayer whose taxable income for the 
                taxable year does not exceed the threshold 
                amount, paragraph (2) shall be applied without 
                regard to subparagraph (B).
                    ``(B) Phase-in of limit for certain 
                taxpayers.--
                            ``(i) In general.--If--
                                    ``(I) the taxable income of 
                                a taxpayer for any taxable year 
                                exceeds the threshold amount, 
                                but does not exceed the sum of 
                                the threshold amount plus 
                                $50,000 ($100,000 in the case 
                                of a joint return), and
                                    ``(II) the amount 
                                determined under paragraph 
                                (2)(B) (determined without 
                                regard to this subparagraph) 
                                with respect to any qualified 
                                trade or business carried on by 
                                the taxpayer is less than the 
                                amount determined under 
                                paragraph (2)(A) with respect 
                                such trade or business,
                        then paragraph (2) shall be applied 
                        with respect to such trade or business 
                        without regard to subparagraph (B) 
                        thereof and by reducing the amount 
                        determined under subparagraph (A) 
                        thereof by the amount determined under 
                        clause (ii).
                            ``(ii) Amount of reduction.--The 
                        amount determined under this 
                        subparagraph is the amount which bears 
                        the same ratio to the excess amount 
                        as--
                                    ``(I) the amount by which 
                                the taxpayer's taxable income 
                                for the taxable year exceeds 
                                the threshold amount, bears to
                                    ``(II) $50,000 ($100,000 in 
                                the case of a joint return).
                            ``(iii) Excess amount.--For 
                        purposes of clause (ii), the excess 
                        amount is the excess of--
                                    ``(I) the amount determined 
                                under paragraph (2)(A) 
                                (determined without regard to 
                                this paragraph), over
                                    ``(II) the amount 
                                determined under paragraph 
                                (2)(B) (determined without 
                                regard to this paragraph).
            ``(4) Wages, etc.--
                    ``(A) In general.--The term `W-2 wages' 
                means, with respect to any person for any 
                taxable year of such person, the amounts 
                described in paragraphs (3) and (8) of section 
                6051(a) paid by such person with respect to 
                employment of employees by such person during 
                the calendar year ending during such taxable 
                year.
                    ``(B) Limitation to wages attributable to 
                qualified business income.--Such term shall not 
                include any amount which is not properly 
                allocable to qualified business income for 
                purposes of subsection (c)(1).
                    ``(C) Return requirement.--Such term shall 
                not include any amount which is not properly 
                included in a return filed with the Social 
                Security Administration on or before the 60th 
                day after the due date (including extensions) 
                for such return.
            ``(5) Acquisitions, dispositions, and short taxable 
        years.--The Secretary shall provide for the application 
        of this subsection in cases of a short taxable year or 
        where the taxpayer acquires, or disposes of, the major 
        portion of a trade or business or the major portion of 
        a separate unit of a trade or business during the 
        taxable year.
            ``(6) Qualified property.--For purposes of this 
        section:
                    ``(A) In general.--The term `qualified 
                property' means, with respect to any qualified 
                trade or business for a taxable year, tangible 
                property of a character subject to the 
                allowance for depreciation under section 167--
                            ``(i) which is held by, and 
                        available for use in, the qualified 
                        trade or business at the close of the 
                        taxable year,
                            ``(ii) which is used at any point 
                        during the taxable year in the 
                        production of qualified business 
                        income, and
                            ``(iii) the depreciable period for 
                        which has not ended before the close of 
                        the taxable year.
                    ``(B) Depreciable period.--The term 
                `depreciable period' means, with respect to 
                qualified property of a taxpayer, the period 
                beginning on the date the property was first 
                placed in service by the taxpayer and ending on 
                the later of--
                            ``(i) the date that is 10 years 
                        after such date, or
                            ``(ii) the last day of the last 
                        full year in the applicable recovery 
                        period that would apply to the property 
                        under section 168 (determined without 
                        regard to subsection (g) thereof).
    ``(c) Qualified Business Income.--For purposes of this 
section--
            ``(1) In general.--The term `qualified business 
        income' means, for any taxable year, the net amount of 
        qualified items of income, gain, deduction, and loss 
        with respect to any qualified trade or business of the 
        taxpayer. Such term shall not include any qualified 
        REIT dividends, qualified cooperative dividends, or 
        qualified publicly traded partnership income.
            ``(2) Carryover of losses.--If the net amount of 
        qualified income, gain, deduction, and loss with 
        respect to qualified trades or businesses of the 
        taxpayer for any taxable year is less than zero, such 
        amount shall be treated as a loss from a qualified 
        trade or business in the succeeding taxable year.
            ``(3) Qualified items of income, gain, deduction, 
        and loss.--For purposes of this subsection--
                    ``(A) In general.--The term `qualified 
                items of income, gain, deduction, and loss' 
                means items of income, gain, deduction, and 
                loss to the extent such items are--
                            ``(i) effectively connected with 
                        the conduct of a trade or business 
                        within the United States (within the 
                        meaning of section 864(c), determined 
                        by substituting `qualified trade or 
                        business (within the meaning of section 
                        199A)' for `nonresident alien 
                        individual or a foreign corporation' or 
                        for `a foreign corporation' each place 
                        it appears), and
                            ``(ii) included or allowed in 
                        determining taxable income for the 
                        taxable year.
                    ``(B) Exceptions.--The following investment 
                items shall not be taken into account as a 
                qualified item of income, gain, deduction, or 
                loss:
                            ``(i) Any item of short-term 
                        capital gain, short-term capital loss, 
                        long-term capital gain, or long-term 
                        capital loss.
                            ``(ii) Any dividend, income 
                        equivalent to a dividend, or payment in 
                        lieu of dividends described in section 
                        954(c)(1)(G).
                            ``(iii) Any interest income other 
                        than interest income which is properly 
                        allocable to a trade or business.
                            ``(iv) Any item of gain or loss 
                        described in subparagraph (C) or (D) of 
                        section 954(c)(1) (applied by 
                        substituting `qualified trade or 
                        business' for `controlled foreign 
                        corporation').
                            ``(v) 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)).
                            ``(vi) Any amount received from an 
                        annuity which is not received in 
                        connection with the trade or business.
                            ``(vii) Any item of deduction or 
                        loss properly allocable to an amount 
                        described in any of the preceding 
                        clauses.
            ``(4) Treatment of reasonable compensation and 
        guaranteed payments.--Qualified business income shall 
        not include--
                    ``(A) reasonable compensation paid to the 
                taxpayer by any qualified trade or business of 
                the taxpayer for services rendered with respect 
                to the trade or business,
                    ``(B) any guaranteed payment described in 
                section 707(c) paid to a partner for services 
                rendered with respect to the trade or business, 
                and
                    ``(C) to the extent provided in 
                regulations, any payment described in section 
                707(a) to a partner for services rendered with 
                respect to the trade or business.
    ``(d) Qualified Trade or Business.--For purposes of this 
section--
            ``(1) In general.--The term `qualified trade or 
        business' means any trade or business other than--
                    ``(A) a specified service trade or 
                business, or
                    ``(B) the trade or business of performing 
                services as an employee.
            ``(2) Specified service trade or business.--The 
        term `specified service trade or business' means any 
        trade or business--
                    ``(A) which is described in section 
                1202(e)(3)(A) (applied without regard to the 
                words `engineering, architecture,') or which 
                would be so described if the term `employees or 
                owners' were substituted for `employees' 
                therein, or
                    ``(B) which involves the performance of 
                services that consist of investing and 
                investment management, trading, or dealing in 
                securities (as defined in section 475(c)(2)), 
                partnership interests, or commodities (as 
                defined in section 475(e)(2)).
            ``(3) Exception for specified service businesses 
        based on taxpayer's income.--
                    ``(A) In general.--If, for any taxable 
                year, the taxable income of any taxpayer is 
                less than the sum of the threshold amount plus 
                $50,000 ($100,000 in the case of a joint 
                return), then--
                            ``(i) any specified service trade 
                        or business of the taxpayer shall not 
                        fail to be treated as a qualified trade 
                        or business due to paragraph (1)(A), 
                        but
                            ``(ii) only the applicable 
                        percentage of qualified items of 
                        income, gain, deduction, or loss, and 
                        the W-2 wages and the unadjusted basis 
                        immediately after acquisition of 
                        qualified property, of the taxpayer 
                        allocable to such specified service 
                        trade or business shall be taken into 
                        account in computing the qualified 
                        business income, W-2 wages, and the 
                        unadjusted basis immediately after 
                        acquisition of qualified property of 
                        the taxpayer for the taxable year for 
                        purposes of applying this section.
                    ``(B) Applicable percentage.--For purposes 
                of subparagraph (A), the term `applicable 
                percentage' means, with respect to any taxable 
                year, 100 percent reduced (not below zero) by 
                the percentage equal to the ratio of--
                            ``(i) the taxable income of the 
                        taxpayer for the taxable year in excess 
                        of the threshold amount, bears to
                            ``(ii) $50,000 ($100,000 in the 
                        case of a joint return).
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Taxable income.--Taxable income shall be 
        computed without regard to the deduction allowable 
        under this section.
            ``(2) Threshold amount.--
                    ``(A) In general.--The term `threshold 
                amount' means $157,500 (200 percent of such 
                amount in the case of a joint return).
                    ``(B) Inflation adjustment.--In the case of 
                any taxable year beginning after 2018, the 
                dollar amount in subparagraph (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(f)(3) 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.
                The amount of any increase under the preceding 
                sentence shall be rounded as provided in 
                section 1(f)(7).
            ``(3) Qualified reit dividend.--The term `qualified 
        REIT dividend' means any dividend from a real estate 
        investment trust received during the taxable year 
        which--
                    ``(A) is not a capital gain dividend, as 
                defined in section 857(b)(3), and
                    ``(B) is not qualified dividend income, as 
                defined in section 1(h)(11).
            ``(4) Qualified cooperative dividend.--The term 
        `qualified cooperative dividend' means any patronage 
        dividend (as defined in section 1388(a)), any per-unit 
        retain allocation (as defined in section 1388(f)), and 
        any qualified written notice of allocation (as defined 
        in section 1388(c)), or any similar amount received 
        from an organization described in subparagraph (B)(ii), 
        which--
                    ``(A) is includible in gross income, and
                    ``(B) is received from--
                            ``(i) an organization or 
                        corporation described in section 
                        501(c)(12) or 1381(a), or
                            ``(ii) an organization which is 
                        governed under this title by the rules 
                        applicable to cooperatives under this 
                        title before the enactment of 
                        subchapter T.
            ``(5) Qualified publicly traded partnership 
        income.--The term `qualified publicly traded 
        partnership income' means, with respect to any 
        qualified trade or business of a taxpayer, the sum of--
                    ``(A) the net amount of such taxpayer's 
                allocable share of each qualified item of 
                income, gain, deduction, and loss (as defined 
                in subsection (c)(3) and determined after the 
                application of subsection (c)(4)) from a 
                publicly traded partnership (as defined in 
                section 7704(a)) which is not treated as a 
                corporation under section 7704(c), plus
                    ``(B) any gain recognized by such taxpayer 
                upon disposition of its interest in such 
                partnership to the extent such gain is treated 
                as an amount realized from the sale or exchange 
                of property other than a capital asset under 
                section 751(a).
    ``(f) Special Rules.--
            ``(1) Application to partnerships and s 
        corporations.--
                    ``(A) In general.--In the case of a 
                partnership or S corporation--
                            ``(i) this section shall be applied 
                        at the partner or shareholder level,
                            ``(ii) each partner or shareholder 
                        shall take into account such person's 
                        allocable share of each qualified item 
                        of income, gain, deduction, and loss, 
                        and
                            ``(iii) each partner or shareholder 
                        shall be treated for purposes of 
                        subsection (b) as having W-2 wages and 
                        unadjusted basis immediately after 
                        acquisition of qualified property for 
                        the taxable year in an amount equal to 
                        such person's allocable share of the W-
                        2 wages and the unadjusted basis 
                        immediately after acquisition of 
                        qualified property of the partnership 
                        or S corporation for the taxable year 
                        (as determined under regulations 
                        prescribed by the Secretary).
                For purposes of clause (iii), a partner's or 
                shareholder's allocable share of W-2 wages 
                shall be determined in the same manner as the 
                partner's or shareholder's allocable share of 
                wage expenses. For purposes of such clause, 
                partner's or shareholder's allocable share of 
                the unadjusted basis immediately after 
                acquisition of qualified property shall be 
                determined in the same manner as the partner's 
                or shareholder's allocable share of 
                depreciation. For purposes of this 
                subparagraph, in the case of an S corporation, 
                an allocable share shall be the shareholder's 
                pro rata share of an item.
                    ``(B) Application to trusts and estates.--
                Rules similar to the rules under section 
                199(d)(1)(B)(i) (as in effect on December 1, 
                2017) for the apportionment of W-2 wages shall 
                apply to the apportionment of W-2 wages and the 
                apportionment of unadjusted basis immediately 
                after acquisition of qualified property under 
                this section.
                    ``(C) Treatment of trades or business in 
                puerto rico.--
                            ``(i) In general.--In the case of 
                        any taxpayer with qualified business 
                        income from sources within the 
                        commonwealth of Puerto Rico, if all 
                        such income is taxable under section 1 
                        for such taxable year, then for 
                        purposes of determining the qualified 
                        business income of such taxpayer for 
                        such taxable year, the term `United 
                        States' shall include the Commonwealth 
                        of Puerto Rico.
                            ``(ii) Special rule for applying 
                        limit.--In the case of any taxpayer 
                        described in clause (i), the 
                        determination of W-2 wages of such 
                        taxpayer with respect to any qualified 
                        trade or business conducted in Puerto 
                        Rico shall be made without regard to 
                        any exclusion under section 3401(a)(8) 
                        for remuneration paid for services in 
                        Puerto Rico.
            ``(2) Coordination with minimum tax.--For purposes 
        of determining alternative minimum taxable income under 
        section 55, qualified business income shall be 
        determined without regard to any adjustments under 
        sections 56 through 59.
            ``(3) Deduction limited to income taxes.--The 
        deduction under subsection (a) shall only be allowed 
        for purposes of this chapter.
            ``(4) Regulations.--The Secretary shall prescribe 
        such regulations as are necessary to carry out the 
        purposes of this section, including regulations--
                    ``(A) for requiring or restricting the 
                allocation of items and wages under this 
                section and such reporting requirements as the 
                Secretary determines appropriate, and
                    ``(B) for the application of this section 
                in the case of tiered entities.
    ``(g) Deduction Allowed to Specified Agricultural or 
Horticultural Cooperatives.--
            ``(1) In general.--In the case of any taxable year 
        of a specified agricultural or horticultural 
        cooperative beginning after December 31, 2017, there 
        shall be allowed a deduction in an amount equal to the 
        lesser of--
                    ``(A) 20 percent of the excess (if any) 
                of--
                            ``(i) the gross income of a 
                        specified agricultural or horticultural 
                        cooperative, over
                            ``(ii) the qualified cooperative 
                        dividends (as defined in subsection 
                        (e)(4)) paid during the taxable year 
                        for the taxable year, or
                    ``(B) the greater of--
                            ``(i) 50 percent of the W-2 wages 
                        of the cooperative with respect to its 
                        trade or business, or
                            ``(ii) the sum of 25 percent of the 
                        W-2 wages of the cooperative with 
                        respect to its trade or business, plus 
                        2.5 percent of the unadjusted basis 
                        immediately after acquisition of all 
                        qualified property of the cooperative.
            ``(2) Limitation.--The amount determined under 
        paragraph (1) shall not exceed the taxable income of 
        the specified agricultural or horticultural for the 
        taxable year.
            ``(3) Specified agricultural or horticultural 
        cooperative.--For purposes of this subsection, the term 
        `specified agricultural or horticultural cooperative' 
        means an organization to which part I of subchapter T 
        applies which is engaged in--
                    ``(A) the manufacturing, production, 
                growth, or extraction in whole or significant 
                part of any agricultural or horticultural 
                product,
                    ``(B) the marketing of agricultural or 
                horticultural products which its patrons have 
                so manufactured, produced, grown, or extracted, 
                or
                    ``(C) the provision of supplies, equipment, 
                or services to farmers or to organizations 
                described in subparagraph (A) or (B).
    ``(h) Anti-abuse Rules.--The Secretary shall--
            ``(1) apply rules similar to the rules under 
        section 179(d)(2) in order to prevent the manipulation 
        of the depreciable period of qualified property using 
        transactions between related parties, and
            ``(2) prescribe rules for determining the 
        unadjusted basis immediately after acquisition of 
        qualified property acquired in like-kind exchanges or 
        involuntary conversions.
    ``(i) Termination.--This section shall not apply to taxable 
years beginning after December 31, 2025.''.
    (b) Treatment of Deduction in Computing Adjusted Gross and 
Taxable Income.--
            (1) Deduction not allowed in computing adjusted 
        gross income.--Section 62(a) is amended by adding at 
        the end the following new sentence: ``The deduction 
        allowed by section 199A shall not be treated as a 
        deduction described in any of the preceding paragraphs 
        of this subsection.''.
            (2) Deduction allowed to nonitemizers.--Section 
        63(b) is amended by striking ``and'' at the end of 
        paragraph (1), by striking the period at the end of 
        paragraph (2) and inserting ``, and'', and by adding at 
        the end the following new paragraph:
            ``(3) the deduction provided in section 199A.''.
            (3) Deduction allowed to itemizers without limits 
        on itemized deductions.--Section 63(d) is amended by 
        striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and 
        inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(3) the deduction provided in section 199A.''.
            (4) Conforming amendment.--Section 3402(m)(1) is 
        amended by inserting ``and the estimated deduction 
        allowed under section 199A'' after ``chapter 1''.
    (c) Accuracy-related Penalty on Determination of Applicable 
Percentage.--Section 6662(d)(1) is amended by inserting at the 
end the following new subparagraph:
                    ``(C) Special rule for taxpayers claiming 
                section 199a deduction.--In the case of any 
                taxpayer who claims the deduction allowed under 
                section 199A for the taxable year, subparagraph 
                (A) shall be applied by substituting `5 
                percent' for `10 percent'.''.
    (d) Conforming Amendments.--
            (1) Section 172(d) is amended by adding at the end 
        the following new paragraph:
            ``(8) Qualified business income deduction.--The 
        deduction under section 199A shall not be allowed.''.
            (2) Section 246(b)(1) is amended by inserting 
        ``199A,'' before ``243(a)(1)''.
            (3) Section 613(a) is amended by inserting ``and 
        without the deduction under section 199A'' after ``and 
        without the deduction under section 199''.
            (4) Section 613A(d)(1) is amended by redesignating 
        subparagraphs (C), (D), and (E) as subparagraphs (D), 
        (E), and (F), respectively, and by inserting after 
        subparagraph (B), the following new subparagraph:
                    ``(C) any deduction allowable under section 
                199A,''.
            (5) Section 170(b)(2)(D) is amended by striking 
        ``and'' in clause (iv), by striking the period at the 
        end of clause (v), and by adding at the end the 
        following new clause:
                            ``(vi) section 199A(g).''.
            (6) The table of sections for part VI of subchapter 
        B of chapter 1 is amended by inserting at the end the 
        following new item:

``Sec. 199A. Qualified business income.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11012. LIMITATION ON LOSSES FOR TAXPAYERS OTHER THAN CORPORATIONS.

    (a) In General.--Section 461 is amended by adding at the 
end the following new subsection:
    ``(l) Limitation on Excess Business Losses of Noncorporate 
Taxpayers.--
            ``(1) Limitation.--In the case of taxable year of a 
        taxpayer other than a corporation beginning after 
        December 31, 2017, and before January 1, 2026--
                    ``(A) subsection (j) (relating to 
                limitation on excess farm losses of certain 
                taxpayers) shall not apply, and
                    ``(B) any excess business loss of the 
                taxpayer for the taxable year shall not be 
                allowed.
            ``(2) Disallowed loss carryover.--Any loss which is 
        disallowed under paragraph (1) shall be treated as a 
        net operating loss carryover to the following taxable 
        year under section 172.
            ``(3) Excess business loss.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `excess 
                business loss' means the excess (if any) of--
                            ``(i) the aggregate deductions of 
                        the taxpayer for the taxable year which 
                        are attributable to trades or 
                        businesses of such taxpayer (determined 
                        without regard to whether or not such 
                        deductions are disallowed for such 
                        taxable year under paragraph (1)), over
                            ``(ii) the sum of--
                                    ``(I) the aggregate gross 
                                income or gain of such taxpayer 
                                for the taxable year which is 
                                attributable to such trades or 
                                businesses, plus
                                    ``(II) $250,000 (200 
                                percent of such amount in the 
                                case of a joint return).
                    ``(B) Adjustment for inflation.--In the 
                case of any taxable year beginning after 
                December 31, 2018, the $250,000 amount in 
                subparagraph (A)(ii)(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(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `2017' for `2016' in 
                        subparagraph (A)(ii) thereof.
                        If any amount as increased under the 
                        preceding sentence is not a multiple of 
                        $1,000, such amount shall be rounded to 
                        the nearest multiple of $1,000.
            ``(4) Application of subsection in case of 
        partnerships and s corporations.--In the case of a 
        partnership or S corporation--
                    ``(A) this subsection shall be applied at 
                the partner or shareholder level, and
                    ``(B) each partner's or shareholder's 
                allocable share of the items of income, gain, 
                deduction, or loss of the partnership or S 
                corporation for any taxable year from trades or 
                businesses attributable to the partnership or S 
                corporation shall be taken into account by the 
                partner or shareholder in applying this 
                subsection to the taxable year of such partner 
                or shareholder with or within which the taxable 
                year of the partnership or S corporation ends.
        For purposes of this paragraph, in the case of an S 
        corporation, an allocable share shall be the 
        shareholder's pro rata share of an item.
            ``(5) Additional reporting.--The Secretary shall 
        prescribe such additional reporting requirements as the 
        Secretary determines necessary to carry out the 
        purposes of this subsection.
            ``(6) Coordination with section 469.--This 
        subsection shall be applied after the application of 
        section 469.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

          PART III--TAX BENEFITS FOR FAMILIES AND INDIVIDUALS

SEC. 11021. INCREASE IN STANDARD DEDUCTION.

    (a) In General.--Subsection (c) of section 63 is amended by 
adding at the end the following new paragraph:
            ``(7) Special rules for taxable years 2018 through 
        2025.--In the case of a taxable year beginning after 
        December 31, 2017, and before January 1, 2026--
                    ``(A) Increase in standard deduction.--
                Paragraph (2) shall be applied--
                            ``(i) by substituting `$18,000' for 
                        `$4,400' in subparagraph (B), and
                            ``(ii) by substituting `$12,000' 
                        for `$3,000' in subparagraph (C).
                    ``(B) Adjustment for inflation.--
                            ``(i) In general.--Paragraph (4) 
                        shall not apply to the dollar amounts 
                        contained in paragraphs (2)(B) and 
                        (2)(C).
                            ``(ii) Adjustment of increased 
                        amounts.--In the case of a taxable year 
                        beginning after 2018, the $18,000 and 
                        $12,000 amounts in subparagraph (A) 
                        shall each be increased by an amount 
                        equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting `2017' for 
                                `2016' in subparagraph (A)(ii) 
                                thereof.
                        If any increase under this clause is 
                        not a multiple of $50, such increase 
                        shall be rounded to the next lowest 
                        multiple of $50.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11022. INCREASE IN AND MODIFICATION OF CHILD TAX CREDIT.

    (a) In General.--Section 24 is amended by adding at the end 
the following new subsection:
    ``(h) Special Rules for Taxable Years 2018 Through 2025.--
            ``(1) In general.--In the case of a taxable year 
        beginning after December 31, 2017, and before January 
        1, 2026, this section shall be applied as provided in 
        paragraphs (2) through (7).
            ``(2) Credit amount.--Subsection (a) shall be 
        applied by substituting `$2,000' for `$1,000'.
            ``(3) Limitation.--In lieu of the amount determined 
        under subsection (b)(2), the threshold amount shall be 
        $400,000 in the case of a joint return ($200,000 in any 
        other case).
            ``(4) Partial credit allowed for certain other 
        dependents.--
                    ``(A) In general.--The credit determined 
                under subsection (a) (after the application of 
                paragraph (2)) shall be increased by $500 for 
                each dependent of the taxpayer (as defined in 
                section 152) other than a qualifying child 
                described in subsection (c).
                    ``(B) Exception for certain noncitizens.--
                Subparagraph (A) shall not apply with respect 
                to any individual who would not be a dependent 
                if subparagraph (A) of section 152(b)(3) were 
                applied without regard to all that follows 
                `resident of the United States'.
                    ``(C) Certain qualifying children.--In the 
                case of any qualifying child with respect to 
                whom a credit is not allowed under this section 
                by reason of paragraph (7), such child shall be 
                treated as a dependent to whom subparagraph (A) 
                applies.
            ``(5) Maximum amount of refundable credit.--
                    ``(A) In general.--The amount determined 
                under subsection (d)(1)(A) with respect to any 
                qualifying child shall not exceed $1,400, and 
                such subsection shall be applied without regard 
                to paragraph (4) of this subsection.
                    ``(B) Adjustment for inflation.--In the 
                case of a taxable year beginning after 2018, 
                the $1,400 amount in subparagraph (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(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `2017' for `2016' in 
                        subparagraph (A)(ii) thereof.
                If any increase under this clause is not a 
                multiple of $100, such increase shall be 
                rounded to the next lowest multiple of $100.
            ``(6) Earned income threshold for refundable 
        credit.--Subsection (d)(1)(B)(i) shall be applied by 
        substituting `$2,500' for `$3,000'.
            ``(7) Social security number required.--No credit 
        shall be allowed under this section to a taxpayer with 
        respect to any qualifying child unless the taxpayer 
        includes the social security number of such child on 
        the return of tax for the taxable year. For purposes of 
        the preceding sentence, the term `social security 
        number' means a social security number issued to an 
        individual by the Social Security Administration, but 
        only if the social security number is issued--
                    ``(A) 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, and
                    ``(B) before the due date for such 
                return.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11023. INCREASED LIMITATION FOR CERTAIN CHARITABLE CONTRIBUTIONS.

    (a) In General.--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 beginning after December 
                        31, 2017, and before January 1, 2026, 
                        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) for any 
                        taxable year described in such clause, 
                        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.--For each taxable 
                                year described in clause (i), 
                                and each taxable year to which 
                                any contribution under this 
                                subparagraph is carried over 
                                under clause (ii), subparagraph 
                                (A) shall be applied by 
                                reducing (but not below zero) 
                                the contribution limitation 
                                allowed for the taxable year 
                                under such subparagraph by the 
                                aggregate contributions allowed 
                                under this subparagraph for 
                                such taxable year, and 
                                subparagraph (B) shall be 
                                applied by treating any 
                                reference to subparagraph (A) 
                                as a reference to both 
                                subparagraph (A) and this 
                                subparagraph.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions in taxable years beginning after 
December 31, 2017.

SEC. 11024. INCREASED CONTRIBUTIONS TO ABLE ACCOUNTS.

    (a) Increase in Limitation for Contributions From 
Compensation of Individuals With Disabilities.--
            (1) In general.--Section 529A(b)(2)(B) is amended 
        to read as follows:
                    ``(B) except in the case of contributions 
                under subsection (c)(1)(C), if such 
                contribution to an ABLE account would result in 
                aggregate contributions from all contributors 
                to the ABLE account for the taxable year 
                exceeding the sum of--
                            ``(i) the amount in effect under 
                        section 2503(b) for the calendar year 
                        in which the taxable year begins, plus
                            ``(ii) in the case of any 
                        contribution by a designated 
                        beneficiary described in paragraph (7) 
                        before January 1, 2026, the lesser of--
                                    ``(I) compensation (as 
                                defined by section 219(f)(1)) 
                                includible in the designated 
                                beneficiary's gross income for 
                                the taxable year, or
                                    ``(II) an amount equal to 
                                the poverty line for a one-
                                person household, as determined 
                                for the calendar year preceding 
                                the calendar year in which the 
                                taxable year begins.''.
            (2) Responsibility for contribution limitation.--
        Paragraph (2) of section 529A(b) is amended by adding 
        at the end the following: ``A designated beneficiary 
        (or a person acting on behalf of such beneficiary) 
        shall maintain adequate records for purposes of 
        ensuring, and shall be responsible for ensuring, that 
        the requirements of subparagraph (B)(ii) are met.''
            (3) Eligible designated beneficiary.--Section 
        529A(b) is amended by adding at the end the following:
            ``(7) Special rules related to contribution 
        limit.--For purposes of paragraph (2)(B)(ii)--
                    ``(A) Designated beneficiary.--A designated 
                beneficiary described in this paragraph is an 
                employee (including an employee within the 
                meaning of section 401(c)) with respect to 
                whom--
                            ``(i) no contribution is made for 
                        the taxable year to a defined 
                        contribution plan (within the meaning 
                        of section 414(i)) with respect to 
                        which the requirements of section 
                        401(a) or 403(a) are met,
                            ``(ii) no contribution is made for 
                        the taxable year to an annuity contract 
                        described in section 403(b), and
                            ``(iii) no contribution is made for 
                        the taxable year to an eligible 
                        deferred compensation plan described in 
                        section 457(b).
                    ``(B) Poverty line.--The term `poverty 
                line' has the meaning given such term by 
                section 673 of the Community Services Block 
                Grant Act (42 U.S.C. 9902).''.
    (b) Allowance of Saver's Credit for ABLE Contributions by 
Account Holder.--Section 25B(d)(1) is amended by striking 
``and'' at the end of subparagraph (B)(ii), by striking the 
period at the end of subparagraph (C) and inserting ``, and'', 
and by inserting at the end the following:
                    ``(D) the amount of contributions made 
                before January 1, 2026, by such individual to 
                the ABLE account (within the meaning of section 
                529A) of which such individual is the 
                designated beneficiary.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 11025. ROLLOVERS TO ABLE PROGRAMS FROM 529 PROGRAMS.

    (a) In General.--Clause (i) of section 529(c)(3)(C) 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:
                                    ``(III) before January 1, 
                                2026, 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)(i).''.
    (b) Effective Date.--The amendments made by this section 
shall apply to distributions after the date of the enactment of 
this Act.

SEC. 11026. TREATMENT OF CERTAIN INDIVIDUALS PERFORMING SERVICES IN THE 
                    SINAI PENINSULA OF EGYPT.

    (a) In General.--For purposes of the following provisions 
of the Internal Revenue Code of 1986, with respect to the 
applicable period, a qualified hazardous duty area shall be 
treated in the same manner as if it were a combat zone (as 
determined under section 112 of such Code):
            (1) Section 2(a)(3) (relating to special rule where 
        deceased spouse was in missing status).
            (2) Section 112 (relating to the exclusion of 
        certain combat pay of members of the Armed Forces).
            (3) Section 692 (relating to income taxes of 
        members of Armed Forces on death).
            (4) Section 2201 (relating to members of the Armed 
        Forces dying in combat zone or by reason of combat-
        zone-incurred wounds, etc.).
            (5) Section 3401(a)(1) (defining wages relating to 
        combat pay for members of the Armed Forces).
            (6) Section 4253(d) (relating to the taxation of 
        phone service originating from a combat zone from 
        members of the Armed Forces).
            (7) Section 6013(f)(1) (relating to joint return 
        where individual is in missing status).
            (8) Section 7508 (relating to time for performing 
        certain acts postponed by reason of service in combat 
        zone).
    (b) Qualified Hazardous Duty Area.--For purposes of this 
section, the term ``qualified hazardous duty area'' means the 
Sinai Peninsula of Egypt, if as of the date of the enactment of 
this section any member of the Armed Forces of the United 
States is entitled to special pay under section 310 of title 
37, United States Code (relating to special pay; duty subject 
to hostile fire or imminent danger), for services performed in 
such location. Such term includes such location only during the 
period such entitlement is in effect.
    (c) Applicable Period.--
            (1) In general.--Except as provided in paragraph 
        (2), the applicable period is--
                    (A) the portion of the first taxable year 
                ending after June 9, 2015, which begins on such 
                date, and
                    (B) any subsequent taxable year beginning 
                before January 1, 2026.
            (2) Withholding.--In the case of subsection (a)(5), 
        the applicable period is--
                    (A) the portion of the first taxable year 
                ending after the date of the enactment of this 
                Act which begins on such date, and
                    (B) any subsequent taxable year beginning 
                before January 1, 2026.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the provisions of this section shall take effect 
        on June 9, 2015.
            (2) Withholding.--Subsection (a)(5) shall apply to 
        remuneration paid after the date of the enactment of 
        this Act.

SEC. 11027. TEMPORARY REDUCTION IN MEDICAL EXPENSE DEDUCTION FLOOR.

    (a) In General.--Subsection (f) of section 213 is amended 
to read as follows:
    ``(f) Special Rules for 2013 Through 2018.--In the case of 
any taxable year--
            ``(1) beginning after December 31, 2012, and ending 
        before January 1, 2017, in the case of a taxpayer if 
        such taxpayer or such taxpayer's spouse has attained 
        age 65 before the close of such taxable year, and
            ``(2) beginning after December 31, 2016, and ending 
        before January 1, 2019, in the case of any taxpayer,
subsection (a) shall be applied with respect to a taxpayer by 
substituting `7.5 percent' for `10 percent'.''.
    (b) Minimum Tax Preference Not to Apply.--Section 
56(b)(1)(B) is amended by adding at the end the following new 
sentence:``This subparagraph shall not apply to taxable years 
beginning after December 31, 2016, and ending before January 1, 
2019''.
    (c) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2016.

SEC. 11028. RELIEF FOR 2016 DISASTER AREAS.

    (a) In General.--For purposes of this section, the term 
``2016 disaster area'' means any area with respect to which a 
major disaster has been declared by the President under section 
401 of the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act during calendar year 2016.
    (b) Special Rules for Use of Retirement Funds With Respect 
to Areas Damaged by 2016 Disasters.--
            (1) Tax-favored withdrawals from retirement 
        plans.--
                    (A) In general.--Section 72(t) of the 
                Internal Revenue Code of 1986 shall not apply 
                to any qualified 2016 disaster distribution.
                    (B) Aggregate dollar limitation.--
                            (i) In general.--For purposes of 
                        this subsection, the aggregate amount 
                        of distributions received by an 
                        individual which may be treated as 
                        qualified 2016 disaster distributions 
                        for any taxable year shall not exceed 
                        the excess (if any) of--
                                    (I) $100,000, over
                                    (II) the aggregate amounts 
                                treated as qualified 2016 
                                disaster distributions received 
                                by such individual for all 
                                prior taxable years.
                            (ii) Treatment of plan 
                        distributions.--If a distribution to an 
                        individual would (without regard to 
                        clause (i)) be a qualified 2016 
                        disaster distribution, a plan shall not 
                        be treated as violating any requirement 
                        of this title merely because the plan 
                        treats such distribution as a qualified 
                        2016 disaster distribution, unless the 
                        aggregate amount of such distributions 
                        from all plans maintained by the 
                        employer (and any member of any 
                        controlled group which includes the 
                        employer) to such individual exceeds 
                        $100,000.
                            (iii) Controlled group.--For 
                        purposes of clause (ii), the term 
                        ``controlled group'' means any group 
                        treated as a single employer under 
                        subsection (b), (c), (m), or (o) of 
                        section 414 of the Internal Revenue 
                        Code of 1986.
                    (C) Amount distributed may be repaid.--
                            (i) In general.--Any individual who 
                        receives a qualified 2016 disaster 
                        distribution may, at any time during 
                        the 3-year period beginning on the day 
                        after the date on which such 
                        distribution was received, make one or 
                        more contributions in an aggregate 
                        amount not to exceed the amount of such 
                        distribution to an eligible retirement 
                        plan of which such individual is a 
                        beneficiary and to which a rollover 
                        contribution of such distribution could 
                        be made under section 402(c), 
                        403(a)(4), 403(b)(8), 408(d)(3), or 
                        457(e)(16) of the Internal Revenue Code 
                        of 1986, as the case may be.
                            (ii) Treatment of repayments of 
                        distributions from eligible retirement 
                        plans other than iras.--For purposes of 
                        the Internal Revenue Code of 1986, if a 
                        contribution is made pursuant to clause 
                        (i) with respect to a qualified 2016 
                        disaster distribution from an eligible 
                        retirement plan other than an 
                        individual retirement plan, then the 
                        taxpayer shall, to the extent of the 
                        amount of the contribution, be treated 
                        as having received the qualified 2016 
                        disaster distribution in an eligible 
                        rollover distribution (as defined in 
                        section 402(c)(4) of the Internal 
                        Revenue Code of 1986) and as having 
                        transferred the amount to the eligible 
                        retirement plan in a direct trustee to 
                        trustee transfer within 60 days of the 
                        distribution.
                            (iii) Treatment of repayments for 
                        distributions from iras.--For purposes 
                        of the Internal Revenue Code of 1986, 
                        if a contribution is made pursuant to 
                        clause (i) with respect to a qualified 
                        2016 disaster distribution from an 
                        individual retirement plan (as defined 
                        by section 7701(a)(37) of the Internal 
                        Revenue Code of 1986), then, to the 
                        extent of the amount of the 
                        contribution, the qualified 2016 
                        disaster distribution shall be treated 
                        as a distribution described in section 
                        408(d)(3) of such Code and as having 
                        been transferred to the eligible 
                        retirement plan in a direct trustee to 
                        trustee transfer within 60 days of the 
                        distribution.
                    (D) Definitions.--For purposes of this 
                paragraph--
                            (i) Qualified 2016 disaster 
                        distribution.--Except as provided in 
                        subparagraph (B), the term ``qualified 
                        2016 disaster distribution'' means any 
                        distribution from an eligible 
                        retirement plan made on or after 
                        January 1, 2016, and before January 1, 
                        2018, to an individual whose principal 
                        place of abode at any time during 
                        calendar year 2016 was located in a 
                        disaster area described in subsection 
                        (a) and who has sustained an economic 
                        loss by reason of the events giving 
                        rise to the Presidential declaration 
                        described in subsection (a) which was 
                        applicable to such area.
                            (ii) Eligible retirement plan.--The 
                        term ``eligible retirement plan'' shall 
                        have the meaning given such term by 
                        section 402(c)(8)(B) of the Internal 
                        Revenue Code of 1986.
                    (E) Income inclusion spread over 3-year 
                period.--
                            (i) In general.--In the case of any 
                        qualified 2016 disaster distribution, 
                        unless the taxpayer elects not to have 
                        this subparagraph apply for any taxable 
                        year, any amount required to be 
                        included in gross income for such 
                        taxable year shall be so included 
                        ratably over the 3-taxable-year period 
                        beginning with such taxable year.
                            (ii) Special rule.--For purposes of 
                        clause (i), rules similar to the rules 
                        of subparagraph (E) of section 
                        408A(d)(3) of the Internal Revenue Code 
                        of 1986 shall apply.
                    (F) Special rules.--
                            (i) Exemption of distributions from 
                        trustee to trustee transfer and 
                        withholding rules.--For purposes of 
                        sections 401(a)(31), 402(f), and 3405 
                        of the Internal Revenue Code of 1986, 
                        qualified 2016 disaster distribution 
                        shall not be treated as eligible 
                        rollover distributions.
                            (ii) Qualified 2016 disaster 
                        distributions treated as meeting plan 
                        distribution requirements.--For 
                        purposes of the Internal Revenue Code 
                        of 1986, a qualified 2016 disaster 
                        distribution shall be treated as 
                        meeting the requirements of sections 
                        401(k)(2)(B)(i), 403(b)(7)(A)(ii), 
                        403(b)(11), and 457(d)(1)(A) of the 
                        Internal Revenue Code of 1986.
            (2) Provisions relating to plan amendments.--
                    (A) In general.--If this paragraph applies 
                to any amendment to any plan or annuity 
                contract, such plan or contract shall be 
                treated as being operated in accordance with 
                the terms of the plan during the period 
                described in subparagraph (B)(ii)(I).
                    (B) Amendments to which subsection 
                applies.--
                            (i) In general.--This paragraph 
                        shall apply to any amendment to any 
                        plan or annuity contract which is 
                        made--
                                    (I) pursuant to any 
                                provision of this section, or 
                                pursuant to any regulation 
                                under any provision of this 
                                section, and
                                    (II) on or before the last 
                                day of the first plan year 
                                beginning on or after January 
                                1, 2018, or such later date as 
                                the Secretary prescribes.
                        In the case of a governmental plan (as 
                        defined in section 414(d) of the 
                        Internal Revenue Code of 1986), 
                        subclause (II) shall be applied by 
                        substituting the date which is 2 years 
                        after the date otherwise applied under 
                        subclause (II).
                            (ii) Conditions.--This paragraph 
                        shall not apply to any amendment to a 
                        plan or contract unless such amendment 
                        applies retroactively for such period, 
                        and shall not apply to any such 
                        amendment unless the plan or contract 
                        is operated as if such amendment were 
                        in effect during the period--
                                    (I) beginning on the date 
                                that this section or the 
                                regulation described in clause 
                                (i)(I) takes effect (or in the 
                                case of a plan or contract 
                                amendment not required by this 
                                section or such regulation, the 
                                effective date specified by the 
                                plan), and
                                    (II) ending on the date 
                                described in clause (i)(II) 
                                (or, if earlier, the date the 
                                plan or contract amendment is 
                                adopted).
    (c) Special Rules for Personal Casualty Losses Related to 
2016 Major Disaster.--
            (1) In general.--If an individual has a net 
        disaster loss for any taxable year beginning after 
        December 31, 2015, and before January 1, 2018--
                    (A) the amount determined under section 
                165(h)(2)(A)(ii) of the Internal Revenue Code 
                of 1986 shall be equal to the sum of--
                            (i) such net disaster loss, and
                            (ii) so much of the excess referred 
                        to in the matter preceding clause (i) 
                        of section 165(h)(2)(A) of such Code 
                        (reduced by the amount in clause (i) of 
                        this subparagraph) as exceeds 10 
                        percent of the adjusted gross income of 
                        the individual,
                    (B) section 165(h)(1) of such Code shall be 
                applied by substituting ``$500'' for ``$500 
                ($100 for taxable years beginning after 
                December 31, 2009)'',
                    (C) the standard deduction determined under 
                section 63(c) of such Code shall be increased 
                by the net disaster loss, and
                    (D) section 56(b)(1)(E) of such Code shall 
                not apply to so much of the standard deduction 
                as is attributable to the increase under 
                subparagraph (C) of this paragraph.
            (2) Net disaster loss.--For purposes of this 
        subsection, the term ``net disaster loss'' means the 
        excess of qualified disaster-related personal casualty 
        losses over personal casualty gains (as defined in 
        section 165(h)(3)(A) of the Internal Revenue Code of 
        1986).
            (3) Qualified disaster-related personal casualty 
        losses.--For purposes of this paragraph, the term 
        ``qualified disaster-related personal casualty losses'' 
        means losses described in section 165(c)(3) of the 
        Internal Revenue Code of 1986 which arise in a disaster 
        area described in subsection (a) on or after January 1, 
        2016, and which are attributable to the events giving 
        rise to the Presidential declaration described in 
        subsection (a) which was applicable to such area.

                           PART IV--EDUCATION

SEC. 11031. TREATMENT OF STUDENT LOANS DISCHARGED ON ACCOUNT OF DEATH 
                    OR DISABILITY.

    (a) In General.--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 for such taxable 
                year by reasons of the discharge (in whole or 
                in part) of any loan described in subparagraph 
                (B) after December 31, 2017, and before January 
                1, 2026, 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) Effective Date.--The amendment made by this section 
shall apply to discharges of indebtedness after December 31, 
2017.

SEC. 11032. 529 ACCOUNT FUNDING FOR ELEMENTARY AND SECONDARY EDUCATION.

    (a) In General.--
            (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--
                    ``(A) expenses for tuition in connection 
                with enrollment or attendance at an elementary 
                or secondary public, private, or religious 
                school, and
                    ``(B) expenses for--
                            ``(i) curriculum and curricular 
                        materials,
                            ``(ii) books or other instructional 
                        materials,
                            ``(iii) online educational 
                        materials,
                            ``(iv) tuition for tutoring or 
                        educational classes outside of the home 
                        (but only if the tutor or instructor is 
                        not related (within the meaning of 
                        section 152(d)(2)) to the student),
                            ``(v) dual enrollment in an 
                        institution of higher education, and
                            ``(vi) educational therapies for 
                        students with disabilities,
                in connection with a homeschool (whether 
                treated as a homeschool or a private school for 
                purposes of applicable State law).''.
            (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 
        described in subsection (c)(7) incurred during the 
        taxable year.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to distributions made after December 31, 2017.

                   PART V--DEDUCTIONS AND EXCLUSIONS

SEC. 11041. SUSPENSION OF DEDUCTION FOR PERSONAL EXEMPTIONS.

    (a) In General.--Subsection (d) of section 151 is amended--
            (1) by striking ``In the case of'' in paragraph (4) 
        and inserting ``Except as provided in paragraph (5), in 
        the case of'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(5) Special rules for taxable years 2018 through 
        2025.--In the case of a taxable year beginning after 
        December 31, 2017, and before January 1, 2026--
                    ``(A) Exemption amount.--The term 
                `exemption amount' means zero.
                    ``(B) References.--For purposes of any 
                other provision of this title, the reduction of 
                the exemption amount to zero under subparagraph 
                (A) shall not be taken into account in 
                determining whether a deduction is allowed or 
                allowable, or whether a taxpayer is entitled to 
                a deduction, under this section.''.
    (b) Application to Estates and Trusts.--Section 
642(b)(2)(C) is amended by adding at the end the following new 
clause:
                            ``(iii) Years when personal 
                        exemption amount is zero.--
                                    ``(I) In general.--In the 
                                case of any taxable year in 
                                which the exemption amount 
                                under section 151(d) is zero, 
                                clause (i) shall be applied by 
                                substituting `$4,150' for `the 
                                exemption amount under section 
                                151(d)'.
                                    ``(II) Inflation 
                                adjustment.--In the case of any 
                                taxable year beginning in a 
                                calendar year after 2018, the 
                                $4,150 amount in subparagraph 
                                (A) shall be increased in the 
                                same manner as provided in 
                                section 6334(d)(4)(C).''.
    (c) Modification of Wage Withholding Rules.--
            (1) In general.--Section 3402(a)(2) is amended by 
        striking ``means the amount'' and all that follows and 
        inserting ``means the amount by which the wages exceed 
        the taxpayer's withholding allowance, prorated to the 
        payroll period.''.
            (2) Conforming amendments.--
                    (A) Section 3401 is amended by striking 
                subsection (e).
                    (B) Paragraphs (1) and (2) of section 
                3402(f) are amended to read as follows:
            ``(1) In general.--Under rules determined by the 
        Secretary, an employee receiving wages shall on any day 
        be entitled to a withholding allowance determined based 
        on--
                    ``(A) whether the employee is an individual 
                for whom a deduction is allowable with respect 
                to another taxpayer under section 151;
                    ``(B) if the employee is married, whether 
                the employee's spouse is entitled to an 
                allowance, or would be so entitled if such 
                spouse were an employee receiving wages, under 
                subparagraph (A) or (D), but only if such 
                spouse does not have in effect a withholding 
                allowance certificate claiming such allowance;
                    ``(C) the number of individuals with 
                respect to whom, on the basis of facts existing 
                at the beginning of such day, there may 
                reasonably be expected to be allowable a credit 
                under section 24(a) for the taxable year under 
                subtitle A in respect of which amounts deducted 
                and withheld under this chapter in the calendar 
                year in which such day falls are allowed as a 
                credit;
                    ``(D) any additional amounts to which the 
                employee elects to take into account under 
                subsection (m), but only if the employee's 
                spouse does not have in effect a withholding 
                allowance certificate making such an election;
                    ``(E) the standard deduction allowable to 
                such employee (one-half of such standard 
                deduction in the case of an employee who is 
                married (as determined under section 7703) and 
                whose spouse is an employee receiving wages 
                subject to withholding); and
                    ``(F) whether the employee has withholding 
                allowance certificates in effect with respect 
                to more than 1 employer.
            ``(2) Allowance certificates.--
                    ``(A) On commencement of employment.--On or 
                before the date of the commencement of 
                employment with an employer, the employee shall 
                furnish the employer with a signed withholding 
                allowance certificate relating to the 
                withholding allowance claimed by the employee, 
                which shall in no event exceed the amount to 
                which the employee is entitled.
                    ``(B) Change of status.--If, on any day 
                during the calendar year, an employee's 
                withholding allowance is in excess of the 
                withholding allowance to which the employee 
                would be entitled had the employee submitted a 
                true and accurate withholding allowance 
                certificate to the employer on that day, the 
                employee shall within 10 days thereafter 
                furnish the employer with a new withholding 
                allowance certificate. If, on any day during 
                the calendar year, an employee's withholding 
                allowance is greater than the withholding 
                allowance claimed, the employee may furnish the 
                employer with a new withholding allowance 
                certificate relating to the withholding 
                allowance to which the employee is so entitled, 
                which shall in no event exceed the amount to 
                which the employee is entitled on such day.
                    ``(C) Change of status which affects next 
                calendar year.--If on any day during the 
                calendar year the withholding allowance to 
                which the employee will be, or may reasonably 
                be expected to be, entitled at the beginning of 
                the employee's next taxable year under subtitle 
                A is different from the allowance to which the 
                employee is entitled on such day, the employee 
                shall, in such cases and at such times as the 
                Secretary shall by regulations prescribe, 
                furnish the employer with a withholding 
                allowance certificate relating to the 
                withholding allowance which the employee claims 
                with respect to such next taxable year, which 
                shall in no event exceed the withholding 
                allowance to which the employee will be, or may 
                reasonably be expected to be, so entitled.''.
                    (C) Subsections (b)(1), (b)(2), (f)(3), 
                (f)(4), (f)(5), (f)(7) (including the heading 
                thereof), (g)(4), (l)(1), (l)(2), and (n) of 
                section 3402 are each amended by striking 
                ``exemption'' each place it appears and 
                inserting ``allowance''.
                    (D) The heading of section 3402(f) is 
                amended by striking ``Exemptions'' and 
                inserting ``Allowance''.
                    (E) Section 3402(m) is amended by striking 
                ``additional withholding allowances or 
                additional reductions in withholding under this 
                subsection. In determining the number of 
                additional withholding allowances'' and 
                inserting ``an additional withholding allowance 
                or additional reductions in withholding under 
                this subsection. In determining the additional 
                withholding allowance''.
                    (F) Paragraphs (3) and (4) of section 
                3405(a) (and the heading for such paragraph 
                (4)) are each amended by striking ``exemption'' 
                each place it appears and inserting 
                ``allowance''.
                    (G) Section 3405(a)(4) is amended by 
                striking ``shall be determined'' and all that 
                follows through ``3 withholding exemptions'' 
                and inserting ``shall be determined under rules 
                prescribed by the Secretary''.
    (d) Exception for Determining Property Exempt From Levy.--
Section 6334(d) is amended by adding at the end the following 
new paragraph:
            ``(4) Years when personal exemption amount is 
        zero.--
                    ``(A) In general.--In the case of any 
                taxable year in which the exemption amount 
                under section 151(d) is zero, paragraph (2) 
                shall not apply and for purposes of paragraph 
                (1) the term `exempt amount' means an amount 
                equal to--
                            ``(i) the sum of the amount 
                        determined under subparagraph (B) and 
                        the standard deduction, divided by
                            ``(ii) 52.
                    ``(B) Amount determined.--For purposes of 
                subparagraph (A), the amount determined under 
                this subparagraph is $4,150 multiplied by the 
                number of the taxpayer's dependents for the 
                taxable year in which the levy occurs.
                    ``(C) Inflation adjustment.--In the case of 
                any taxable year beginning in a calendar year 
                after 2018, the $4,150 amount in subparagraph 
                (B) shall be increased by an amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `2017' for `2016' in 
                        subparagraph (A)(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.
                    ``(D) 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.''.
    (e) Persons Required to Make Returns of Income.--Section 
6012 is amended by adding at the end the following new 
subsection:
    ``(f) Special Rule for Taxable Years 2018 Through 2025.--In 
the case of a taxable year beginning after December 31, 2017, 
and before January 1, 2026, subsection (a)(1) shall not apply, 
and every individual who has gross income for the taxable year 
shall be required to make returns with respect to income taxes 
under subtitle A, except that a return shall not be required 
of--
            ``(1) 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
            ``(2) an individual entitled to make a joint return 
        if--
                    ``(A) 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,
                    ``(B) such individual and such individual's 
                spouse have the same household as their home at 
                the close of the taxable year,
                    ``(C) such individual's spouse does not 
                make a separate return, and
                    ``(D) neither such individual nor such 
                individual's spouse is an individual described 
                in section 63(c)(5) who has income (other than 
                earned income) in excess of the amount in 
                effect under section 63(c)(5)(A).''.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2017.
            (2) Wage withholding.--The Secretary of the 
        Treasury may administer section 3402 for taxable years 
        beginning before January 1, 2019, without regard to the 
        amendments made by subsections (a) and (c).

SEC. 11042. LIMITATION ON DEDUCTION FOR STATE AND LOCAL, ETC. TAXES.

    (a) In General.--Subsection (b) of section 164 is amended 
by adding at the end the following new paragraph:
            ``(6) Limitation on individual deductions for 
        taxable years 2018 through 2025.--In the case of an 
        individual and a taxable year beginning after December 
        31, 2017, and before January 1, 2026--
                    ``(A) foreign real property taxes shall not 
                be taken into account under subsection (a)(1), 
                and
                    ``(B) the aggregate amount of taxes taken 
                into account under paragraphs (1), (2), and (3) 
                of subsection (a) and paragraph (5) of this 
                subsection for any taxable year shall not 
                exceed $10,000 ($5,000 in the case of a married 
                individual filing a separate return).
        The preceding sentence shall not apply to any foreign 
        taxes described in subsection (a)(3) or to any taxes 
        described in paragraph (1) and (2) of subsection (a) 
        which are paid or accrued in carrying on a trade or 
        business or an activity described in section 212. For 
        purposes of subparagraph (B), an amount paid in a 
        taxable year beginning before January 1, 2018, with 
        respect to a State or local income tax imposed for a 
        taxable year beginning after December 31, 2017, shall 
        be treated as paid on the last day of the taxable year 
        for which such tax is so imposed.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2016.

SEC. 11043. LIMITATION ON DEDUCTION FOR QUALIFIED RESIDENCE INTEREST.

    (a) In General.--Section 163(h)(3) is amended by adding at 
the end the following new subparagraph:
                    ``(F) Special rules for taxable years 2018 
                through 2025.--
                            ``(i) In general.--In the case of 
                        taxable years beginning after December 
                        31, 2017, and before January 1, 2026--
                                    ``(I) Disallowance of home 
                                equity indebtedness interest.--
                                Subparagraph (A)(ii) shall not 
                                apply.
                                    ``(II) Limitation on 
                                acquisition indebtedness.--
                                Subparagraph (B)(ii) shall be 
                                applied by substituting 
                                `$750,000 ($375,000' for 
                                `$1,000,000 ($500,000'.
                                    ``(III) Treatment of 
                                indebtedness incurred on or 
                                before december 15, 2017.--
                                Subclause (II) shall not apply 
                                to any indebtedness incurred on 
                                or before December 15, 2017, 
                                and, in applying such subclause 
                                to any indebtedness incurred 
                                after such date, the limitation 
                                under such subclause shall be 
                                reduced (but not below zero) by 
                                the amount of any indebtedness 
                                incurred on or before December 
                                15, 2017, which is treated as 
                                acquisition indebtedness for 
                                purposes of this subsection for 
                                the taxable year.
                                    ``(IV) Binding contract 
                                exception.--In the case of a 
                                taxpayer who enters into a 
                                written binding contract before 
                                December 15, 2017, to close on 
                                the purchase of a principal 
                                residence before January 1, 
                                2018, and who purchases such 
                                residence before April 1, 2018, 
                                subclause (III) shall be 
                                applied by substituting `April 
                                1, 2018' for `December 15, 
                                2017'.
                            ``(ii) Treatment of limitation in 
                        taxable years after december 31, 
                        2025.--In the case of taxable years 
                        beginning after December 31, 2025, the 
                        limitation under subparagraph (B)(ii) 
                        shall be applied to the aggregate 
                        amount of indebtedness of the taxpayer 
                        described in subparagraph (B)(i) 
                        without regard to the taxable year in 
                        which the indebtedness was incurred.
                            ``(iii) Treatment of refinancings 
                        of indebtedness.--
                                    ``(I) In general.--In the 
                                case of any indebtedness which 
                                is incurred to refinance 
                                indebtedness, such refinanced 
                                indebtedness shall be treated 
                                for purposes of clause (i)(III) 
                                as incurred on the date that 
                                the original indebtedness was 
                                incurred to the extent the 
                                amount of the indebtedness 
                                resulting from such refinancing 
                                does not exceed the amount of 
                                the refinanced indebtedness.
                                    ``(II) Limitation on period 
                                of refinancing.--Subclause (I) 
                                shall not apply to any 
                                indebtedness after the 
                                expiration of the term of the 
                                original indebtedness or, 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) Coordination with exclusion 
                        of income from discharge of 
                        indebtedness.--Section 108(h)(2) shall 
                        be applied without regard to this 
                        subparagraph.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11044. MODIFICATION OF DEDUCTION FOR PERSONAL CASUALTY LOSSES.

    (a) In General.--Subsection (h) of section 165 is amended 
by adding at the end the following new paragraph:
            ``(5) Limitation for taxable years 2018 through 
        2025.--
                    ``(A) In general.--In the case of an 
                individual, except as provided in subparagraph 
                (B), any personal casualty loss which (but for 
                this paragraph) would be deductible in a 
                taxable year beginning after December 31, 2017, 
                and before January 1, 2026, shall be allowed as 
                a deduction under subsection (a) only to the 
                extent it is attributable to a Federally 
                declared disaster (as defined in subsection 
                (i)(5)).
                    ``(B) Exception related to personal 
                casualty gains.--If a taxpayer has personal 
                casualty gains for any taxable year to which 
                subparagraph (A) applies--
                            ``(i) subparagraph (A) shall not 
                        apply to the portion of the personal 
                        casualty loss not attributable to a 
                        Federally declared disaster (as so 
                        defined) to the extent such loss does 
                        not exceed such gains, and
                            ``(ii) in applying paragraph (2) 
                        for purposes of subparagraph (A) to the 
                        portion of personal casualty loss which 
                        is so attributable to such a disaster, 
                        the amount of personal casualty gains 
                        taken into account under paragraph 
                        (2)(A) shall be reduced by the portion 
                        of such gains taken into account under 
                        clause (i).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to losses incurred in taxable years beginning after 
December 31, 2017.

SEC. 11045. SUSPENSION OF MISCELLANEOUS ITEMIZED DEDUCTIONS.

    (a) In General.--Section 67 is amended by adding at the end 
the following new subsection:
    ``(g) Suspension for Taxable Years 2018 Through 2025.--
Notwithstanding subsection (a), no miscellaneous itemized 
deduction shall be allowed for any taxable year beginning after 
December 31, 2017, and before January 1, 2026.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11046. SUSPENSION OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.

    (a) In General.--Section 68 is amended by adding at the end 
the following new subsection:
    ``(f) Section Not to Apply.--This section shall not apply 
to any taxable year beginning after December 31, 2017, and 
before January 1, 2026.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11047. SUSPENSION OF EXCLUSION FOR QUALIFIED BICYCLE COMMUTING 
                    REIMBURSEMENT.

    (a) In General.--Section 132(f) is amended by adding at the 
end the following new paragraph:
            ``(8) Suspension of qualified bicycle commuting 
        reimbursement exclusion.--Paragraph (1)(D) shall not 
        apply to any taxable year beginning after December 31, 
        2017, and before January 1, 2026.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11048. SUSPENSION OF EXCLUSION FOR QUALIFIED MOVING EXPENSE 
                    REIMBURSEMENT.

    (a) In General.--Section 132(g) is amended--
            (1) by striking ``For purposes of this section, the 
        term'' and inserting ``For purposes of this section--
            ``(1) In general.--The term'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Suspension for taxable years 2018 through 
        2025.--Except in the case of a member of the Armed 
        Forces of the United States on active duty who moves 
        pursuant to a military order and incident to a 
        permanent change of station, subsection (a)(6) shall 
        not apply to any taxable year beginning after December 
        31, 2017, and before January 1, 2026.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11049. SUSPENSION OF DEDUCTION FOR MOVING EXPENSES.

    (a) In General.--Section 217 is amended by adding at the 
end the following new subsection:
    ``(k) Suspension of Deduction for Taxable Years 2018 
Through 2025.--Except in the case of an individual to whom 
subsection (g) applies, this section shall not apply to any 
taxable year beginning after December 31, 2017, and before 
January 1, 2026.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11050. 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, in 
the case of taxable years beginning after December 31, 2017, 
and before January 1, 2026, 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 amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 11051. 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)''.
                    (C) Section 6724(d)(3) is amended by 
                striking subparagraph (C) and by redesignating 
                subparagraph (D) as subparagraph (C).
            (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 152(d)(5) is amended to read as 
                follows:
            ``(5) Special rules for support.--
                    ``(A) In general.--For purposes of this 
                subsection--
                            ``(i) payments to a spouse of 
                        alimony or separate maintenance 
                        payments shall not be treated as a 
                        payment by the payor spouse for the 
                        support of any dependent, and
                            ``(ii) in the case of the 
                        remarriage of a parent, support of a 
                        child received from the parent's spouse 
                        shall be treated as received from the 
                        parent.
                    ``(B) Alimony or separate maintenance 
                payment.--For purposes of subparagraph (A), the 
                term `alimony or separate maintenance payment' 
                means any payment in cash if--
                            ``(i) such payment is received by 
                        (or on behalf of) a spouse under a 
                        divorce or separation instrument (as 
                        defined in section 121(d)(3)(C)),
                            ``(ii) in the case of an individual 
                        legally separated from the individual's 
                        spouse under a decree of divorce or of 
                        separate maintenance, the payee spouse 
                        and the payor spouse are not members of 
                        the same household at the time such 
                        payment is made, and
                            ``(iii) there is no liability to 
                        make any such payment for any period 
                        after the death of the payee spouse and 
                        there is no liability to make any 
                        payment (in cash or property) as a 
                        substitute for such payments after the 
                        death of the payee spouse.''.
                    (C) Section 219(f)(1) is amended by 
                striking the third sentence.
                    (D) 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)''.
                    (E) 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)''.
                    (F) Section 382(l)(3)(B)(iii) is amended by 
                striking ``section 71(b)(2)'' and inserting 
                ``section 121(d)(3)(C)''.
                    (G) 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)''.
            (4) Additional conforming amendments.--Section 
        7701(a)(17) is amended--
                    (A) by striking ``sections 682 and 2516'' 
                and inserting ``section 2516'', and
                    (B) by striking ``such sections'' each 
                place it appears and inserting ``such 
                section''.
    (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, 
        2018, 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.

           PART VI--INCREASE IN ESTATE AND GIFT TAX EXEMPTION

SEC. 11061. INCREASE IN ESTATE AND GIFT TAX EXEMPTION.

    (a) In General.--Section 2010(c)(3) is amended by adding at 
the end the following new subparagraph:
                    ``(C) Increase in basic exclusion amount.--
                In the case of estates of decedents dying or 
                gifts made after December 31, 2017, and before 
                January 1, 2026, subparagraph (A) shall be 
                applied by substituting `$10,000,000' for 
                `$5,000,000'.''.
    (b) Conforming Amendment.--Subsection (g) of section 2001 
is amended to read as follows:
    ``(g) Modifications to Tax Payable.--
            ``(1) Modifications to gift tax payable to reflect 
        different tax rates.--For purposes of applying 
        subsection (b)(2) with respect to 1 or more gifts, the 
        rates of tax under subsection (c) in effect at the 
        decedent's death shall, in lieu of the rates of tax in 
        effect at the time of such gifts, be used both to 
        compute--
                    ``(A) the tax imposed by chapter 12 with 
                respect to such gifts, and
                    ``(B) the credit allowed against such tax 
                under section 2505, including in computing--
                            ``(i) the applicable credit amount 
                        under section 2505(a)(1), and
                            ``(ii) the sum of the amounts 
                        allowed as a credit for all preceding 
                        periods under section 2505(a)(2).
            ``(2) Modifications to estate tax payable to 
        reflect different basic exclusion amounts.--The 
        Secretary shall prescribe such regulations as may be 
        necessary or appropriate to carry out this section with 
        respect to any difference between--
                    ``(A) the basic exclusion amount under 
                section 2010(c)(3) applicable at the time of 
                the decedent's death, and
                    ``(B) the basic exclusion amount under such 
                section applicable with respect to any gifts 
                made by the decedent.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying and gifts made after 
December 31, 2017.

       PART VII--EXTENSION OF TIME LIMIT FOR CONTESTING IRS LEVY

SEC. 11071. EXTENSION OF TIME LIMIT FOR CONTESTING IRS LEVY.

    (a) Extension of Time for Return of Property Subject to 
Levy.--Subsection (b) of section 6343 is amended by striking 
``9 months'' and inserting ``2 years''.
    (b) Period of Limitation on Suits.--Subsection (c) of 
section 6532 is amended--
            (1) by striking ``9 months'' in paragraph (1) and 
        inserting ``2 years'', and
            (2) by striking ``9-month'' in paragraph (2) and 
        inserting ``2-year''.
    (c) Effective Date.--The amendments made by this section 
shall apply to--
            (1) levies made after the date of the enactment of 
        this Act, and
            (2) levies made on or before such date if the 9-
        month period has not expired under section 6343(b) of 
        the Internal Revenue Code of 1986 (without regard to 
        this section) as of such date.

                     PART VIII--INDIVIDUAL MANDATE

SEC. 11081. ELIMINATION OF SHARED RESPONSIBILITY PAYMENT FOR 
                    INDIVIDUALS FAILING TO MAINTAIN MINIMUM ESSENTIAL 
                    COVERAGE.

    (a) In General.--Section 5000A(c) is amended--
            (1) in paragraph (2)(B)(iii), by striking ``2.5 
        percent'' and inserting ``Zero percent'', and
            (2) in paragraph (3)--
                    (A) by striking ``$695'' in subparagraph 
                (A) and inserting ``$0'', and
                    (B) by striking subparagraph (D).
    (b) Effective Date.--The amendments made by this section 
shall apply to months beginning after December 31, 2018.

                  Subtitle B--Alternative Minimum Tax

SEC. 12001. REPEAL OF TAX FOR CORPORATIONS.

    (a) In General.--Section 55(a) is amended by striking 
``There'' and inserting ``In the case of a taxpayer other than 
a corporation, there''.
    (b) Conforming Amendments.--
            (1) Section 38(c)(6) is amended by adding at the 
        end the following new subparagraph:
                    ``(E) Corporations.--In the case of a 
                corporation, this subsection shall be applied 
                by treating the corporation as having a 
                tentative minimum tax of zero.''.
            (2) Section 53(d)(2) is amended by inserting ``, 
        except that in the case of a corporation, the tentative 
        minimum tax shall be treated as zero'' before the 
        period at the end.
            (3)(A) Section 55(b)(1) is amended to read as 
        follows:
            ``(1) Amount of tentative tax.--
                    ``(A) In general.--The tentative minimum 
                tax for the taxable year is the sum of--
                            ``(i) 26 percent of so much of the 
                        taxable excess as does not exceed 
                        $175,000, plus
                            ``(ii) 28 percent of so much of the 
                        taxable excess as exceeds $175,000.
                The amount determined under the preceding 
                sentence shall be reduced by the alternative 
                minimum tax foreign tax credit for the taxable 
                year.
                    ``(B) Taxable excess.--For purposes of this 
                subsection, the term `taxable excess' means so 
                much of the alternative minimum taxable income 
                for the taxable year as exceeds the exemption 
                amount.
                    ``(C) Married individual filing separate 
                return.--In the case of a married individual 
                filing a separate return, subparagraph (A) 
                shall be applied by substituting 50 percent of 
                the dollar amount otherwise applicable under 
                clause (i) and clause (ii) thereof. For 
                purposes of the preceding sentence, marital 
                status shall be determined under section 
                7703.''.
            (B) Section 55(b)(3) is amended by striking 
        ``paragraph (1)(A)(i)'' and inserting ``paragraph 
        (1)(A)''.
            (C) Section 59(a) is amended--
                    (i) by striking ``subparagraph (A)(i) or 
                (B)(i) of section 55(b)(1) (whichever applies) 
                in lieu of the highest rate of tax specified in 
                section 1 or 11 (whichever applies)'' in 
                paragraph (1)(C) and inserting ``section 
                55(b)(1) in lieu of the highest rate of tax 
                specified in section 1'', and
                    (ii) in paragraph (2), by striking 
                ``means'' and all that follows and inserting 
                ``means the amount determined under the first 
                sentence of section 55(b)(1)(A).''.
            (D) Section 897(a)(2)(A) is amended by striking 
        ``section 55(b)(1)(A)'' and inserting ``section 
        55(b)(1)''.
            (E) Section 911(f) is amended--
                    (i) in paragraph (1)(B)--
                            (I) by striking ``section 
                        55(b)(1)(A)(ii)'' and inserting 
                        ``section 55(b)(1)(B)'', and
                            (II) by striking ``section 
                        55(b)(1)(A)(i)'' and inserting 
                        ``section 55(b)(1)(A)'', and
                    (ii) in paragraph (2)(B), by striking 
                ``section 55(b)(1)(A)(ii)'' each place it 
                appears and inserting ``section 55(b)(1)(B)''.
            (4) Section 55(c)(1) is amended by striking ``, the 
        section 936 credit allowable under section 27(b), and 
        the Puerto Rico economic activity credit under section 
        30A''.
            (5) Section 55(d), as amended by section 11002, is 
        amended--
                    (A) by striking paragraph (2) and 
                redesignating paragraphs (3) and (4) as 
                paragraphs (2) and (3), respectively,
                    (B) in paragraph (2) (as so redesignated), 
                by inserting ``and'' at the end of subparagraph 
                (B), by striking ``, and'' at the end of 
                subparagraph (C) and inserting a period, and by 
                striking subparagraph (D), and
                    (C) in paragraph (3) (as so redesignated)--
                            (i) by striking ``(b)(1)(A)(i)'' in 
                        subparagraph (B)(i) and inserting 
                        ``(b)(1)(A)'', and
                            (ii) by striking ``paragraph (3)'' 
                        in subparagraph (B)(iii) and inserting 
                        ``paragraph (2)''.
            (6) Section 55 is amended by striking subsection 
        (e).
            (7) Section 56(b)(2) is amended by striking 
        subparagraph (C) and by redesignating subparagraph (D) 
        as subparagraph (C).
            (8)(A) Section 56 is amended by striking 
        subsections (c) and (g).
            (B) Section 847 is amended by striking the last 
        sentence of paragraph (9).
            (C) Section 848 is amended by striking subsection 
        (i).
            (9) Section 58(a) is amended by striking paragraph 
        (3) and redesignating paragraph (4) as paragraph (3).
            (10) Section 59 is amended by striking subsections 
        (b) and (f).
            (11) Section 11(d) is amended by striking ``the 
        taxes imposed by subsection (a) and section 55'' and 
        inserting ``the tax imposed by subsection (a)''.
            (12) Section 12 is amended by striking paragraph 
        (7).
            (13) Section 168(k) is amended by striking 
        paragraph (4).
            (14) Section 882(a)(1) is amended by striking ``, 
        55,''.
            (15) Section 962(a)(1) is amended by striking 
        ``sections 11 and 55'' and inserting ``section 11''.
            (16) 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.
            (17) Section 6425(c)(1)(A) is amended to read as 
        follows:
                    ``(A) the tax imposed by section 11 or 
                1201(a), or subchapter L of chapter 1, 
                whichever is applicable, over''.
            (18) Section 6655(e)(2) is amended by striking 
        ``and alternative minimum taxable income'' each place 
        it appears in subparagraphs (A) and (B)(i).
            (19) Section 6655(g)(1)(A) is amended by inserting 
        ``plus'' at the end of clause (i), by striking clause 
        (ii), and by redesignating clause (iii) as clause (ii).
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 12002. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY OF 
                    CORPORATIONS.

    (a) 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 
        of a corporation beginning in 2018, 2019, 2020, or 
        2021, 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 2021) 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.''.
    (b) Treatment of References.--Section 53(d) is amended by 
adding at the end the following new paragraph:
            ``(3) AMT term references.--In the case of a 
        corporation, any references in this subsection to 
        section 55, 56, or 57 shall be treated as a reference 
        to such section as in effect before the amendments made 
        by Tax Cuts and Jobs Act.''.
    (c) Conforming Amendment.--Section 1374(b)(3)(B) is amended 
by striking the last sentence thereof.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2017.
            (2) Conforming amendment.--The amendment made by 
        subsection (c) shall apply to taxable years beginning 
        after December 31, 2021.

SEC. 12003. INCREASED EXEMPTION FOR INDIVIDUALS.

    (a) In General.--Section 55(d), as amended by the preceding 
provisions of this Act, is amended by adding at the end the 
following new paragraph:
            ``(4) Special rule for taxable years beginning 
        after 2017 and before 2026.--
                    ``(A) In general.--In the case of any 
                taxable year beginning after December 31, 2017, 
                and before January 1, 2026--
                            ``(i) paragraph (1) shall be 
                        applied--
                                    ``(I) by substituting 
                                `$109,400' for `$78,750' in 
                                subparagraph (A), and
                                    ``(II) by substituting 
                                `$70,300' for `$50,600' in 
                                subparagraph (B), and
                            ``(ii) paragraph (2) shall be 
                        applied--
                                    ``(I) by substituting 
                                `$1,000,000' for `$150,000' in 
                                subparagraph (A),
                                    ``(II) by substituting `50 
                                percent of the dollar amount 
                                applicable under subparagraph 
                                (A)' for `$112,500' in 
                                subparagraph (B), and
                                    ``(III) in the case of a 
                                taxpayer described in paragraph 
                                (1)(D), without regard to the 
                                substitution under subclause 
                                (I).
                    ``(B) Inflation adjustment.--
                            ``(i) In general.--In the case of 
                        any taxable year beginning in a 
                        calendar year after 2018, the amounts 
                        described in clause (ii) shall each be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) 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.
                            ``(ii) Amounts described.--The 
                        amounts described in this clause are 
                        the $109,400 amount in subparagraph 
                        (A)(i)(I), the $70,300 amount in 
                        subparagraph (A)(i)(II), and the 
                        $1,000,000 amount in subparagraph 
                        (A)(ii)(I).
                            ``(iii) Rounding.--Any increased 
                        amount determined under clause (i) 
                        shall be rounded to the nearest 
                        multiple of $100.
                            ``(iv) Coordination with current 
                        adjustments.--In the case of any 
                        taxable year to which subparagraph (A) 
                        applies, no adjustment shall be made 
                        under paragraph (3) to any of the 
                        numbers which are substituted under 
                        subparagraph (A) and adjusted under 
                        this subparagraph.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

                Subtitle C--Business-related Provisions

                      PART I--CORPORATE PROVISIONS

SEC. 13001. 21-PERCENT CORPORATE TAX RATE.

    (a) In General.--Subsection (b) of section 11 is amended to 
read as follows:
    ``(b) Amount of Tax.--The amount of the tax imposed by 
subsection (a) shall be 21 percent of taxable income.''.
    (b) Conforming Amendments.--
            (1) The following sections are each amended by 
        striking ``section 11(b)(1)'' and inserting ``section 
        11(b)'':
                    (A) Section 280C(c)(3)(B)(ii)(II).
                    (B) Paragraphs (2)(B) and (6)(A)(ii) of 
                section 860E(e).
                    (C) Section 7874(e)(1)(B).
            (2)(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 paragraphs 
        (4) and (6), and by redesignating paragraph (5) as 
        paragraph (4).
            (C) Section 453A(c)(3) is amended by striking ``or 
        1201 (whichever is appropriate)''.
            (D) 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''.
            (E) Sections 594(a) is amended by striking ``taxes 
        imposed by section 11 or 1201(a)'' and inserting ``tax 
        imposed by section 11''.
            (F) Section 691(c)(4) is amended by striking 
        ``1201,''.
            (G) 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''.
            (H) Section 831(e) is amended by striking paragraph 
        (1) and by redesignating paragraphs (2) and (3) as 
        paragraphs (1) and (2), respectively.
            (I) Sections 832(c)(5) and 834(b)(1)(D) are each 
        amended by striking ``sec. 1201 and following,''.
            (J) Section 852(b)(3)(A) is amended by striking 
        ``section 1201(a)'' and inserting ``section 11(b)''.
            (K) 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.''.
            (L) Section 882(a)(1), as amended by section 12001, 
        is further amended by striking ``or 1201(a)''.
            (M) Section 904(b) is amended--
                    (i) by striking ``or 1201(a)'' in paragraph 
                (2)(C),
                    (ii) by striking paragraph (3)(D) and 
                inserting the following:
                    ``(D) Capital gain rate differential.--
                There is a capital gain rate differential for 
                any year if subsection (h) of section 1 applies 
                to such taxable year.'', and
                    (iii) by striking paragraph (3)(E) and 
                inserting the following:
                    ``(E) Rate differential portion.--The rate 
                differential portion of foreign source net 
                capital gain, net capital gain, or the excess 
                of net capital gain from sources within the 
                United States over net capital gain, as the 
                case may be, is the same proportion of such 
                amount as--
                            ``(i) the excess of--
                                    ``(I) the highest rate of 
                                tax set forth in subsection 
                                (a), (b), (c), (d), or (e) of 
                                section 1 (whichever applies), 
                                over
                                    ``(II) the alternative rate 
                                of tax determined under section 
                                1(h), bears to
                            ``(ii) that rate referred to in 
                        subclause (I).''.
            (N) Section 1374(b) is amended by striking 
        paragraph (4).
            (O) Section 1381(b) is amended by striking ``taxes 
        imposed by section 11 or 1201'' and inserting ``tax 
        imposed by section 11''.
            (P) Sections 6425(c)(1)(A), as amended by section 
        12001, and 6655(g)(1)(A)(i) are each amended by 
        striking ``or 1201(a),''.
            (Q) Section 7518(g)(6)(A) is amended by striking 
        ``or 1201(a)''.
            (3)(A) Section 1445(e)(1) is amended--
                    (i) by striking ``35 percent'' and 
                inserting ``the highest rate of tax in effect 
                for the taxable year under section 11(b)'', and
                    (ii) by striking ``of the gain'' and 
                inserting ``multiplied by the gain''.
            (B) Section 1445(e)(2) is amended by striking ``35 
        percent of the amount'' and inserting ``the highest 
        rate of tax in effect for the taxable year under 
        section 11(b) multiplied by the amount''.
            (C) Section 1445(e)(6) is amended--
                    (i) by striking ``35 percent'' and 
                inserting ``the highest rate of tax in effect 
                for the taxable year under section 11(b)'', and
                    (ii) by striking ``of the amount'' and 
                inserting ``multiplied by the amount''.
            (D) Section 1446(b)(2)(B) is amended by striking 
        ``section 11(b)(1)'' and inserting ``section 11(b)''.
            (4) Section 852(b)(1) is amended by striking the 
        last sentence.
            (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 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 section 12001, 
        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) Effective Date.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by subsections (a) 
        and (b) shall apply to taxable years beginning after 
        December 31, 2017.
            (2) Withholding.--The amendments made by subsection 
        (b)(3) shall apply to distributions made after December 
        31, 2017.
            (3) Certain transfers.--The amendments made by 
        subsection (b)(6) shall apply to transfers made after 
        December 31, 2017.
    (d) 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 of the day 
                        before the corporate rate reductions 
                        provided in the amendments made by this 
                        section take effect, 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, during 
                the time period in which the 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 for the corporate 
        rate reductions provided in the amendments made by this 
        section--
                    (A) 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, and
                    (B) such taxpayer shall not be treated as 
                using a normalization method of accounting for 
                purposes of subsections (f)(2) and (i)(9)(C) of 
                section 168 of the Internal Revenue Code of 
                1986.

SEC. 13002. REDUCTION IN DIVIDEND RECEIVED DEDUCTIONS TO REFLECT LOWER 
                    CORPORATE INCOME TAX RATES.

    (a) Dividends Received by Corporations.--
            (1) In general.--Section 243(a)(1) is amended by 
        striking ``70 percent'' and inserting ``50 percent''.
            (2) Dividends from 20-percent owned corporations.--
        Section 243(c)(1) is amended--
                    (A) by striking ``80 percent'' and 
                inserting ``65 percent'', and
                    (B) by striking ``70 percent'' and 
                inserting ``50 percent''.
            (3) Conforming amendment.--The heading for section 
        243(c) is amended by striking ``Retention of 80-percent 
        Dividend Received Deduction'' and inserting ``Increased 
        Percentage''.
    (b) Dividends Received From FSC.--Section 245(c)(1)(B) is 
amended--
            (1) by striking ``70 percent'' and inserting ``50 
        percent'', and
            (2) by striking ``80 percent'' and inserting ``65 
        percent''.
    (c) Limitation on Aggregate Amount of Deductions.--Section 
246(b)(3) is amended--
            (1) by striking ``80 percent'' in subparagraph (A) 
        and inserting ``65 percent'', and
            (2) by striking ``70 percent'' in subparagraph (B) 
        and inserting ``50 percent''.
    (d) Reduction in Deduction Where Portfolio Stock Is Debt-
financed.--Section 246A(a)(1) is amended--
            (1) by striking ``70 percent'' and inserting ``50 
        percent'', and
            (2) by striking ``80 percent'' and inserting ``65 
        percent''.
    (e) Income From Sources Within the United States.--Section 
861(a)(2) is amended--
            (1) by striking ``100/70th'' and inserting ``100/
        50th'' in subparagraph (B), and
            (2) in the flush sentence at the end--
                    (A) by striking ``100/80th'' and inserting 
                ``100/65th'', and
                    (B) by striking ``100/70th'' and inserting 
                ``100/50th''.
    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

                    PART II--SMALL BUSINESS REFORMS

SEC. 13101. MODIFICATIONS OF RULES FOR EXPENSING DEPRECIABLE BUSINESS 
                    ASSETS.

    (a) Increase in Limitation.--
            (1) Dollar limitation.--Section 179(b)(1) is 
        amended by striking ``$500,000'' and inserting 
        ``$1,000,000''.
            (2) Reduction in limitation.--Section 179(b)(2) is 
        amended by striking ``$2,000,000'' and inserting 
        ``$2,500,000''.
            (3) Inflation adjustments.--
                    (A) In general.--Subparagraph (A) of 
                section 179(b)(6), as amended by section 
                11002(d), is amended--
                            (i) by striking ``2015'' and 
                        inserting ``2018'', and
                            (ii) in clause (ii), by striking 
                        ``calendar year 2014'' and inserting 
                        ``calendar year 2017''.
                    (B) Sport utility vehicles.--Section 
                179(b)(6) is amended--
                            (i) in subparagraph (A), by 
                        striking ``paragraphs (1) and (2)'' and 
                        inserting ``paragraphs (1), (2), and 
                        (5)(A)'', and
                            (ii) in subparagraph (B), by 
                        inserting ``($100 in the case of any 
                        increase in the amount under paragraph 
                        (5)(A))'' after ``$10,000''.
    (b) Section 179 Property To Include Qualified Real 
Property.--
            (1) In general.--Subparagraph (B) of section 
        179(d)(1) is amended to read as follows:
                    ``(B) which is--
                            ``(i) section 1245 property (as 
                        defined in section 1245(a)(3)), or
                            ``(ii) at the election of the 
                        taxpayer, qualified real property (as 
                        defined in subsection (f)), and''.
            (2) Qualified real property defined.--Subsection 
        (f) of section 179 is amended to read as follows:
    ``(f) Qualified Real Property.--For purposes of this 
section, the term `qualified real property' means--
            ``(1) any qualified improvement property described 
        in section 168(e)(6), and
            ``(2) any of the following improvements to 
        nonresidential real property placed in service after 
        the date such property was first placed in service:
                    ``(A) Roofs.
                    ``(B) Heating, ventilation, and air-
                conditioning property.
                    ``(C) Fire protection and alarm systems.
                    ``(D) Security systems.''.
    (c) Repeal of Exclusion for Certain Property.--The last 
sentence of section 179(d)(1) is amended by inserting ``(other 
than paragraph (2) thereof)'' after ``section 50(b)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to property placed in service in taxable years 
beginning after December 31, 2017.

SEC. 13102. 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(f)(3) 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' has the meaning given the term in section 
        451(b)(3).
            ``(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.

             PART III--COST RECOVERY AND ACCOUNTING METHODS

                        Subpart A--Cost Recovery

SEC. 13201. TEMPORARY 100-PERCENT EXPENSING FOR CERTAIN BUSINESS 
                    ASSETS.

    (a) Increased Expensing.--
            (1) In general.--Section 168(k) is amended--
                    (A) in paragraph (1)(A), by striking ``50 
                percent'' and inserting ``the applicable 
                percentage'', and
                    (B) in paragraph (5)(A)(i), by striking 
                ``50 percent'' and inserting ``the applicable 
                percentage''.
            (2) Applicable percentage.--Paragraph (6) of 
        section 168(k) is amended to read as follows:
            ``(6) Applicable percentage.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, the term 
                `applicable percentage' means--
                            ``(i) in the case of property 
                        placed in service after September 27, 
                        2017, and before January 1, 2023, 100 
                        percent,
                            ``(ii) in the case of property 
                        placed in service after December 31, 
                        2022, and before January 1, 2024, 80 
                        percent,
                            ``(iii) in the case of property 
                        placed in service after December 31, 
                        2023, and before January 1, 2025, 60 
                        percent,
                            ``(iv) in the case of property 
                        placed in service after December 31, 
                        2024, and before January 1, 2026, 40 
                        percent, and
                            ``(v) in the case of property 
                        placed in service after December 31, 
                        2025, and before January 1, 2027, 20 
                        percent.
                    ``(B) Rule for property with longer 
                production periods.--In the case of property 
                described in subparagraph (B) or (C) of 
                paragraph (2), the term `applicable percentage' 
                means--
                            ``(i) in the case of property 
                        placed in service after September 27, 
                        2017, and before January 1, 2024, 100 
                        percent,
                            ``(ii) in the case of property 
                        placed in service after December 31, 
                        2023, and before January 1, 2025, 80 
                        percent,
                            ``(iii) in the case of property 
                        placed in service after December 31, 
                        2024, and before January 1, 2026, 60 
                        percent,
                            ``(iv) in the case of property 
                        placed in service after December 31, 
                        2025, and before January 1, 2027, 40 
                        percent, and
                            ``(v) in the case of property 
                        placed in service after December 31, 
                        2026, and before January 1, 2028, 20 
                        percent.
                    ``(C) Rule for plants bearing fruits and 
                nuts.--In the case of a specified plant 
                described in paragraph (5), the term 
                `applicable percentage' means--
                            ``(i) in the case of a plant which 
                        is planted or grafted after September 
                        27, 2017, and before January 1, 2023, 
                        100 percent,
                            ``(ii) in the case of a plant which 
                        is planted or grafted after December 
                        31, 2022, and before January 1, 2024, 
                        80 percent,
                            ``(iii) in the case of a plant 
                        which is planted or grafted after 
                        December 31, 2023, and before January 
                        1, 2025, 60 percent,
                            ``(iv) in the case of a plant which 
                        is planted or grafted after December 
                        31, 2024, and before January 1, 2026, 
                        40 percent, and
                            ``(v) in the case of a plant which 
                        is planted or grafted after December 
                        31, 2025, and before January 1, 2027, 
                        20 percent.''.
            (3) Conforming amendment.--
                    (A) Paragraph (5) of section 168(k) is 
                amended by striking subparagraph (F).
                    (B) Section 168(k) is amended by adding at 
                the end the following new paragraph:
            ``(8) 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 (6) shall be applied by 
        substituting for each percentage therein--
                    ``(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,
                    ``(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, 
                        and
                    ``(D) `0 percent' in the case of--
                            ``(i) property placed in service 
                        after 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 after 
                        2020.''.
    (b) Extension.--
            (1) In general.--Section 168(k) is amended--
                    (A) in paragraph (2)--
                            (i) in subparagraph (A)(iii), 
                        clauses (i)(III) and (ii) of 
                        subparagraph (B), and subparagraph 
                        (E)(i), by striking ``January 1, 2020'' 
                        each place it appears and inserting 
                        ``January 1, 2027'', and
                            (ii) in subparagraph (B)--
                                    (I) in clause (i)(II), by 
                                striking ``January 1, 2021'' 
                                and inserting ``January 1, 
                                2028'', and
                                    (II) in the heading of 
                                clause (ii), by striking ``pre-
                                january 1, 2020'' and inserting 
                                ``pre-january 1, 2027'', and
                    (B) in paragraph (5)(A), by striking 
                ``January 1, 2020'' and inserting ``January 1, 
                2027''.
            (2) Conforming amendments.--
                    (A) Clause (ii) of section 460(c)(6)(B) is 
                amended by striking ``January 1, 2020 (January 
                1, 2021'' and inserting ``January 1, 2027 
                (January 1, 2028''.
                    (B) The heading of section 168(k) is 
                amended by striking ``Acquired After December 
                31, 2007, and Before January 1, 2020''.
    (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 Property.--Section 168(k), as 
amended by this section, is amended by adding at the end the 
following new paragraph:
            ``(9) Exception for certain property.--The term 
        `qualified property' shall not include--
                    ``(A) any property which is primarily used 
                in a trade or business described in clause (iv) 
                of section 163(j)(7)(A), or
                    ``(B) any property used in 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) Special Rule.--Section 168(k), as amended by this 
section, is amended by adding at the end the following new 
paragraph:
            ``(10) Special rule for property placed in service 
        during certain periods.--
                    ``(A) In general.--In the case of qualified 
                property placed in service by the taxpayer 
                during the first taxable year ending after 
                September 27, 2017, if the taxpayer elects to 
                have this paragraph apply for such taxable 
                year, paragraphs (1)(A) and (5)(A)(i) shall be 
                applied by substituting `50 percent' for `the 
                applicable percentage'.
                    ``(B) Form of election.--Any election under 
                this paragraph shall be made at such time and 
                in such form and manner as the Secretary may 
                prescribe.''.
    (f) Coordination With Section 280F.--Clause (iii) of 
section 168(k)(2)(F) is amended 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''.
    (g) Qualified Film and Television and Live Theatrical 
Productions.--
            (1) In general.--Clause (i) of section 
        168(k)(2)(A), as amended by section 13204, is amended--
                    (A) in subclause (II), by striking ``or'',
                    (B) in subclause (III), by adding ``or'' 
                after the comma, and
                    (C) by adding at the end the following:
                            ``(IV) which is a qualified film or 
                        television production (as defined in 
                        subsection (d) of section 181) for 
                        which a deduction would have been 
                        allowable under section 181 without 
                        regard to subsections (a)(2) and (g) of 
                        such section or this subsection, or
                            ``(V) which is a qualified live 
                        theatrical production (as defined in 
                        subsection (e) of section 181) for 
                        which a deduction would have been 
                        allowable under section 181 without 
                        regard to subsections (a)(2) and (g) of 
                        such section or this subsection,''.
            (2) Production placed in service.--Paragraph (2) of 
        section 168(k) is amended by adding at the end the 
        following:
                    ``(H) Production placed in service.--For 
                purposes of subparagraph (A)--
                            ``(i) a qualified film or 
                        television production shall be 
                        considered to be placed in service at 
                        the time of initial release or 
                        broadcast, and
                            ``(ii) a qualified live theatrical 
                        production shall be considered to be 
                        placed in service at the time of the 
                        initial live staged performance.''.
    (h) Effective Date.--
            (1) In general.--Except as 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 this 
        section shall apply to specified plants planted or 
        grafted after September 27, 2017.

SEC. 13202. MODIFICATIONS TO DEPRECIATION LIMITATIONS ON LUXURY 
                    AUTOMOBILES AND PERSONAL USE PROPERTY.

    (a) Luxury Automobiles.--
            (1) In general.--280F(a)(1)(A) is amended--
                    (A) in clause (i), by striking ``$2,560'' 
                and inserting ``$10,000'',
                    (B) in clause (ii), by striking ``$4,100'' 
                and inserting ``$16,000'',
                    (C) in clause (iii), by striking ``$2,450'' 
                and inserting ``$9,600'', and
                    (D) in clause (iv), by striking ``$1,475'' 
                and inserting ``$5,760''.
            (2) Conforming amendments.--
                    (A) Clause (ii) of section 280F(a)(1)(B) is 
                amended by striking ``$1,475'' in the text and 
                heading and inserting ``$5,760''.
                    (B) Paragraph (7) of section 280F(d) is 
                amended--
                            (i) in subparagraph (A), by 
                        striking ``1988'' and inserting 
                        ``2018'', and
                            (ii) in subparagraph (B)(i)(II), by 
                        striking ``1987'' and inserting 
                        ``2017''.
    (b) Removal of Computer Equipment From Listed Property.--
            (1) In general.--Section 280F(d)(4)(A) is amended--
                    (A) by inserting ``and'' at the end of 
                clause (iii),
                    (B) by striking clause (iv), and
                    (C) by redesignating clause (v) as clause 
                (iv).
            (2) Conforming amendment.--Section 280F(d)(4) is 
        amended by striking subparagraph (B) and by 
        redesignating subparagraph (C) as subparagraph (B).
    (c) Effective Date.--The amendments made by this section 
shall apply to property placed in service after December 31, 
2017, in taxable years ending after such date.

SEC. 13203. MODIFICATIONS OF TREATMENT OF CERTAIN FARM PROPERTY.

    (a) Treatment of Certain Farm Property as 5-Year 
Property.--Clause (vii) of section 168(e)(3)(B) is amended by 
striking ``after December 31, 2008, and which is placed in 
service before January 1, 2010'' and inserting ``after December 
31, 2017''.
    (b) Repeal of Required Use of 150-Percent Declining Balance 
Method.--Section 168(b)(2) is amended by striking subparagraph 
(B) and by redesignating subparagraphs (C) and (D) as 
subparagraphs (B) and (C), respectively.
    (c) Effective Date.--The amendments made by this section 
shall apply to property placed in service after December 31, 
2017, in taxable years ending after such date.

SEC. 13204. APPLICABLE RECOVERY PERIOD FOR REAL PROPERTY.

    (a) Improvements to Real Property.--
            (1) Elimination of qualified leasehold improvement, 
        qualified restaurant, and qualified retail improvement 
        property.--Subsection (e) of section 168 is amended--
                    (A) in subparagraph (E) of paragraph (3)--
                            (i) by striking clauses (iv), (v), 
                        and (ix),
                            (ii) in clause (vii), by inserting 
                        ``and'' at the end,
                            (iii) in clause (viii), by striking 
                        ``, and'' and inserting a period, and
                            (iv) by redesignating clauses (vi), 
                        (vii), and (viii), as so amended, as 
                        clauses (iv), (v), and (vi), 
                        respectively, and
                    (B) by striking paragraphs (6), (7), and 
                (8).
            (2) Application of straight line method to 
        qualified improvement property.--Paragraph (3) of 
        section 168(b) is amended--
                    (A) by striking subparagraphs (G), (H), and 
                (I), and
                    (B) by inserting after subparagraph (F) the 
                following new subparagraph:
                    ``(G) Qualified improvement property 
                described in subsection (e)(6).''.
            (3) Alternative depreciation system.--
                    (A) Electing real property trade or 
                business.--Subsection (g) of section 168 is 
                amended--
                            (i) in paragraph (1)--
                                    (I) in subparagraph (D), by 
                                striking ``and'' at the end,
                                    (II) in subparagraph (E), 
                                by inserting ``and'' at the 
                                end, and
                                    (III) by inserting after 
                                subparagraph (E) the following 
                                new subparagraph:
                    ``(F) any property described in paragraph 
                (8),'', and
                            (ii) by adding at the end the 
                        following new paragraph:
            ``(8) Electing real property trade or business.--
        The property described in this paragraph shall consist 
        of any nonresidential real property, residential rental 
        property, and qualified improvement property held by an 
        electing real property trade or business (as defined in 
        163(j)(7)(B)).''.
                    (B) Qualified improvement property.--The 
                table contained in subparagraph (B) of section 
                168(g)(3) is amended--
                            (i) by inserting after the item 
                        relating to subparagraph (D)(ii) the 
                        following new item:

    ``(D)(v)..................................................      20''

                                    , and
                            (ii) by striking the item relating 
                        to subparagraph (E)(iv) and all that 
                        follows through the item relating to 
                        subparagraph (E)(ix) and inserting the 
                        following:

    ``(E)(iv).................................................       20 
    (E)(v)....................................................       30 
    (E)(vi)...................................................     35''.

                    (C) Applicable recovery period for 
                residential rental property.--The table 
                contained in subparagraph (C) of section 
                168(g)(2) is amended by striking clauses (iii) 
                and (iv) and inserting the following:

    ``(iii) Residential rental property....................... 30 years 
    (iv) Nonresidential real property......................... 40 years 
    (v) Any railroad grading or tunnel bore or water utility 
      property...............................................50 years''.

            (4) Conforming amendments.--
                    (A) Clause (i) of section 168(k)(2)(A) is 
                amended--
                            (i) in subclause (II), by inserting 
                        ``or'' after the comma,
                            (ii) in subclause (III), by 
                        striking ``or'' at the end, and
                            (iii) by striking subclause (IV).
                    (B) Section 168 is amended--
                            (i) in subsection (e), as amended 
                        by paragraph (1)(B), by adding at the 
                        end the following:
            ``(6) Qualified improvement property.--
                    ``(A) In general.--The term `qualified 
                improvement property' means any improvement to 
                an interior portion of a building which is 
                nonresidential real property if such 
                improvement is placed in service after the date 
                such building was first placed in service.
                    ``(B) Certain improvements not included.--
                Such term shall not include any improvement for 
                which the expenditure is attributable to--
                            ``(i) the enlargement of the 
                        building,
                            ``(ii) any elevator or escalator, 
                        or
                            ``(iii) the internal structural 
                        framework of the building.'', and
                            (ii) in subsection (k), by striking 
                        paragraph (3).
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        property placed in service after December 31, 2017.
            (2) Amendments related to electing real property 
        trade or business.--The amendments made by subsection 
        (a)(3)(A) shall apply to taxable years beginning after 
        December 31, 2017.

SEC. 13205. USE OF ALTERNATIVE DEPRECIATION SYSTEM FOR ELECTING FARMING 
                    BUSINESSES.

    (a) In General.--Section 168(g)(1), as amended by section 
13204, is amended by striking ``and'' at the end of 
subparagraph (E), by inserting ``and'' at the end of 
subparagraph (F), and by inserting after subparagraph (F) the 
following new subparagraph:
                    ``(G) any property with a recovery period 
                of 10 years or more which is held by an 
                electing farming business (as defined in 
                section 163(j)(7)(C)),''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13206. 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) Change in Method of Accounting.--The amendments made by 
subsection (a) shall be treated as a change in method of 
accounting for purposes of section 481 of the Internal Revenue 
Code of 1986 and--
            (1) such change shall be treated as initiated by 
        the taxpayer,
            (2) such change shall be treated as made with the 
        consent of the Secretary, and
            (3) such change shall be applied only on a cut-off 
        basis for any research or experimental expenditures 
        paid or incurred in taxable years beginning after 
        December 31, 2021, and no adjustments under section 
        481(a) shall be made.
    (c) 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.''.

    (d) Conforming Amendments.--
            (1) Section 41(d)(1)(A) is amended by striking 
        ``expenses under section 174'' and inserting 
        ``specified research or experimental expenditures under 
        section 174''.
            (2) Subsection (c) of section 280C is amended--
                    (A) by striking paragraph (1) and inserting 
                the following:
            ``(1) In general.--If--
                    ``(A) the amount of the credit determined 
                for the taxable year under section 41(a)(1), 
                exceeds
                    ``(B) the amount allowable as a deduction 
                for such taxable year for qualified research 
                expenses or basic research expenses,
        the amount chargeable to capital account for the 
        taxable year for such expenses shall be reduced by the 
        amount of such excess.'',
                    (B) by striking paragraph (2),
                    (C) by redesignating paragraphs (3) (as 
                amended by this Act) and (4) as paragraphs (2) 
                and (3), respectively, and
                    (D) in paragraph (2), as redesignated by 
                subparagraph (C), by striking ``paragraphs (1) 
                and (2)'' and inserting ``paragraph (1)''.
    (e) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred in taxable years 
beginning after December 31, 2021.

SEC. 13207. EXPENSING OF CERTAIN COSTS OF REPLANTING CITRUS PLANTS LOST 
                    BY REASON OF CASUALTY.

    (a) In General.--Section 263A(d)(2) is amended by adding at 
the end the following new subparagraph:
                    ``(C) Special temporary rule for citrus 
                plants lost by reason of casualty.--
                            ``(i) In general.--In the case of 
                        the replanting of citrus plants, 
                        subparagraph (A) shall apply to amounts 
                        paid or incurred by a person (other 
                        than the taxpayer described in 
                        subparagraph (A)) if--
                                    ``(I) the taxpayer 
                                described in subparagraph (A) 
                                has an equity interest of not 
                                less than 50 percent in the 
                                replanted citrus plants at all 
                                times during the taxable year 
                                in which such amounts were paid 
                                or incurred and such other 
                                person holds any part of the 
                                remaining equity interest, or
                                    ``(II) such other person 
                                acquired the entirety of such 
                                taxpayer's equity interest in 
                                the land on which the lost or 
                                damaged citrus plants were 
                                located at the time of such 
                                loss or damage, and the 
                                replanting is on such land.
                            ``(ii) Termination.--Clause (i) 
                        shall not apply to any cost paid or 
                        incurred after the date which is 10 
                        years after the date of the enactment 
                        of the Tax Cuts and Jobs Act.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to costs paid or incurred after the date of the 
enactment of this Act.

                     Subpart B--Accounting Methods

SEC. 13221. CERTAIN SPECIAL RULES FOR TAXABLE YEAR OF INCLUSION.

    (a) Inclusion Not Later Than for Financial Accounting 
Purposes.--Section 451 is amended by redesignating subsections 
(b) through (i) as subsections (c) through (j), respectively, 
and by inserting after subsection (a) the following new 
subsection:
    ``(b) Inclusion Not Later Than for Financial Accounting 
Purposes.--
            ``(1) Income taken into account in financial 
        statement.--
                    ``(A) In general.--In the case of a 
                taxpayer the taxable income of which is 
                computed under an accrual method of accounting, 
                the all events test with respect to any item of 
                gross income (or portion thereof) shall not be 
                treated as met any later than when such item 
                (or portion thereof) is taken into account as 
                revenue in--
                            ``(i) an applicable financial 
                        statement of the taxpayer, or
                            ``(ii) such other financial 
                        statement as the Secretary may specify 
                        for purposes of this subsection.
                    ``(B) Exception.--This paragraph shall not 
                apply to--
                            ``(i) a taxpayer which does not 
                        have a financial statement described in 
                        clause (i) or (ii) of subparagraph (A) 
                        for a taxable year, or
                            ``(ii) any item of gross income in 
                        connection with a mortgage servicing 
                        contract.
                    ``(C) All events test.--For purposes of 
                this section, the all events test is met with 
                respect to any item of gross income if all the 
                events have occurred which fix the right to 
                receive such income and the amount of such 
                income can be determined with reasonable 
                accuracy.
            ``(2) Coordination with special methods of 
        accounting.--Paragraph (1) shall not apply with respect 
        to any item of gross income for which the taxpayer uses 
        a special method of accounting provided under any other 
        provision of this chapter, other than any provision of 
        part V of subchapter P (except as provided in clause 
        (ii) of paragraph (1)(B)).
            ``(3) 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 agency for purposes 
                        other than Federal tax purposes, but 
                        only if there is no statement of the 
                        taxpayer described in clause (i) or 
                        (ii),
                    ``(B) a financial statement which is made 
                on the basis of international financial 
                reporting standards and is filed by the 
                taxpayer with an agency of a foreign government 
                which is equivalent to the United States 
                Securities and Exchange Commission and which 
                has reporting standards not less stringent than 
                the standards required by such Commission, but 
                only if there is no statement of the taxpayer 
                described in subparagraph (A), or
                    ``(C) a financial statement filed by the 
                taxpayer with any other regulatory or 
                governmental body specified by the Secretary, 
                but only if there is no statement of the 
                taxpayer described in subparagraph (A) or (B).
            ``(4) Allocation of transaction price.--For 
        purposes of this subsection, in the case of a contract 
        which contains multiple performance obligations, the 
        allocation of the transaction price to each performance 
        obligation shall be equal to the amount allocated to 
        each performance obligation for purposes of including 
        such item in revenue in the applicable financial 
        statement of the taxpayer.
            ``(5) Group of entities.--For purposes of paragraph 
        (1), if the financial results of a taxpayer are 
        reported on the applicable financial statement (as 
        defined in paragraph (3)) for a group of entities, such 
        statement shall be treated as the applicable financial 
        statement of the taxpayer.''.
    (b) Treatment of Advance Payments.--Section 451, as amended 
by subsection (a), is amended by redesignating subsections (c) 
through (j) as subsections (d) through (k), respectively, and 
by inserting after subsection (b) the following new subsection:
    ``(c) Treatment of Advance Payments.--
            ``(1) In general.--A taxpayer which computes 
        taxable income under the accrual method of accounting, 
        and receives any advance payment during the taxable 
        year, shall--
                    ``(A) except as provided in subparagraph 
                (B), include such advance payment in gross 
                income for such taxable year, or
                    ``(B) if the taxpayer elects the 
                application of this subparagraph with respect 
                to the category of advance payments to which 
                such advance payment belongs, the taxpayer 
                shall--
                            ``(i) to the extent that any 
                        portion of such advance payment is 
                        required under subsection (b) to be 
                        included in gross income in the taxable 
                        year in which such payment is received, 
                        so include such portion, and
                            ``(ii) include the remaining 
                        portion of such advance payment in 
                        gross income in the taxable year 
                        following the taxable year in which 
                        such payment is received.
            ``(2) Election.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, the election under 
                paragraph (1)(B) shall be made at such time, in 
                such form and manner, and with respect to such 
                categories of advance payments, as the 
                Secretary may provide.
                    ``(B) Period to which election applies.--An 
                election under paragraph (1)(B) shall be 
                effective for the taxable year with respect to 
                which it is first made and for all subsequent 
                taxable years, unless the taxpayer secures the 
                consent of the Secretary to revoke such 
                election. For purposes of this title, the 
                computation of taxable income under an election 
                made under paragraph (1)(B) shall be treated as 
                a method of accounting.
            ``(3) Taxpayers ceasing to exist.--Except as 
        otherwise provided by the Secretary, the election under 
        paragraph (1)(B) shall not apply with respect to 
        advance payments received by the taxpayer during a 
        taxable year if such taxpayer ceases to exist during 
        (or with the close of) such taxable year.
            ``(4) Advance payment.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `advance 
                payment' means any payment--
                            ``(i) the full inclusion of which 
                        in the gross income of the taxpayer for 
                        the taxable year of receipt is a 
                        permissible method of accounting under 
                        this section (determined without regard 
                        to this subsection),
                            ``(ii) any portion of which is 
                        included in revenue by the taxpayer in 
                        a financial statement described in 
                        clause (i) or (ii) of subsection 
                        (b)(1)(A) for a subsequent taxable 
                        year, and
                            ``(iii) which is for goods, 
                        services, or such other items as may be 
                        identified by the Secretary for 
                        purposes of this clause.
                    ``(B) Exclusions.--Except as otherwise 
                provided by the Secretary, such term shall not 
                include--
                            ``(i) rent,
                            ``(ii) insurance premiums governed 
                        by subchapter L,
                            ``(iii) payments with respect to 
                        financial instruments,
                            ``(iv) payments with respect to 
                        warranty or guarantee contracts under 
                        which a third party is the primary 
                        obligor,
                            ``(v) payments subject to section 
                        871(a), 881, 1441, or 1442,
                            ``(vi) payments in property to 
                        which section 83 applies, and
                            ``(vii) any other payment 
                        identified by the Secretary for 
                        purposes of this subparagraph.
                    ``(C) Receipt.--For purposes of this 
                subsection, an item of gross income is received 
                by the taxpayer if it is actually or 
                constructively received, or if it is due and 
                payable to the taxpayer.
                    ``(D) Allocation of transaction price.--For 
                purposes of this subsection, rules similar to 
                subsection (b)(4) shall apply.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.
    (d) Coordination With Section 481.--
            (1) In general.--In the case of any qualified 
        change in method of accounting for the taxpayer's first 
        taxable year beginning after December 31, 2017--
                    (A) such change shall be treated as 
                initiated by the taxpayer, and
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury.
            (2) Qualified change in method of accounting.--For 
        purposes of this subsection, the term ``qualified 
        change in method of accounting'' means any change in 
        method of accounting which--
                    (A) is required by the amendments made by 
                this section, or
                    (B) was prohibited under the Internal 
                Revenue Code of 1986 prior to such amendments 
                and is permitted under such Code after such 
                amendments.
    (e) Special Rules for Original Issue Discount.--
Notwithstanding subsection (c), in the case of income from a 
debt instrument having original issue discount--
            (1) the amendments made by this section shall apply 
        to taxable years beginning after December 31, 2018, and
            (2) the period for taking into account any 
        adjustments under section 481 by reason of a qualified 
        change in method of accounting (as defined in 
        subsection (d)) shall be 6 years.

          PART IV--BUSINESS-RELATED EXCLUSIONS AND DEDUCTIONS

SEC. 13301. LIMITATION ON DEDUCTION FOR INTEREST.

    (a) In General.--Section 163(j) is amended to read as 
follows:
    ``(j) Limitation on Business Interest.--
            ``(1) In general.--The amount allowed as a 
        deduction under this chapter for any taxable year 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) shall not 
        be less than zero.
            ``(2) Carryforward of disallowed business 
        interest.--The amount of any business interest not 
        allowed as a deduction for any taxable year by reason 
        of paragraph (1) shall be treated as business interest 
        paid or accrued in the succeeding taxable year.
            ``(3) 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.
            ``(4) 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, and
                            ``(ii) the adjusted taxable income 
                        of each partner of such partnership--
                                    ``(I) shall be determined 
                                without regard to such 
                                partner's distributive share of 
                                any items of income, gain, 
                                deduction, or loss of such 
                                partnership, and
                                    ``(II) shall be increased 
                                by such partner's distributive 
                                share of such partnership's 
                                excess taxable income.
                        For purposes of clause (ii)(II), a 
                        partner's distributive share of 
                        partnership excess taxable income shall 
                        be determined in the same manner as the 
                        partner's distributive share of 
                        nonseparately stated taxable income or 
                        loss of the partnership.
                    ``(B) Special rules for carryforwards.--
                            ``(i) In general.--The amount of 
                        any business interest not allowed as a 
                        deduction to a partnership for any 
                        taxable year by reason of paragraph (1) 
                        for any taxable year--
                                    ``(I) shall not be treated 
                                under paragraph (2) as business 
                                interest paid or accrued by the 
                                partnership in the succeeding 
                                taxable year, and
                                    ``(II) shall, subject to 
                                clause (ii), be treated as 
                                excess business interest which 
                                is allocated to each partner in 
                                the same manner as the non-
                                separately stated taxable 
                                income or loss of the 
                                partnership.
                            ``(ii) Treatment of excess business 
                        interest allocated to partners.--If a 
                        partner is allocated any excess 
                        business interest from a partnership 
                        under clause (i) for any taxable year--
                                    ``(I) such excess business 
                                interest shall be treated as 
                                business interest paid or 
                                accrued by the partner in the 
                                next succeeding taxable year in 
                                which the partner is allocated 
                                excess taxable income from such 
                                partnership, but only to the 
                                extent of such excess taxable 
                                income, and
                                    ``(II) any portion of such 
                                excess business interest 
                                remaining after the application 
                                of subclause (I) shall, subject 
                                to the limitations of subclause 
                                (I), be treated as business 
                                interest paid or accrued in 
                                succeeding taxable years.
                        For purposes of applying this 
                        paragraph, excess taxable income 
                        allocated to a partner from a 
                        partnership for any taxable year shall 
                        not be taken into account under 
                        paragraph (1)(A) with respect to any 
                        business interest other than excess 
                        business interest from the partnership 
                        until all such excess business interest 
                        for such taxable year and all preceding 
                        taxable years has been treated as paid 
                        or accrued under clause (ii).
                            ``(iii) Basis adjustments.--
                                    ``(I) In general.--The 
                                adjusted basis of a partner in 
                                a partnership interest shall be 
                                reduced (but not below zero) by 
                                the amount of excess business 
                                interest allocated to the 
                                partner under clause (i)(II).
                                    ``(II) Special rule for 
                                dispositions.--If a partner 
                                disposes of a partnership 
                                interest, the adjusted basis of 
                                the partner in the partnership 
                                interest shall be increased 
                                immediately before the 
                                disposition by the amount of 
                                the excess (if any) of the 
                                amount of the basis reduction 
                                under subclause (I) over the 
                                portion of any excess business 
                                interest allocated to the 
                                partner under clause (i)(II) 
                                which has previously been 
                                treated under clause (ii) as 
                                business interest paid or 
                                accrued by the partner. The 
                                preceding sentence shall also 
                                apply to transfers of the 
                                partnership interest (including 
                                by reason of death) in a 
                                transaction in which gain is 
                                not recognized in whole or in 
                                part. No deduction shall be 
                                allowed to the transferor or 
                                transferee under this chapter 
                                for any excess business 
                                interest resulting in a basis 
                                increase under this subclause.
                    ``(C) Excess taxable income.--The term 
                `excess taxable income' means, with respect to 
                any partnership, the amount which bears the 
                same ratio to the partnership's adjusted 
                taxable income as--
                            ``(i) the excess (if any) of--
                                    ``(I) the amount determined 
                                for the partnership under 
                                paragraph (1)(B), over
                                    ``(II) the amount (if any) 
                                by which the business interest 
                                of the partnership, reduced by 
                                the floor plan financing 
                                interest, exceeds the business 
                                interest income of the 
                                partnership, bears to
                            ``(ii) the amount determined for 
                        the partnership under paragraph (1)(B).
                    ``(D) Application to s corporations.--Rules 
                similar to the rules of subparagraphs (A) and 
                (C) shall apply with respect to any S 
                corporation and its shareholders.
            ``(5) 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)).
            ``(6) 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)).
            ``(7) Trade or business.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `trade or 
                business' shall not include--
                            ``(i) the trade or business of 
                        performing services as an employee,
                            ``(ii) any electing real property 
                        trade or business,
                            ``(iii) any electing farming 
                        business, or
                            ``(iv) 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, by a public service or public 
                        utility commission or other similar 
                        body of any State or political 
                        subdivision thereof, or by the 
                        governing or ratemaking body of an 
                        electric cooperative.
                    ``(B) Electing real property trade or 
                business.--For purposes of this paragraph, the 
                term `electing real property trade or business' 
                means any trade or business which is described 
                in section 469(c)(7)(C) and which makes an 
                election under this subparagraph. Any such 
                election shall be made at such time and in such 
                manner as the Secretary shall prescribe, and, 
                once made, shall be irrevocable.
                    ``(C) Electing farming business.--For 
                purposes of this paragraph, the term `electing 
                farming business' means--
                            ``(i) a farming business (as 
                        defined in section 263A(e)(4)) which 
                        makes an election under this 
                        subparagraph, or
                            ``(ii) any trade or business of a 
                        specified agricultural or horticultural 
                        cooperative (as defined in section 
                        199A(g)(2)) with respect to which the 
                        cooperative makes an election under 
                        this subparagraph.
                Any such election shall be made at such time 
                and in such manner as the Secretary shall 
                prescribe, and, once made, shall be 
                irrevocable.
            ``(8) 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,
                            ``(iv) the amount of any deduction 
                        allowed under section 199A, and
                            ``(v) in the case of taxable years 
                        beginning before January 1, 2022, any 
                        deduction allowable for depreciation, 
                        amortization, or depletion, and
                    ``(B) computed with such other adjustments 
                as provided by the Secretary.
            ``(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 or lease, 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) Any self-propelled vehicle 
                        designed for transporting persons or 
                        property on a public street, highway, 
                        or road.
                            ``(ii) A boat.
                            ``(iii) Farm machinery or 
                        equipment.
            ``(10) Cross references.--
                    ``(A) For requirement that an electing real 
                property trade or business use the alternative 
                depreciation system, see section 168(g)(1)(F).
                    ``(B) For requirement that an electing 
                farming business use the alternative 
                depreciation system, see section 
                168(g)(1)(G).''.
    (b) 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 business 
        interest.--The carryover of disallowed business 
        interest described in section 163(j)(2) 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(j)(2) 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).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13302. MODIFICATION OF NET OPERATING LOSS DEDUCTION.

    (a) Limitation on Deduction.--
            (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) 80 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'.''.
    (b) Repeal of Net Operating Loss Carryback; Indefinite 
Carryforward.--
            (1) In general.--Section 172(b)(1)(A) is amended--
                    (A) by striking ``shall be a net operating 
                loss carryback to each of the 2 taxable years'' 
                in clause (i) and inserting ``except as 
                otherwise provided in this paragraph, shall not 
                be a net operating loss carryback to any 
                taxable year'', and
                    (B) by striking ``to each of the 20 taxable 
                years'' in clause (ii) and inserting ``to each 
                taxable year''.
            (2) Conforming amendment.--Section 172(b)(1) is 
        amended by striking subparagraphs (B) through (F).
    (c) Treatment of Farming Losses.--
            (1) Allowance of carrybacks.--Section 172(b)(1), as 
        amended by subsection (b)(2), is amended by adding at 
        the end the following new subparagraph:
                    ``(B) Farming losses.--
                            ``(i) In general.--In the case of 
                        any portion of a net operating loss for 
                        the taxable year which is a farming 
                        loss with respect to the taxpayer, such 
                        loss shall be a net operating loss 
                        carryback to each of the 2 taxable 
                        years preceding the taxable year of 
                        such loss.
                            ``(ii) Farming loss.--For purposes 
                        of this section, the term `farming 
                        loss' means the lesser of--
                                    ``(I) the amount which 
                                would be the net operating loss 
                                for the taxable year if only 
                                income and deductions 
                                attributable to farming 
                                businesses (as defined in 
                                section 263A(e)(4)) are taken 
                                into account, or
                                    ``(II) the amount of the 
                                net operating loss for such 
                                taxable year.
                            ``(iii) Coordination with paragraph 
                        (2).--For purposes of applying 
                        paragraph (2), a farming loss for any 
                        taxable year shall be treated as a 
                        separate net operating loss for such 
                        taxable year to be taken into account 
                        after the remaining portion of the net 
                        operating loss for such taxable year.
                            ``(iv) Election.--Any taxpayer 
                        entitled to a 2-year carryback under 
                        clause (i) from any loss year may elect 
                        not to have such clause apply to such 
                        loss year. Such election shall be made 
                        in such manner as prescribed by the 
                        Secretary and shall be made by the due 
                        date (including extensions of time) for 
                        filing the taxpayer's return for the 
                        taxable year of the net operating loss. 
                        Such election, once made for any 
                        taxable year, shall be irrevocable for 
                        such taxable year.''.
            (2) Conforming amendments.--
                    (A) Section 172 is amended by striking 
                subsections (f), (g), and (h), and by 
                redesignating subsection (i) as subsection (f).
                    (B) Section 537(b)(4) is amended by 
                inserting ``(as in effect before the date of 
                enactment of the Tax Cuts and Jobs Act)'' after 
                ``as defined in section 172(f)''.
    (d) Treatment of Certain Insurance Losses.--
            (1) Treatment of carryforwards and carrybacks.--
        Section 172(b)(1), as amended by subsections (b)(2) and 
        (c)(1), is amended by adding at the end the following 
        new subparagraph:
                    ``(C) Insurance companies.--In the case of 
                an insurance company (as defined in section 
                816(a)) other than a life insurance company, 
                the net operating loss for any taxable year--
                            ``(i) shall be a net operating loss 
                        carryback to each of the 2 taxable 
                        years preceding the taxable year of 
                        such loss, and
                            ``(ii) shall be a net operating 
                        loss carryover to each of the 20 
                        taxable years following the taxable 
                        year of the loss.''.
            (2) Exemption from limitation.--Section 172, as 
        amended by subsection (c)(2)(A), is amended by 
        redesignating subsection (f) as subsection (g) and 
        inserting after subsection (e) the following new 
        subsection:
    ``(f) Special Rule for Insurance Companies.--In the case of 
an insurance company (as defined in section 816(a)) other than 
a life insurance company--
            ``(1) the amount of the deduction allowed under 
        subsection (a) shall be the aggregate of the net 
        operating loss carryovers to such year, plus the net 
        operating loss carrybacks to such year, and
            ``(2) subparagraph (C) of subsection (b)(2) shall 
        not apply.''.
    (e) Effective Date.--
            (1) Net operating loss limitation.--The amendments 
        made by subsections (a) and (d)(2) shall apply to 
        losses arising in taxable years beginning after 
        December 31, 2017.
            (2) Carryforwards and carrybacks.--The amendments 
        made by subsections (b), (c), and (d)(1) shall apply to 
        net operating losses arising in taxable years ending 
        after December 31, 2017.

SEC. 13303. 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)(A) 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.''.
            (B) Section 1031 is amended by striking subsection 
        (i).
            (2) Section 1031 is amended by striking subsection 
        (e).
            (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. 13304. LIMITATION ON DEDUCTION BY EMPLOYERS OF EXPENSES FOR FRINGE 
                    BENEFITS.

    (a) No Deduction Allowed for Entertainment Expenses.--
            (1) In general.--Section 274(a) is amended--
                    (A) in paragraph (1)(A), by striking 
                ``unless'' and all that follows through ``trade 
                or business,'',
                    (B) by striking the flush sentence at the 
                end of paragraph (1), and
                    (C) by striking paragraph (2)(C).
            (2) Conforming amendments.--
                    (A) Section 274(d) is amended--
                            (i) by striking paragraph (2) and 
                        redesignating paragraphs (3) and (4) as 
                        paragraphs (2) and (3), respectively, 
                        and
                            (ii) in the flush text following 
                        paragraph (3) (as so redesignated)--
                                    (I) by striking ``, 
                                entertainment, amusement, 
                                recreation, or use of the 
                                facility or property,'' 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'',
                    (B) Section 274 is amended by striking 
                subsection (l).
                    (C) Section 274(n) is amended by striking 
                ``and Entertainment'' in the heading.
                    (D) Section 274(n)(1) is amended to read as 
                follows:
            ``(1) In general.--The amount allowable as a 
        deduction under this chapter for any expense for food 
        or beverages shall not exceed 50 percent of the amount 
        of such expense which would (but for this paragraph) be 
        allowable as a deduction under this chapter.''.
                    (E) Section 274(n)(2) is amended--
                            (i) in subparagraph (B), by 
                        striking ``in the case of an expense 
                        for food or beverages,'',
                            (ii) by striking subparagraph (C) 
                        and redesignating subparagraphs (D) and 
                        (E) as subparagraphs (C) and (D), 
                        respectively,
                            (iii) by striking ``of subparagraph 
                        (E)'' the last sentence and inserting 
                        ``of subparagraph (D)'', and
                            (iv) by striking ``in subparagraph 
                        (D)'' in the last sentence and 
                        inserting ``in subparagraph (C)''.
                    (F) Clause (iv) of section 7701(b)(5)(A) is 
                amended to read as follows:
                            ``(iv) a professional athlete who 
                        is temporarily in the United States to 
                        compete in a sports event--
                                    ``(I) which is organized 
                                for the primary purpose of 
                                benefiting an organization 
                                which is described in section 
                                501(c)(3) and exempt from tax 
                                under section 501(a),
                                    ``(II) all of the net 
                                proceeds of which are 
                                contributed to such 
                                organization, and,
                                    ``(III) which utilizes 
                                volunteers for substantially 
                                all of the work performed in 
                                carrying out such event.''.
    (b) Only 50 Percent of Expenses for Meals Provided on or 
Near Business Premises Allowed as Deduction.--Paragraph (2) of 
section 274(n), as amended by subsection (a), is amended--
            (1) by striking subparagraph (B),
            (2) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (B) and (C), respectively,
            (3) by striking ``of subparagraph (D)'' in the last 
        sentence and inserting ``of subparagraph (C)'', and
            (4) by striking ``in subparagraph (C)'' in the last 
        sentence and inserting ``in subparagraph (B)''.
    (c) Treatment of Transportation Benefits.--Section 274, as 
amended by subsection (a), is amended--
            (1) in subsection (a)--
                    (A) in the heading, by striking ``or 
                Recreation'' and inserting ``Recreation, or 
                Qualified Transportation Fringes'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(4) Qualified transportation fringes.--No 
        deduction shall be allowed under this chapter for the 
        expense of any qualified transportation fringe (as 
        defined in section 132(f)) provided to an employee of 
        the taxpayer.'', and
            (2) by inserting after subsection (k) the following 
        new subsection:
    ``(l) Transportation and Commuting Benefits.--
            ``(1) In general.--No deduction shall be allowed 
        under this chapter for any expense incurred for 
        providing any transportation, or any payment or 
        reimbursement, to an employee of the taxpayer in 
        connection with travel between the employee's residence 
        and place of employment, except as necessary for 
        ensuring the safety of the employee.
            ``(2) Exception.--In the case of any qualified 
        bicycle commuting reimbursement (as described in 
        section 132(f)(5)(F)), this subsection shall not apply 
        for any amounts paid or incurred after December 31, 
        2017, and before January 1, 2026.''.
    (d) Elimination of Deduction for Meals Provided at 
Convenience of Employer.--Section 274, as amended by subsection 
(c), is amended--
            (1) by redesignating subsection (o) as subsection 
        (p), and
            (2) by inserting after subsection (n) the following 
        new subsection:
    ``(o) Meals Provided at Convenience of Employer.--No 
deduction shall be allowed under this chapter for--
            ``(1) any expense for the operation of a facility 
        described in section 132(e)(2), and any expense for 
        food or beverages, including under section 132(e)(1), 
        associated with such facility, or
            ``(2) any expense for meals described in section 
        119(a).''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        amounts incurred or paid after December 31, 2017.
            (2) Effective date for elimination of deduction for 
        meals provided at convenience of employer.--The 
        amendments made by subsection (d) shall apply to 
        amounts incurred or paid after December 31, 2025.

SEC. 13305. 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), 
        135(c)(4)(A), 137(b)(3)(A), 219(g)(3)(A)(ii), 
        221(b)(2)(C), 222(b)(2)(C), 246(b)(1), and 
        469(i)(3)(F)(iii) are each amended by striking 
        ``199,''.
            (2) Section 170(b)(2)(D), as amended by subtitle A, 
        is amended by striking clause (iv), and by 
        redesignating clauses (v) and (vi) as clauses (iv) and 
        (v).
            (3) Section 172(d) is amended by striking paragraph 
        (7).
            (4) Section 613(a), as amended by section 11011, is 
        amended by striking ``and without the deduction under 
        section 199''.
            (5) Section 613A(d)(1), as amended by section 
        11011, is amended by striking subparagraph (B) and by 
        redesignating subparagraphs (C), (D), (E), and (F) as 
        subparagraphs (B), (C), (D), and (E), respectively.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13306. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
                    AMOUNTS.

    (a) Denial of Deduction.--
            (1) In general.--Subsection (f) of section 162 is 
        amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in the 
        following paragraphs of this subsection, no deduction 
        otherwise allowable shall be allowed under this chapter 
        for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or governmental entity in relation to the 
        violation of any law or the investigation or inquiry by 
        such government or entity into the potential violation 
        of any law.
            ``(2) Exception for amounts constituting 
        restitution or paid to come into compliance with law.--
                    ``(A) In general.--Paragraph (1) shall not 
                apply to any amount that--
                            ``(i) the taxpayer establishes--
                                    ``(I) constitutes 
                                restitution (including 
                                remediation of property) for 
                                damage or harm which was or may 
                                be caused by the violation of 
                                any law or the potential 
                                violation of any law, or
                                    ``(II) is paid to come into 
                                compliance with any law which 
                                was violated or otherwise 
                                involved in the investigation 
                                or inquiry described in 
                                paragraph (1),
                            ``(ii) is identified as restitution 
                        or as an amount paid to come into 
                        compliance with such law, as the case 
                        may be, in the court order or 
                        settlement agreement, and
                            ``(iii) in the case of any amount 
                        of restitution for failure to pay any 
                        tax imposed under this title in the 
                        same manner as if such amount were such 
                        tax, would have been allowed as a 
                        deduction under this chapter if it had 
                        been timely paid.
                The identification under clause (ii) alone 
                shall not be sufficient to make the 
                establishment required under clause (i).
                    ``(B) Limitation.--Subparagraph (A) shall 
                not apply to any amount paid or incurred as 
                reimbursement to the government or entity for 
                the costs of any investigation or litigation.
            ``(3) Exception for amounts paid or incurred as the 
        result of certain court orders.--Paragraph (1) shall 
        not apply to any amount paid or incurred by reason of 
        any order of a court in a suit in which no government 
        or governmental entity is a party.
            ``(4) Exception for taxes due.--Paragraph (1) shall 
        not apply to any amount paid or incurred as taxes due.
            ``(5) Treatment of certain nongovernmental 
        regulatory entities.--For purposes of this subsection, 
        the following nongovernmental entities shall be treated 
        as governmental entities:
                    ``(A) Any nongovernmental entity which 
                exercises self-regulatory powers (including 
                imposing sanctions) in connection with a 
                qualified board or exchange (as defined in 
                section 1256(g)(7)).
                    ``(B) To the extent provided in 
                regulations, any nongovernmental entity which 
                exercises self-regulatory powers (including 
                imposing sanctions) as part of performing an 
                essential governmental function.''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to amounts paid or incurred on 
        or after the date of the enactment of this Act, except 
        that such amendments shall not apply to amounts paid or 
        incurred under any binding order or agreement entered 
        into before such date. Such exception shall not apply 
        to an order or agreement requiring court approval 
        unless the approval was obtained before such date.
    (b) Reporting of Deductible Amounts.--
            (1) In general.--Subpart B of part III of 
        subchapter A of chapter 61 is amended by inserting 
        after section 6050W the following new section:

``SEC. 6050X. INFORMATION WITH RESPECT TO CERTAIN FINES, PENALTIES, AND 
                    OTHER AMOUNTS.

    ``(a) Requirement of Reporting.--
            ``(1) In general.--The appropriate official of any 
        government or any entity described in section 162(f)(5) 
        which is involved in a suit or agreement described in 
        paragraph (2) shall make a return in such form as 
        determined by the Secretary setting forth--
                    ``(A) the amount required to be paid as a 
                result of the suit or agreement to which 
                paragraph (1) of section 162(f) applies,
                    ``(B) any amount required to be paid as a 
                result of the suit or agreement which 
                constitutes restitution or remediation of 
                property, and
                    ``(C) any amount required to be paid as a 
                result of the suit or agreement for the purpose 
                of coming into compliance with any law which 
                was violated or involved in the investigation 
                or inquiry.
            ``(2) Suit or agreement described.--
                    ``(A) In general.--A suit or agreement is 
                described in this paragraph if--
                            ``(i) it is--
                                    ``(I) a suit with respect 
                                to a violation of any law over 
                                which the government or entity 
                                has authority and with respect 
                                to which there has been a court 
                                order, or
                                    ``(II) an agreement which 
                                is entered into with respect to 
                                a violation of any law over 
                                which the government or entity 
                                has authority, or with respect 
                                to an investigation or inquiry 
                                by the government or entity 
                                into the potential violation of 
                                any law over which such 
                                government or entity has 
                                authority, and
                            ``(ii) the aggregate amount 
                        involved in all court orders and 
                        agreements with respect to the 
                        violation, investigation, or inquiry is 
                        $600 or more.
                    ``(B) Adjustment of reporting threshold.--
                The Secretary shall adjust the $600 amount in 
                subparagraph (A)(ii) as necessary in order to 
                ensure the efficient administration of the 
                internal revenue laws.
            ``(3) Time of filing.--The return required under 
        this subsection shall be filed at the time the 
        agreement is entered into, as determined by the 
        Secretary.
    ``(b) Statements to Be Furnished to Individuals Involved in 
the Settlement.--Every person required to make a return under 
subsection (a) shall furnish to each person who is a party to 
the suit or agreement a written statement showing--
            ``(1) the name of the government or entity, and
            ``(2) the information supplied to the Secretary 
        under subsection (a)(1).
The written statement required under the preceding sentence 
shall be furnished to the person at the same time the 
government or entity provides the Secretary with the 
information required under subsection (a).
    ``(c) Appropriate Official Defined.--For purposes of this 
section, the term `appropriate official' means the officer or 
employee having control of the suit, investigation, or inquiry 
or the person appropriately designated for purposes of this 
section.''.
            (2) Conforming amendment.--The table of sections 
        for subpart B of part III of subchapter A of chapter 61 
        is amended by inserting after the item relating to 
        section 6050W the following new item:

``Sec. 6050X. Information with respect to certain fines, penalties, and 
          other amounts.''.

            (3) Effective date.--The amendments made by this 
        subsection shall apply to amounts paid or incurred on 
        or after the date of the enactment of this Act, except 
        that such amendments shall not apply to amounts paid or 
        incurred under any binding order or agreement entered 
        into before such date. Such exception shall not apply 
        to an order or agreement requiring court approval 
        unless the approval was obtained before such date.

SEC. 13307. DENIAL OF DEDUCTION FOR SETTLEMENTS SUBJECT TO 
                    NONDISCLOSURE AGREEMENTS PAID IN CONNECTION WITH 
                    SEXUAL HARASSMENT OR SEXUAL ABUSE.

    (a) Denial of Deduction.--Section 162 is amended by 
redesignating subsection (q) as subsection (r) and by inserting 
after subsection (p) the following new subsection:
    ``(q) Payments Related to Sexual Harassment and Sexual 
Abuse.--No deduction shall be allowed under this chapter for--
            ``(1) any settlement or payment related to sexual 
        harassment or sexual abuse if such settlement or 
        payment is subject to a nondisclosure agreement, or
            ``(2) attorney's fees related to such a settlement 
        or payment.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred after the date of the 
enactment of this Act.

SEC. 13308. 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 on or after the date of 
the enactment of this Act.

SEC. 13309. 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, notwithstanding 
section 83 or any election in effect under section 83(b).
    ``(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) 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.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13310. PROHIBITION ON CASH, GIFT CARDS, AND OTHER NON-TANGIBLE 
                    PERSONAL PROPERTY AS EMPLOYEE ACHIEVEMENT AWARDS.

    (a) In General.--Subparagraph (A) of section 274(j)(3) is 
amended--
            (1) by striking ``The term'' and inserting the 
        following:
                            ``(i) In general.--The term''.
            (2) by redesignating clauses (i), (ii), and (iii) 
        as subclauses (I), (II), and (III), respectively, and 
        conforming the margins accordingly, and
            (3) by adding at the end the following new clause:
                            ``(ii) Tangible personal 
                        property.--For purposes of clause (i), 
                        the term `tangible personal property' 
                        shall not include--
                                    ``(I) cash, cash 
                                equivalents, gift cards, gift 
                                coupons, or gift certificates 
                                (other than arrangements 
                                conferring only the right to 
                                select and receive tangible 
                                personal property from a 
                                limited array of such items 
                                pre-selected or pre-approved by 
                                the employer), or
                                    ``(II) vacations, meals, 
                                lodging, tickets to theater or 
                                sporting events, stocks, bonds, 
                                other securities, and other 
                                similar items.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred after December 31, 
2017.

SEC. 13311. ELIMINATION OF DEDUCTION FOR LIVING EXPENSES INCURRED BY 
                    MEMBERS OF CONGRESS.

    (a) In General.--Subsection (a) of section 162 is amended 
in the matter following paragraph (3) by striking ``in excess 
of $3,000''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 13312. CERTAIN CONTRIBUTIONS BY GOVERNMENTAL ENTITIES NOT TREATED 
                    AS CONTRIBUTIONS TO CAPITAL.

    (a) In General.--Section 118 is amended--
            (1) by striking subsections (b), (c), and (d),
            (2) by redesignating subsection (e) as subsection 
        (d), and
            (3) by inserting after subsection (a) the following 
        new subsections:
    ``(b) Exceptions.--For purposes of subsection (a), the term 
`contribution to the capital of the taxpayer' does not 
include--
            ``(1) any contribution in aid of construction or 
        any other contribution as a customer or potential 
        customer, and
            ``(2) any contribution by any governmental entity 
        or civic group (other than a contribution made by a 
        shareholder as such).
    ``(c) Regulations.--The Secretary shall issue such 
regulations or other guidance as may be necessary or 
appropriate to carry out this section, including regulations or 
other guidance for determining whether any contribution 
constitutes a contribution in aid of construction.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        contributions made after the date of enactment of this 
        Act.
            (2) Exception.--The amendments made by this section 
        shall not apply to any contribution, made after the 
        date of enactment of this Act by a governmental entity, 
        which is made pursuant to a master development plan 
        that has been approved prior to such date by a 
        governmental entity.

SEC. 13313. 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. 13314. 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.

                        PART V--BUSINESS CREDITS

SEC. 13401. MODIFICATION OF ORPHAN DRUG CREDIT.

    (a) Credit Rate.--Subsection (a) of section 45C is amended 
by striking ``50 percent'' and inserting ``25 percent''.
    (b) Election of Reduced Credit.--Subsection (b) of section 
280C is amended by redesignating paragraph (3) as paragraph (4) 
and by inserting after paragraph (2) the following new 
paragraph:
            ``(3) Election of reduced credit.--
                    ``(A) In general.--In the case of any 
                taxable year for which an election is made 
                under this paragraph--
                            ``(i) paragraphs (1) and (2) shall 
                        not apply, and
                            ``(ii) the amount of the credit 
                        under section 45C(a) shall be the 
                        amount determined under subparagraph 
                        (B).
                    ``(B) Amount of reduced credit.--The amount 
                of credit determined under this subparagraph 
                for any taxable year shall be the amount equal 
                to the excess of--
                            ``(i) the amount of credit 
                        determined under section 45C(a) without 
                        regard to this paragraph, over
                            ``(ii) the product of--
                                    ``(I) the amount described 
                                in clause (i), and
                                    ``(II) the maximum rate of 
                                tax under section 11(b).
                    ``(C) Election.--An election under this 
                paragraph for any taxable year shall be made 
                not later than the time for filing the return 
                of tax for such year (including extensions), 
                shall be made on such return, and shall be made 
                in such manner as the Secretary shall 
                prescribe. Such an election, once made, shall 
                be irrevocable.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13402. REHABILITATION CREDIT LIMITED TO CERTIFIED HISTORIC 
                    STRUCTURES.

    (a) In General.--Subsection (a) of section 47 is amended to 
read as follows:
    ``(a) General Rule.--
            ``(1) In general.--For purposes of section 46, for 
        any taxable year during the 5-year period beginning in 
        the taxable year in which a qualified rehabilitated 
        building is placed in service, the rehabilitation 
        credit for such year is an amount equal to the ratable 
        share for such year.
            ``(2) Ratable share.--For purposes of paragraph 
        (1), the ratable share for any taxable year during the 
        period described in such paragraph is the amount equal 
        to 20 percent of the qualified rehabilitation 
        expenditures with respect to the qualified 
        rehabilitated building, as allocated ratably to each 
        year during such period.''.
    (b) Conforming Amendments.--
            (1) Section 47(c) is amended--
                    (A) in paragraph (1)--
                            (i) in subparagraph (A), by 
                        amending clause (iii) to read as 
                        follows:
                            ``(iii) such building is a 
                        certified historic structure, and'',
                            (ii) by striking subparagraph (B), 
                        and
                            (iii) by redesignating 
                        subparagraphs (C) and (D) as 
                        subparagraphs (B) and (C), 
                        respectively, and
                    (B) in paragraph (2)(B), by amending clause 
                (iv) to read as follows:
                            ``(iv) Certified historic 
                        structure.--Any expenditure 
                        attributable to the rehabilitation of a 
                        qualified rehabilitated building unless 
                        the rehabilitation is a certified 
                        rehabilitation (within the meaning of 
                        subparagraph (C)).''.
            (2) Paragraph (4) of section 145(d) is amended--
                    (A) by striking ``of section 47(c)(1)(C)'' 
                each place it appears and inserting ``of 
                section 47(c)(1)(B)'', and
                    (B) by striking ``section 47(c)(1)(C)(i)'' 
                and inserting ``section 47(c)(1)(B)(i)''.
    (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 with respect to any 
        building--
                    (A) owned or leased by the taxpayer during 
                the entirety of the period after December 31, 
                2017, and
                    (B) with respect to which the 24-month 
                period selected by the taxpayer under clause 
                (i) of section 47(c)(1)(B) of the Internal 
                Revenue Code (as amended by subsection (b)), or 
                the 60-month period applicable under clause 
                (ii) of such section, begins not later than 180 
                days after 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, or the 60-
        month period, referred to in subparagraph (B) ends.

SEC. 13403. EMPLOYER CREDIT FOR PAID FAMILY AND MEDICAL LEAVE.

    (a) In General.--
            (1) Allowance of credit.--Subpart D of part IV of 
        subchapter A of chapter 1 is amended by adding at the 
        end the following new section:

``SEC. 45S. EMPLOYER CREDIT FOR PAID FAMILY AND MEDICAL LEAVE.

    ``(a) Establishment of Credit.--
            ``(1) In general.--For purposes of section 38, in 
        the case of an eligible employer, the paid family and 
        medical leave credit is an amount equal to the 
        applicable percentage of the amount of wages paid to 
        qualifying employees during any period in which such 
        employees are on family and medical leave.
            ``(2) Applicable percentage.--For purposes of 
        paragraph (1), the term `applicable percentage' means 
        12.5 percent increased (but not above 25 percent) by 
        0.25 percentage points for each percentage point by 
        which the rate of payment (as described under 
        subsection (c)(1)(B)) exceeds 50 percent.
    ``(b) Limitation.--
            ``(1) In general.--The credit allowed under 
        subsection (a) with respect to any employee for any 
        taxable year shall not exceed an amount equal to the 
        product of the normal hourly wage rate of such employee 
        for each hour (or fraction thereof) of actual services 
        performed for the employer and the number of hours (or 
        fraction thereof) for which family and medical leave is 
        taken.
            ``(2) Non-hourly wage rate.--For purposes of 
        paragraph (1), in the case of any employee who is not 
        paid on an hourly wage rate, the wages of such employee 
        shall be prorated to an hourly wage rate under 
        regulations established by the Secretary.
            ``(3) Maximum amount of leave subject to credit.--
        The amount of family and medical leave that may be 
        taken into account with respect to any employee under 
        subsection (a) for any taxable year shall not exceed 12 
        weeks.
    ``(c) Eligible Employer.--For purposes of this section--
            ``(1) In general.--The term `eligible employer' 
        means any employer who has in place a written policy 
        that meets the following requirements:
                    ``(A) The policy provides--
                            ``(i) in the case of a qualifying 
                        employee who is not a part-time 
                        employee (as defined in section 
                        4980E(d)(4)(B)), not less than 2 weeks 
                        of annual paid family and medical 
                        leave, and
                            ``(ii) in the case of a qualifying 
                        employee who is a part-time employee, 
                        an amount of annual paid family and 
                        medical leave that is not less than an 
                        amount which bears the same ratio to 
                        the amount of annual paid family and 
                        medical leave that is provided to a 
                        qualifying employee described in clause 
                        (i) as--
                                    ``(I) the number of hours 
                                the employee is expected to 
                                work during any week, bears to
                                    ``(II) the number of hours 
                                an equivalent qualifying 
                                employee described in clause 
                                (i) is expected to work during 
                                the week.
                    ``(B) The policy requires that the rate of 
                payment under the program is not less than 50 
                percent of the wages normally paid to such 
                employee for services performed for the 
                employer.
            ``(2) Special rule for certain employers.--
                    ``(A) In general.--An added employer shall 
                not be treated as an eligible employer unless 
                such employer provides paid family and medical 
                leave in compliance with a written policy which 
                ensures that the employer--
                            ``(i) will not interfere with, 
                        restrain, or deny the exercise of or 
                        the attempt to exercise, any right 
                        provided under the policy, and
                            ``(ii) will not discharge or in any 
                        other manner discriminate against any 
                        individual for opposing any practice 
                        prohibited by the policy.
                    ``(B) Added employer; added employee.--For 
                purposes of this paragraph--
                            ``(i) Added employee.--The term 
                        `added employee' means a qualifying 
                        employee who is not covered by title I 
                        of the Family and Medical Leave Act of 
                        1993, as amended.
                            ``(ii) Added employer.--The term 
                        `added employer' means an eligible 
                        employer (determined without regard to 
                        this paragraph), whether or not covered 
                        by that title I, who offers paid family 
                        and medical leave to added employees.
            ``(3) Aggregation rule.--All persons which are 
        treated as a single employer under subsections (a) and 
        (b) of section 52 shall be treated as a single 
        taxpayer.
            ``(4) Treatment of benefits mandated or paid for by 
        state or local governments.--For purposes of this 
        section, any leave which is paid by a State or local 
        government or required by State or local law shall not 
        be taken into account in determining the amount of paid 
        family and medical leave provided by the employer.
            ``(5) No inference.--Nothing in this subsection 
        shall be construed as subjecting an employer to any 
        penalty, liability, or other consequence (other than 
        ineligibility for the credit allowed by reason of 
        subsection (a) or recapturing the benefit of such 
        credit) for failure to comply with the requirements of 
        this subsection.
    ``(d) Qualifying Employees.--For purposes of this section, 
the term `qualifying employee' means any employee (as defined 
in section 3(e) of the Fair Labor Standards Act of 1938, as 
amended) who--
            ``(1) has been employed by the employer for 1 year 
        or more, and
            ``(2) for the preceding year, had compensation not 
        in excess of an amount equal to 60 percent of the 
        amount applicable for such year under clause (i) of 
        section 414(q)(1)(B).
    ``(e) Family and Medical Leave.--
            ``(1) In general.--Except as provided in paragraph 
        (2), for purposes of this section, the term `family and 
        medical leave' means leave for any 1 or more of the 
        purposes described under subparagraph (A), (B), (C), 
        (D), or (E) of paragraph (1), or paragraph (3), of 
        section 102(a) of the Family and Medical Leave Act of 
        1993, as amended, whether the leave is provided under 
        that Act or by a policy of the employer.
            ``(2) Exclusion.--If an employer provides paid 
        leave as vacation leave, personal leave, or medical or 
        sick leave (other than leave specifically for 1 or more 
        of the purposes referred to in paragraph (1)), that 
        paid leave shall not be considered to be family and 
        medical leave under paragraph (1).
            ``(3) Definitions.--In this subsection, the terms 
        `vacation leave', `personal leave', and `medical or 
        sick leave' mean those 3 types of leave, within the 
        meaning of section 102(d)(2) of that Act.
    ``(f) Determinations Made by Secretary of Treasury.--For 
purposes of this section, any determination as to whether an 
employer or an employee satisfies the applicable requirements 
for an eligible employer (as described in subsection (c)) or 
qualifying employee (as described in subsection (d)), 
respectively, shall be made by the Secretary based on such 
information, to be provided by the employer, as the Secretary 
determines to be necessary or appropriate.
    ``(g) Wages.--For purposes of this section, the term 
`wages' has the meaning given such term by subsection (b) of 
section 3306 (determined without regard to any dollar 
limitation contained in such section). Such term shall not 
include any amount taken into account for purposes of 
determining any other credit allowed under this subpart.
    ``(h) Election to Have Credit Not Apply.--
            ``(1) In general.--A taxpayer may elect to have 
        this section not apply for any taxable year.
            ``(2) Other rules.--Rules similar to the rules of 
        paragraphs (2) and (3) of section 51(j) shall apply for 
        purposes of this subsection.
    ``(i) Termination.--This section shall not apply to wages 
paid in taxable years beginning after December 31, 2019.''.
    (b) Credit Part of General Business Credit.--Section 38(b) 
is amended by striking ``plus'' at the end of paragraph (35), 
by striking the period at the end of paragraph (36) and 
inserting ``, plus'', and by adding at the end the following 
new paragraph:
            ``(37) in the case of an eligible employer (as 
        defined in section 45S(c)), the paid family and medical 
        leave credit determined under section 45S(a).''.
    (c) Credit Allowed Against AMT.--Subparagraph (B) of 
section 38(c)(4) is amended by redesignating clauses (ix) 
through (xi) as clauses (x) through (xii), respectively, and by 
inserting after clause (viii) the following new clause:
                            ``(ix) the credit determined under 
                        section 45S,''.
    (d) Conforming Amendments.--
            (1) Denial of double benefit.--Section 280C(a) is 
        amended by inserting ``45S(a),'' after ``45P(a),''.
            (2) Election to have credit not apply.--Section 
        6501(m) is amended by inserting ``45S(h),'' after 
        ``45H(g),''.
            (3) Clerical amendment.--The table of sections for 
        subpart D of part IV of subchapter A of chapter 1 is 
        amended by adding at the end the following new item:

``Sec. 45S. Employer credit for paid family and medical leave.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to wages paid in taxable years beginning after 
December 31, 2017.

SEC. 13404. 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.

    PART VI--PROVISIONS RELATED TO SPECIFIC ENTITIES AND INDUSTRIES

                   Subpart A--Partnership Provisions

SEC. 13501. TREATMENT OF GAIN OR LOSS OF FOREIGN PERSONS FROM SALE OR 
                    EXCHANGE OF INTERESTS IN PARTNERSHIPS ENGAGED IN 
                    TRADE OR BUSINESS WITHIN THE UNITED STATES.

    (a) Amount Treated as Effectively Connected.--
            (1) In general.--Section 864(c) is amended by 
        adding at the end the following:
            ``(8) Gain or loss of foreign persons from sale or 
        exchange of certain partnership interests.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this subtitle, if a 
                nonresident alien individual or foreign 
                corporation owns, directly or indirectly, an 
                interest in a partnership which is engaged in 
                any trade or business within the United States, 
                gain or loss on the sale or exchange of all (or 
                any portion of) such interest shall be treated 
                as effectively connected with the conduct of 
                such trade or business to the extent such gain 
                or loss does not exceed the amount determined 
                under subparagraph (B).
                    ``(B) Amount treated as effectively 
                connected.--The amount determined under this 
                subparagraph with respect to any partnership 
                interest sold or exchanged--
                            ``(i) in the case of any gain on 
                        the sale or exchange of the partnership 
                        interest, is--
                                    ``(I) the portion of the 
                                partner's distributive share of 
                                the amount of gain which would 
                                have been effectively connected 
                                with the conduct of a trade or 
                                business within the United 
                                States if the partnership had 
                                sold all of its assets at their 
                                fair market value as of the 
                                date of the sale or exchange of 
                                such interest, or
                                    ``(II) zero if no gain on 
                                such deemed sale would have 
                                been so effectively connected, 
                                and
                            ``(ii) in the case of any loss on 
                        the sale or exchange of the partnership 
                        interest, is--
                                    ``(I) the portion of the 
                                partner's distributive share of 
                                the amount of loss on the 
                                deemed sale described in clause 
                                (i)(I) which would have been so 
                                effectively connected, or
                                    ``(II) zero if no loss on 
                                such deemed sale would be have 
                                been so effectively connected.
                        For purposes of this subparagraph, a 
                        partner's distributive share of gain or 
                        loss on the deemed sale shall be 
                        determined in the same manner as such 
                        partner's distributive share of the 
                        non-separately stated taxable income or 
                        loss of such partnership.
                    ``(C) Coordination with united states real 
                property interests.--If a partnership described 
                in subparagraph (A) holds any United States 
                real property interest (as defined in section 
                897(c)) at the time of the sale or exchange of 
                the partnership interest, then the gain or loss 
                treated as effectively connected income under 
                subparagraph (A) shall be reduced by the amount 
                so treated with respect to such United States 
                real property interest under section 897.
                    ``(D) Sale or exchange.--For purposes of 
                this paragraph, the term `sale or exchange' 
                means any sale, exchange, or other disposition.
                    ``(E) Secretarial authority.--The Secretary 
                shall prescribe such regulations or other 
                guidance as the Secretary determines 
                appropriate for the application of this 
                paragraph, including with respect to exchanges 
                described in section 332, 351, 354, 355, 356, 
                or 361.''.
            (2) Conforming amendments.--Section 864(c)(1) is 
        amended--
                    (A) by striking ``and (7)'' in subparagraph 
                (A), and inserting ``(7), and (8)'', and
                    (B) by striking ``or (7)'' in subparagraph 
                (B), and inserting ``(7), or (8)''.
    (b) Withholding Requirements.--Section 1446 is amended by 
redesignating subsection (f) as subsection (g) and by inserting 
after subsection (e) the following:
    ``(f) Special Rules for Withholding on Dispositions of 
Partnership Interests.--
            ``(1) In general.--Except as provided in this 
        subsection, if any portion of the gain (if any) on any 
        disposition of an interest in a partnership would be 
        treated under section 864(c)(8) as effectively 
        connected with the conduct of a trade or business 
        within the United States, the transferee shall be 
        required to deduct and withhold a tax equal to 10 
        percent of the amount realized on the disposition.
            ``(2) Exception if nonforeign affidavit 
        furnished.--
                    ``(A) In general.--No person shall be 
                required to deduct and withhold any amount 
                under paragraph (1) with respect to any 
                disposition if the transferor furnishes to the 
                transferee an affidavit by the transferor 
                stating, under penalty of perjury, the 
                transferor's United States taxpayer 
                identification number and that the transferor 
                is not a foreign person.
                    ``(B) False affidavit.--Subparagraph (A) 
                shall not apply to any disposition if--
                            ``(i) the transferee has actual 
                        knowledge that the affidavit is false, 
                        or the transferee receives a notice (as 
                        described in section 1445(d)) from a 
                        transferor's agent or transferee's 
                        agent that such affidavit or statement 
                        is false, or
                            ``(ii) the Secretary by regulations 
                        requires the transferee to furnish a 
                        copy of such affidavit or statement to 
                        the Secretary and the transferee fails 
                        to furnish a copy of such affidavit or 
                        statement to the Secretary at such time 
                        and in such manner as required by such 
                        regulations.
                    ``(C) Rules for agents.--The rules of 
                section 1445(d) shall apply to a transferor's 
                agent or transferee's agent with respect to any 
                affidavit described in subparagraph (A) in the 
                same manner as such rules apply with respect to 
                the disposition of a United States real 
                property interest under such section.
            ``(3) Authority of secretary to prescribe reduced 
        amount.--At the request of the transferor or 
        transferee, the Secretary may prescribe a reduced 
        amount to be withheld under this section if the 
        Secretary determines that to substitute such reduced 
        amount will not jeopardize the collection of the tax 
        imposed under this title with respect to gain treated 
        under section 864(c)(8) as effectively connected with 
        the conduct of a trade or business with in the United 
        States.
            ``(4) Partnership to withhold amounts not withheld 
        by the transferee.--If a transferee fails to withhold 
        any amount required to be withheld under paragraph (1), 
        the partnership shall be required to deduct and 
        withhold from distributions to the transferee a tax in 
        an amount equal to the amount the transferee failed to 
        withhold (plus interest under this title on such 
        amount).
            ``(5) Definitions.--Any term used in this 
        subsection which is also used under section 1445 shall 
        have the same meaning as when used in such section.
            ``(6) Regulations.--The Secretary shall prescribe 
        such regulations or other guidance as may be necessary 
        to carry out the purposes of this subsection, including 
        regulations providing for exceptions from the 
        provisions of this subsection.''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by 
        subsection (a) shall apply to sales, exchanges, and 
        dispositions on or after November 27, 2017.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall apply to sales, exchanges, and 
        dispositions after December 31, 2017.

SEC. 13502. MODIFY DEFINITION OF SUBSTANTIAL BUILT-IN LOSS IN THE CASE 
                    OF TRANSFER OF PARTNERSHIP INTEREST.

    (a) In General.--Paragraph (1) of section 743(d) is to read 
as follows:
            ``(1) In general.--For purposes of this section, a 
        partnership has a substantial built-in loss with 
        respect to a transfer of an interest in the partnership 
        if--
                    ``(A) the partnership's adjusted basis in 
                the partnership property exceeds by more than 
                $250,000 the fair market value of such 
                property, or
                    ``(B) the transferee partner would be 
                allocated a loss of more than $250,000 if the 
                partnership assets were sold for cash equal to 
                their fair market value immediately after such 
                transfer.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to transfers of partnership interests after 
December 31, 2017.

SEC. 13503. CHARITABLE CONTRIBUTIONS AND FOREIGN TAXES TAKEN INTO 
                    ACCOUNT IN DETERMINING LIMITATION ON ALLOWANCE OF 
                    PARTNER'S SHARE OF LOSS.

    (a) In General.--Subsection (d) of section 704 is amended--
            (1) by striking ``A partner's distributive share'' 
        and inserting the following:
            ``(1) In general.--A partner's distributive 
        share'',
            (2) by striking ``Any excess of such loss'' and 
        inserting the following:
            ``(2) Carryover.--Any excess of such loss'', and
            (3) by adding at the end the following new 
        paragraph:
            ``(3) Special rules.--
                    ``(A) In general.--In determining the 
                amount of any loss under paragraph (1), there 
                shall be taken into account the partner's 
                distributive share of amounts described in 
                paragraphs (4) and (6) of section 702(a).
                    ``(B) Exception.--In the case of a 
                charitable contribution of property whose fair 
                market value exceeds its adjusted basis, 
                subparagraph (A) shall not apply to the extent 
                of the partner's distributive share of such 
                excess.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 2017.

SEC. 13504. 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) Conforming Amendment.--
            (1) Section 168(i)(7)(B) is amended by striking the 
        second sentence.
            (2) Section 743(e) is amended by striking paragraph 
        (4) and redesignating paragraphs (5), (6), and (7) as 
        paragraphs (4), (5), and (6).
    (c) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 2017.

                      Subpart B--Insurance Reforms

SEC. 13511. 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)(A) 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).
            (B) Section 831(b)(3) is amended by striking 
        ``except as provided in section 844,''
            (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 805(b)(2)(A)(iv) is amended to read as 
        follows:
                            ``(iv) any net operating loss 
                        carryback to the taxable year under 
                        section 172, and''.
            (7) 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.''.
            (8) Section 1351(i)(3) is amended by striking ``or 
        the operations loss deduction under section 810,''.
    (c) Effective Date.--The amendments made by this section 
shall apply to losses arising in taxable years beginning after 
December 31, 2017.

SEC. 13512. 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 this Act, 
        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), as amended by this Act, 
        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 13511, 
        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. 13513. 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. 13514. 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. 13515. MODIFICATION OF PRORATION RULES FOR PROPERTY AND CASUALTY 
                    INSURANCE COMPANIES.

    (a) In General.--Section 832(b)(5)(B) is amended--
            (1) by striking ``15 percent'' and inserting ``the 
        applicable percentage'', and
            (2) by inserting at the end the following new 
        sentence: ``For purposes of this subparagraph, the 
        applicable percentage is 5.25 percent divided by the 
        highest rate in effect under section 11(b).''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13516. 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.

SEC. 13517. COMPUTATION OF LIFE INSURANCE TAX RESERVES.

    (a) In General.--
            (1) Appropriate rate of interest.--The second 
        sentence of section 807(c) is amended to read as 
        follows: ``For purposes of paragraph (3), the 
        appropriate rate of interest is the highest rate or 
        rates permitted to be used to discount the obligations 
        by the National Association of Insurance Commissioners 
        as of the date the reserve is determined.''.
            (2) Method of computing reserves.--Section 807(d) 
        is amended--
                    (A) by striking paragraphs (1), (2), (4), 
                and (5),
                    (B) by redesignating paragraph (6) as 
                paragraph (4),
                    (C) by inserting before paragraph (3) the 
                following new paragraphs:
            ``(1) Determination of reserve.--
                    ``(A) In general.--For purposes of this 
                part (other than section 816), the amount of 
                the life insurance reserves for any contract 
                (other than a contract to which subparagraph 
                (B) applies) shall be the greater of--
                            ``(i) the net surrender value of 
                        such contract, or
                            ``(ii) 92.81 percent of the reserve 
                        determined under paragraph (2).
                    ``(B) Variable contracts.--For purposes of 
                this part (other than section 816), the amount 
                of the life insurance reserves for a variable 
                contract shall be equal to the sum of--
                            ``(i) the greater of--
                                    ``(I) the net surrender 
                                value of such contract, or
                                    ``(II) the portion of the 
                                reserve that is separately 
                                accounted for under section 
                                817, plus
                            ``(ii) 92.81 percent of the excess 
                        (if any) of the reserve determined 
                        under paragraph (2) over the amount in 
                        clause (i).
                    ``(C) Statutory cap.--In no event shall the 
                reserves determined under subparagraphs (A) or 
                (B) for any contract as of any time exceed the 
                amount which would be taken into account with 
                respect to such contract as of such time in 
                determining statutory reserves (as defined in 
                paragraph (4)).
                    ``(D) No double counting.--In no event 
                shall any amount or item be taken into account 
                more than once in determining any reserve under 
                this subchapter.
            ``(2) Amount of reserve.--The amount of the reserve 
        determined under this paragraph with respect to any 
        contract shall be determined by using the tax reserve 
        method applicable to such contract.''.
                    (D) by striking ``(other than a qualified 
                long-term care insurance contract, as defined 
                in section 7702B(b)), a 2-year full preliminary 
                term method'' in paragraph (3)(A)(iii) and 
                inserting ``, the reserve method prescribed by 
                the National Association of Insurance 
                Commissioners which covers such contract as of 
                the date the reserve is determined'',
                    (E) by striking ``(as of the date of 
                issuance)'' in paragraph (3)(A)(iv)(I) and 
                inserting ``(as of the date the reserve is 
                determined)'',
                    (F) by striking ``as of the date of the 
                issuance of'' in paragraph (3)(A)(iv)(II) and 
                inserting ``as of the date the reserve is 
                determined for'',
                    (G) by striking ``in effect on the date of 
                the issuance of the contract'' in paragraph 
                (3)(B)(i) and inserting ``applicable to the 
                contract and in effect as of the date the 
                reserve is determined'', and
                    (H) by striking ``in effect on the date of 
                the issuance of the contract'' in paragraph 
                (3)(B)(ii) and inserting ``applicable to the 
                contract and in effect as of the date the 
                reserve is determined''.
            (3) Special rules.--Section 807(e) is amended--
                    (A) by striking paragraphs (2) and (5),
                    (B) by redesignating paragraphs (3), (4), 
                (6), and (7) as paragraphs (2), (3), (4), and 
                (5), respectively,
                    (C) by amending paragraph (2) (as so 
                redesignated) to read as follows:
            ``(2) Qualified supplemental benefits.--
                    ``(A) Qualified supplemental benefits 
                treated separately.--For purposes of this part, 
                the amount of the life insurance reserve for 
                any qualified supplemental benefit shall be 
                computed separately as though such benefit were 
                under a separate contract.
                    ``(B) Qualified supplemental benefit.--For 
                purposes of this paragraph, the term `qualified 
                supplemental benefit' means any supplemental 
                benefit described in subparagraph (C) if--
                            ``(i) there is a separately 
                        identified premium or charge for such 
                        benefit, and
                            ``(ii) any net surrender value 
                        under the contract attributable to any 
                        other benefit is not available to fund 
                        such benefit.
                    ``(C) Supplemental benefits.--For purposes 
                of this paragraph, the supplemental benefits 
                described in this subparagraph are any--
                            ``(i) guaranteed insurability,
                            ``(ii) accidental death or 
                        disability benefit,
                            ``(iii) convertibility,
                            ``(iv) disability waiver benefit, 
                        or
                            ``(v) other benefit prescribed by 
                        regulations,
                which is supplemental to a contract for which 
                there is a reserve described in subsection 
                (c).'', and
                    (D) by adding at the end the following new 
                paragraph:
            ``(6) Reporting rules.--The Secretary shall require 
        reporting (at such time and in such manner as the 
        Secretary shall prescribe) with respect to the opening 
        balance and closing balance of reserves and with 
        respect to the method of computing reserves for 
        purposes of determining income.''.
            (4) Definition of life insurance contract.--Section 
        7702 is amended--
                    (A) by striking clause (i) of subsection 
                (c)(3)(B) and inserting the following:
                            ``(i) reasonable mortality charges 
                        which meet the requirements prescribed 
                        in regulations to be promulgated by the 
                        Secretary or that do not exceed the 
                        mortality charges specified in the 
                        prevailing commissioners' standard 
                        tables as defined in subsection 
                        (f)(10),'' and
                    (B) by adding at the end of subsection (f) 
                the following new paragraph:
            ``(10) Prevailing commissioners' standard tables.--
        For purposes of subsection (c)(3)(B)(i), the term 
        `prevailing commissioners' standard tables' means the 
        most recent commissioners' standard tables prescribed 
        by the National Association of Insurance Commissioners 
        which are permitted to be used in computing reserves 
        for that type of contract under the insurance laws of 
        at least 26 States when the contract was issued. If the 
        prevailing commissioners' standard tables as of the 
        beginning of any calendar year (hereinafter in this 
        paragraph referred to as the `year of change') are 
        different from the prevailing commissioners' standard 
        tables as of the beginning of the preceding calendar 
        year, the issuer may use the prevailing commissioners' 
        standard tables as of the beginning of the preceding 
        calendar year with respect to any contract issued after 
        the change and before the close of the 3-year period 
        beginning on the first day of the year of change.''.
    (b) Conforming Amendments.--
            (1) Section 808 is amended by adding at the end the 
        following new subsection:
    ``(g) Prevailing State Assumed Interest Rate.--For purposes 
of this subchapter--
            ``(1) In general.--The term `prevailing State 
        assumed interest rate' means, with respect to any 
        contract, the highest assumed interest rate permitted 
        to be used in computing life insurance reserves for 
        insurance contracts or annuity contracts (as the case 
        may be) under the insurance laws of at least 26 States. 
        For purposes of the preceding sentence, the effect of 
        nonforfeiture laws of a State on interest rates for 
        reserves shall not be taken into account.
            ``(2) When rate determined.--The prevailing State 
        assumed interest rate with respect to any contract 
        shall be determined as of the beginning of the calendar 
        year in which the contract was issued.''.
            (2) Paragraph (1) of section 811(d) is amended by 
        striking ``the greater of the prevailing State assumed 
        interest rate or applicable Federal interest rate in 
        effect under section 807'' and inserting ``the interest 
        rate in effect under section 808(g)''.
            (3) Subparagraph (A) of section 846(f)(6) is 
        amended by striking ``except that'' and all that 
        follows and inserting ``except that the limitation of 
        subsection (a)(3) shall apply, and''.
            (4) Section 848(e)(1)(B)(iii) is amended by 
        striking ``807(e)(4)'' and inserting ``807(e)(3)''.
            (5) Subparagraph (B) of section 954(i)(5) is 
        amended by striking ``shall be substituted for the 
        prevailing State assumed interest rate,'' and inserting 
        ``shall apply,''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        December 31, 2017.
            (2) Transition rule.--For the first taxable year 
        beginning after December 31, 2017, the reserve with 
        respect to any contract (as determined under section 
        807(d) of the Internal Revenue Code of 1986) at the end 
        of the preceding taxable year shall be determined as if 
        the amendments made by this section had applied to such 
        reserve in such preceding taxable year.
            (3) Transition relief.--
                    (A) In general.--If--
                            (i) the reserve determined under 
                        section 807(d) of the Internal Revenue 
                        Code of 1986 (determined after 
                        application of paragraph (2)) with 
                        respect to any contract as of the close 
                        of the year preceding the first taxable 
                        year beginning after December 31, 2017, 
                        differs from
                            (ii) the reserve which would have 
                        been determined with respect to such 
                        contract as of the close of such 
                        taxable year under such section 
                        determined without regard to paragraph 
                        (2),
                then the difference between the amount of the 
                reserve described in clause (i) and the amount 
                of the reserve described in clause (ii) shall 
                be taken into account under the method provided 
                in subparagraph (B).
                    (B) Method.--The method provided in this 
                subparagraph is as follows:
                            (i) If the amount determined under 
                        subparagraph (A)(i) exceeds the amount 
                        determined under subparagraph (A)(ii), 
                        1/8 of such excess shall be taken into 
                        account, for each of the 8 succeeding 
                        taxable years, as a deduction under 
                        section 805(a)(2) or 832(c)(4) of such 
                        Code, as applicable.
                            (ii) If the amount determined under 
                        subparagraph (A)(ii) exceeds the amount 
                        determined under subparagraph (A)(i), 
                        1/8 of such excess shall be included in 
                        gross income, for each of the 8 
                        succeeding taxable years, under section 
                        803(a)(2) or 832(b)(1)(C) of such Code, 
                        as applicable.

SEC. 13518. MODIFICATION OF RULES FOR LIFE INSURANCE PRORATION FOR 
                    PURPOSES OF DETERMINING THE DIVIDENDS RECEIVED 
                    DEDUCTION.

    (a) In General.--Section 812 is amended to read as follows:

``SEC. 812. DEFINITION OF COMPANY'S SHARE AND POLICYHOLDER'S SHARE.

    ``(a) Company's Share.--For purposes of section 805(a)(4), 
the term `company's share' means, with respect to any taxable 
year beginning after December 31, 2017, 70 percent.
    ``(b) Policyholder's Share.--For purposes of section 807, 
the term `policyholder's share' means, with respect to any 
taxable year beginning after December 31, 2017, 30 percent.''.
    (b) Conforming Amendment.--Section 817A(e)(2) is amended by 
striking ``, 807(d)(2)(B), and 812'' and inserting ``and 
807(d)(2)(B)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13519. CAPITALIZATION OF CERTAIN POLICY ACQUISITION EXPENSES.

    (a) In General.--
            (1) Section 848(a)(2) is amended by striking ``120-
        month'' and inserting ``180-month''.
            (2) Section 848(c)(1) is amended by striking ``1.75 
        percent'' and inserting ``2.09 percent''.
            (3) Section 848(c)(2) is amended by striking ``2.05 
        percent'' and inserting ``2.45 percent''.
            (4) Section 848(c)(3) is amended by striking ``7.7 
        percent'' and inserting ``9.2 percent''.
    (b) Conforming Amendments.--Section 848(b)(1) is amended by 
striking ``120-month'' and inserting ``180-month''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to net premiums for taxable years 
        beginning after December 31, 2017.
            (2) Transition rule.--Specified policy acquisition 
        expenses first required to be capitalized in a taxable 
        year beginning before January 1, 2018, will continue to 
        be allowed as a deduction ratably over the 120-month 
        period beginning with the first month in the second 
        half of such taxable year.

SEC. 13520. TAX REPORTING FOR LIFE SETTLEMENT TRANSACTIONS.

    (a) In General.--Subpart B of part III of subchapter A of 
chapter 61, as amended by section 13306, is amended by adding 
at the end the following new section:

``SEC. 6050Y. RETURNS RELATING TO CERTAIN LIFE INSURANCE CONTRACT 
                    TRANSACTIONS.

    ``(a) Requirement of Reporting of Certain Payments.--
            ``(1) In general.--Every person who acquires a life 
        insurance contract or any interest in a life insurance 
        contract in a reportable policy sale during any taxable 
        year shall make a return for such taxable year (at such 
        time and in such manner as the Secretary shall 
        prescribe) setting forth--
                    ``(A) the name, address, and TIN of such 
                person,
                    ``(B) the name, address, and TIN of each 
                recipient of payment in the reportable policy 
                sale,
                    ``(C) the date of such sale,
                    ``(D) the name of the issuer of the life 
                insurance contract sold and the policy number 
                of such contract, and
                    ``(E) the amount of each payment.
            ``(2) Statement to be furnished to persons with 
        respect to whom information is required.--Every person 
        required to make a return under this subsection shall 
        furnish to each person whose name is required to be set 
        forth in such return a written statement showing--
                    ``(A) the name, address, and phone number 
                of the information contact of the person 
                required to make such return, and
                    ``(B) the information required to be shown 
                on such return with respect to such person, 
                except that in the case of an issuer of a life 
                insurance contract, such statement is not 
                required to include the information specified 
                in paragraph (1)(E).
    ``(b) Requirement of Reporting of Seller's Basis in Life 
Insurance Contracts.--
            ``(1) In general.--Upon receipt of the statement 
        required under subsection (a)(2) or upon notice of a 
        transfer of a life insurance contract to a foreign 
        person, each issuer of a life insurance contract shall 
        make a return (at such time and in such manner as the 
        Secretary shall prescribe) setting forth--
                    ``(A) the name, address, and TIN of the 
                seller who transfers any interest in such 
                contract in such sale,
                    ``(B) the investment in the contract (as 
                defined in section 72(e)(6)) with respect to 
                such seller, and
                    ``(C) the policy number of such contract.
            ``(2) Statement to be furnished to persons with 
        respect to whom information is required.--Every person 
        required to make a return under this subsection shall 
        furnish to each person whose name is required to be set 
        forth in such return a written statement showing--
                    ``(A) the name, address, and phone number 
                of the information contact of the person 
                required to make such return, and
                    ``(B) the information required to be shown 
                on such return with respect to each seller 
                whose name is required to be set forth in such 
                return.
    ``(c) Requirement of Reporting With Respect to Reportable 
Death Benefits.--
            ``(1) In general.--Every person who makes a payment 
        of reportable death benefits during any taxable year 
        shall make a return for such taxable year (at such time 
        and in such manner as the Secretary shall prescribe) 
        setting forth--
                    ``(A) the name, address, and TIN of the 
                person making such payment,
                    ``(B) the name, address, and TIN of each 
                recipient of such payment,
                    ``(C) the date of each such payment,
                    ``(D) the gross amount of each such 
                payment, and
                    ``(E) such person's estimate of the 
                investment in the contract (as defined in 
                section 72(e)(6)) with respect to the buyer.
            ``(2) Statement to be furnished to persons with 
        respect to whom information is required.--Every person 
        required to make a return under this subsection shall 
        furnish to each person whose name is required to be set 
        forth in such return a written statement showing--
                    ``(A) the name, address, and phone number 
                of the information contact of the person 
                required to make such return, and
                    ``(B) the information required to be shown 
                on such return with respect to each recipient 
                of payment whose name is required to be set 
                forth in such return.
    ``(d) Definitions.--For purposes of this section:
            ``(1) Payment.--The term `payment' means, with 
        respect to any reportable policy sale, the amount of 
        cash and the fair market value of any consideration 
        transferred in the sale.
            ``(2) Reportable policy sale.--The term `reportable 
        policy sale' has the meaning given such term in section 
        101(a)(3)(B).
            ``(3) Issuer.--The term `issuer' means any life 
        insurance company that bears the risk with respect to a 
        life insurance contract on the date any return or 
        statement is required to be made under this section.
            ``(4) Reportable death benefits.--The term 
        `reportable death benefits' means amounts paid by 
        reason of the death of the insured under a life 
        insurance contract that has been transferred in a 
        reportable policy sale.''.
    (b) Clerical Amendment.--The table of sections for subpart 
B of part III of subchapter A of chapter 61, as amended by 
section 13306, is amended by inserting after the item relating 
to section 6050X the following new item:

``Sec. 6050Y. Returns relating to certain life insurance contract 
          transactions.''.

    (c) Conforming Amendments.--
            (1) Subsection (d) of section 6724 is amended--
                    (A) by striking ``or'' at the end of clause 
                (xxiv) of paragraph (1)(B), by striking ``and'' 
                at the end of clause (xxv) of such paragraph 
                and inserting ``or'', and by inserting after 
                such clause (xxv) the following new clause:
                            ``(xxvi) section 6050Y (relating to 
                        returns relating to certain life 
                        insurance contract transactions), 
                        and'', and
                    (B) by striking ``or'' at the end of 
                subparagraph (HH) of paragraph (2), by striking 
                the period at the end of subparagraph (II) of 
                such paragraph and inserting ``, or'', and by 
                inserting after such subparagraph (II) the 
                following new subparagraph:
                    ``(JJ) subsection (a)(2), (b)(2), or (c)(2) 
                of section 6050Y (relating to returns relating 
                to certain life insurance contract 
                transactions).''.
            (2) Section 6047 is amended--
                    (A) by redesignating subsection (g) as 
                subsection (h),
                    (B) by inserting after subsection (f) the 
                following new subsection:
    ``(g) Information Relating to Life Insurance Contract 
Transactions.--This section shall not apply to any information 
which is required to be reported under section 6050Y.'', and
                    (C) by adding at the end of subsection (h), 
                as so redesignated, the following new 
                paragraph:
            ``(4) For provisions requiring reporting of 
        information relating to certain life insurance contract 
        transactions, see section 6050Y.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to--
            (1) reportable policy sales (as defined in section 
        6050Y(d)(2) of the Internal Revenue Code of 1986 (as 
        added by subsection (a)) after December 31, 2017, and
            (2) reportable death benefits (as defined in 
        section 6050Y(d)(4) of such Code (as added by 
        subsection (a)) paid after December 31, 2017.

SEC. 13521. CLARIFICATION OF TAX BASIS OF LIFE INSURANCE CONTRACTS.

    (a) Clarification With Respect to Adjustments.--Paragraph 
(1) of section 1016(a) is amended by striking subparagraph (A) 
and all that follows and inserting the following:
                    ``(A) for--
                            ``(i) taxes or other carrying 
                        charges described in section 266; or
                            ``(ii) expenditures described in 
                        section 173 (relating to circulation 
                        expenditures),
                for which deductions have been taken by the 
                taxpayer in determining taxable income for the 
                taxable year or prior taxable years; or
                    ``(B) for mortality, expense, or other 
                reasonable charges incurred under an annuity or 
                life insurance contract;''.
    (b) Effective Date.--The amendment made by this section 
shall apply to transactions entered into after August 25, 2009.

SEC. 13522. EXCEPTION TO TRANSFER FOR VALUABLE CONSIDERATION RULES.

    (a) In General.--Subsection (a) of section 101 is amended 
by inserting after paragraph (2) the following new paragraph:
            ``(3) Exception to valuable consideration rules for 
        commercial transfers.--
                    ``(A) In general.--The second sentence of 
                paragraph (2) shall not apply in the case of a 
                transfer of a life insurance contract, or any 
                interest therein, which is a reportable policy 
                sale.
                    ``(B) Reportable policy sale.--For purposes 
                of this paragraph, the term `reportable policy 
                sale' means the acquisition of an interest in a 
                life insurance contract, directly or 
                indirectly, if the acquirer has no substantial 
                family, business, or financial relationship 
                with the insured apart from the acquirer's 
                interest in such life insurance contract. For 
                purposes of the preceding sentence, the term 
                `indirectly' applies to the acquisition of an 
                interest in a partnership, trust, or other 
                entity that holds an interest in the life 
                insurance contract.''.
    (b) Conforming Amendment.--Paragraph (1) of section 101(a) 
is amended by striking ``paragraph (2)'' and inserting 
``paragraphs (2) and (3)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to transfers after December 31, 2017.

SEC. 13523. 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), determined by substituting 
        `60-month period' for `24-month period' therein).''.
    (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 
subparagraph:
                    ``(B) Treatment of certain losses.--
                            ``(i) 3-year loss payment 
                        pattern.--In the case of any line of 
                        business not described in subparagraph 
                        (A)(ii), losses paid after the 1st year 
                        following the accident year shall be 
                        treated as paid equally in the 2nd and 
                        3rd year following the accident 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 24th 
                                year after the accident year, 
                                they shall be treated as paid 
                                in such 24th year.''.
    (c) Repeal of Historical Payment Pattern Election.--Section 
846, as amended by this Act, 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.

               Subpart C--Banks and Financial Instruments

SEC. 13531. LIMITATION ON DEDUCTION FOR FDIC PREMIUMS.

    (a) In General.--Section 162, as amended by sections 13307, 
is amended by redesignating subsection (r) as subsection (s) 
and by inserting after subsection (q) the following new 
subsection:
    ``(r) 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.--
                            ``(i) In general.--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).
                            ``(ii) Control of non-corporate 
                        entities.--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 clause).''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13532. 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.

                       Subpart D--S Corporations

SEC. 13541. EXPANSION OF QUALIFYING BENEFICIARIES OF AN ELECTING SMALL 
                    BUSINESS TRUST.

    (a) No Look-through for Eligibility Purposes.--Section 
1361(c)(2)(B)(v) is amended by adding at the end the following 
new sentence: ``This clause shall not apply for purposes of 
subsection (b)(1)(C).''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on January 1, 2018.

SEC. 13542. CHARITABLE CONTRIBUTION DEDUCTION FOR ELECTING SMALL 
                    BUSINESS TRUSTS.

    (a) In General.--Section 641(c)(2) is amended by inserting 
after subparagraph (D) the following new subparagraph:
                    ``(E)(i) Section 642(c) shall not apply.
                    ``(ii) For purposes of section 
                170(b)(1)(G), adjusted gross income shall be 
                computed in the same manner as in the case of 
                an individual, except that the deductions for 
                costs which are paid or incurred in connection 
                with the administration of the trust and which 
                would not have been incurred if the property 
                were not held in such trust shall be treated as 
                allowable in arriving at adjusted gross 
                income.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13543. 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.''.

                          PART VII--EMPLOYMENT

                        Subpart A--Compensation

SEC. 13601. 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.--Paragraph (4) of section 162(m) 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) Modification of Definition of Covered Employees.--
Paragraph (3) of section 162(m) 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 any individual described in subparagraph 
                (A))'', 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.''.
    (c) Expansion of Applicable Employer.--
            (1) In general.--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)).''.
            (2) Conforming amendment.--Section 162(m)(3), as 
        amended by subsection (b), is amended by adding at the 
        end the following flush sentence:
            ``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.--Paragraph (4) of section 162(m), 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.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2017.
            (2) Exception for binding contracts.--The 
        amendments made by this section shall not apply to 
        remuneration which is provided pursuant to a written 
        binding contract which was in effect on November 2, 
        2017, and which was not modified in any material 
        respect on or after such date.

SEC. 13602. 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 
the product of the rate of tax under section 11 and 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.
For purposes of the preceding sentence, remuneration shall be 
treated as paid when there is no substantial risk of forfeiture 
(within the meaning of section 457(f)(3)(B)) of the rights to 
such remuneration.
    ``(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 which 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:
                    ``(A) In general.--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)) and shall include amounts 
                required to be included in gross income under 
                section 457(f).
                    ``(B) Exception for remuneration for 
                medical services.--The term `remuneration' 
                shall not include the portion of any 
                remuneration paid to a licensed medical 
                professional (including a veterinarian) which 
                is for the performance of medical or veterinary 
                services by such professional.
            ``(4) Remuneration from related organizations.--
                    ``(A) In general.--Remuneration of a 
                covered employee 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 which control the organization,
                            ``(iii) is a supported organization 
                        (as defined in section 509(f)(3)) 
                        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 which is a voluntary 
                        employees' beneficiary association 
                        described in section 501(c)(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 of 
        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.
                    ``(C) Exception.--Such term does not 
                include any payment--
                            ``(i) described in section 
                        280G(b)(6) (relating to exemption for 
                        payments under qualified plans),
                            ``(ii) made under or to an annuity 
                        contract described in section 403(b) or 
                        a plan described in section 457(b),
                            ``(iii) to a licensed medical 
                        professional (including a veterinarian) 
                        to the extent that such payment is for 
                        the performance of medical or 
                        veterinary services by such 
                        professional, or
                            ``(iv) to an individual who is not 
                        a highly compensated employee as 
                        defined in section 414(q).
                    ``(D) Base amount.--Rules similar to the 
                rules of 280G(b)(3) shall apply for purposes of 
                determining the base amount.
                    ``(E) 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 tax 
under this section, including regulations to prevent avoidance 
of such tax through the performance of services other than as 
an employee or by providing compensation through a pass-through 
or other entity to avoid such tax.''.
    (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 tax-exempt organization executive 
          compensation.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13603. TREATMENT OF QUALIFIED EQUITY GRANTS.

    (a) In General.--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--
                    ``(A) Timing of inclusion.--If qualified 
                stock is transferred to a qualified employee 
                who makes an election with respect to such 
                stock under this subsection, subsection (a) 
                shall be applied by including the amount 
                determined under such subsection with respect 
                to such stock in income of the employee in the 
                taxable year determined under subparagraph (B) 
                in lieu of the taxable year described in 
                subsection (a).
                    ``(B) Taxable year determined.--The taxable 
                year determined under this subparagraph is the 
                taxable year of the employee which includes the 
                earliest of--
                            ``(i) the first date such qualified 
                        stock becomes transferable (including, 
                        solely for purposes of this clause, 
                        becoming 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 provides) 
                        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 granted 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 are granted 
                                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 made in a 
                                similar manner as 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 are 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 is a 1-percent owner 
                        (within the meaning of section 
                        416(i)(1)(B)(ii)) at any time during 
                        the calendar year or who was such a 1 
                        percent owner 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 is one of the 4 highest 
                        compensated officers of such 
                        corporation for the taxable year, or 
                        was one of the 4 highest compensated 
                        officers of such corporation for any of 
                        the 10 preceding taxable years, 
                        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 date 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 date 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 
                        subparagraph (B)(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 requires for purposes of 
                        administering this paragraph.
            ``(5) Controlled groups.--For purposes of this 
        subsection, all persons treated as a single employer 
        under section 414(b) shall be treated as 1 corporation.
            ``(6) Notice requirement.--Any corporation which 
        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 be 
                        eligible to 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.''.
    (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)(2)) 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 is amended--
                            (i) in subsection (b)(5), by 
                        striking ``and'' before ``the plan'' 
                        and by inserting ``, and the rules of 
                        section 83(i) shall apply in 
                        determining which employees have a 
                        right to make an election under such 
                        section'' before the semicolon at the 
                        end, and
                            (ii) by adding at the end the 
                        following new subsection:
    ``(d) Coordination With Qualified Equity Grants.--An option 
for which an election is made under section 83(i) with respect 
to the stock received in connection with its exercise shall not 
be considered as granted pursuant an employee stock purchase 
plan.''.
            (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 with respect to 
        such employee solely because of such 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 (14)(B), by striking 
the period at the end of paragraph (15) and inserting a comma, 
and by inserting after paragraph (15) the following new 
paragraphs:
            ``(16) the amount includible in gross income under 
        subparagraph (A) of section 83(i)(1) with respect to an 
        event described in subparagraph (B) of such section 
        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:
    ``(p) 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) issues 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.

SEC. 13604. INCREASE IN EXCISE TAX RATE FOR STOCK COMPENSATION OF 
                    INSIDERS IN EXPATRIATED CORPORATIONS.

    (a) In General.--Section 4985(a)(1) is amended by striking 
``section 1(h)(1)(C)'' and inserting ``section 1(h)(1)(D)''.
    (b) Effective Date.--The amendment made by this section 
shall apply to corporations first becoming expatriated 
corporations (as defined in section 4985 of the Internal 
Revenue Code of 1986) after the date of enactment of this Act.

                      Subpart B--Retirement Plans

SEC. 13611. REPEAL OF SPECIAL RULE PERMITTING RECHARACTERIZATION OF 
                    ROTH CONVERSIONS.

    (a) In General.--Section 408A(d)(6)(B) is amended by adding 
at the end the following new clause:
                            ``(iii) Conversions.--Subparagraph 
                        (A) shall not apply in the case of a 
                        qualified rollover contribution to 
                        which subsection (d)(3) applies 
                        (including by reason of subparagraph 
                        (C) thereof).''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13612. MODIFICATION OF RULES APPLICABLE TO LENGTH OF SERVICE AWARD 
                    PLANS.

    (a) Maximum Deferral Amount.--Clause (ii) of section 
457(e)(11)(B) is amended by striking ``$3,000'' and inserting 
``$6,000''.
    (b) Cost of Living Adjustment.--Subparagraph (B) of section 
457(e)(11) is amended by adding at the end the following:
                            ``(iii) Cost of living 
                        adjustment.--In the case of taxable 
                        years beginning after December 31, 
                        2017, the Secretary shall adjust the 
                        $6,000 amount under clause (ii) at the 
                        same time and in the same manner as 
                        under section 415(d), except that the 
                        base period shall be the calendar 
                        quarter beginning July 1, 2016, and any 
                        increase under this paragraph that is 
                        not a multiple of $500 shall be rounded 
                        to the next lowest multiple of $500.''.
    (c) Application of Limitation on Accruals.--Subparagraph 
(B) of section 457(e)(11), as amended by subsection (b), is 
amended by adding at the end the following:
                            ``(iv) Special rule for application 
                        of limitation on accruals for certain 
                        plans.--In the case of a plan described 
                        in subparagraph (A)(ii) which is a 
                        defined benefit plan (as defined in 
                        section 414(j)), the limitation under 
                        clause (ii) shall apply to the 
                        actuarial present value of the 
                        aggregate amount of length of service 
                        awards accruing with respect to any 
                        year of service. Such actuarial present 
                        value with respect to any year shall be 
                        calculated using reasonable actuarial 
                        assumptions and methods, assuming 
                        payment will be made under the most 
                        valuable form of payment under the plan 
                        with payment commencing at the later of 
                        the earliest age at which unreduced 
                        benefits are payable under the plan or 
                        the participant's age at the time of 
                        the calculation.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 13613. EXTENDED ROLLOVER PERIOD FOR PLAN LOAN OFFSET AMOUNTS.

    (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 
                                severance from employment of 
                                the participant.
                            ``(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 Amendments.--Section 402(c)(3) is amended--
            (1) by striking ``Transfer must be made within 60 
        days of receipt'' in the heading and inserting ``Time 
        limit on transfers'', and
            (2) by striking ``subparagraph (B)'' in 
        subparagraph (A) and inserting ``subparagraphs (B) and 
        (C)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan loan offset amounts which are treated as 
distributed in taxable years beginning after December 31, 2017.

                    PART VIII--EXEMPT ORGANIZATIONS

SEC. 13701. 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. 4968. Excise tax based on investment income of private colleges 
          and universities.

``SEC. 4968. 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(f)(2))--
                    ``(A) which had at least 500 tuition-paying 
                students during the preceding taxable year,
                    ``(B) more than 50 percent of the tuition-
                paying students of which are located in the 
                United States,
                    ``(C) which is not described in the first 
                sentence of section 511(a)(2)(B) (relating to 
                State colleges and universities), and
                    ``(D) 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 $500,000 per 
                student of the institution.
            ``(2) Students.--For purposes of paragraph (1), the 
        number of students of an institution (including for 
        purposes of determining the number of students at a 
        particular location) 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), assets and net investment income of 
        any related organization with respect to an educational 
        institution shall be treated as assets and net 
        investment income, respectively, of the educational 
        institution, except that--
                    ``(A) no such amount shall be taken into 
                account with respect to more than 1 educational 
                institution, and
                    ``(B) unless such organization is 
                controlled by such institution or is described 
                in section 509(a)(3) with respect to such 
                institution for the taxable year, assets and 
                net investment income which are not intended or 
                available for the use or benefit of the 
                educational institution shall not be taken into 
                account.
            ``(2) Related organization.--For purposes of this 
        subsection, the term `related organization' means, with 
        respect to an educational institution, any organization 
        which--
                    ``(A) controls, or is controlled by, such 
                institution,
                    ``(B) is controlled by 1 or more persons 
                which also 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. 13702. UNRELATED BUSINESS TAXABLE INCOME SEPARATELY COMPUTED FOR 
                    EACH TRADE OR BUSINESS ACTIVITY.

    (a) In General.--Subsection (a) of section 512 is amended 
by adding at the end the following new paragraph:
            ``(6) Special rule for organization with more than 
        1 unrelated trade or business.--In the case of any 
        organization with more than 1 unrelated trade or 
        business--
                    ``(A) unrelated business taxable income, 
                including for purposes of determining any net 
                operating loss deduction, shall be computed 
                separately with respect to each such trade or 
                business and without regard to subsection 
                (b)(12),
                    ``(B) the unrelated business taxable income 
                of such organization shall be the sum of the 
                unrelated business taxable income so computed 
                with respect to each such trade or business, 
                less a specific deduction under subsection 
                (b)(12), and
                    ``(C) for purposes of subparagraph (B), 
                unrelated business taxable income with respect 
                to any such trade or business shall not be less 
                than zero.''.
    (b) Effective Date.--
            (1) In general.--Except to the extent provided in 
        paragraph (2), the amendment made by this section shall 
        apply to taxable years beginning after December 31, 
        2017.
            (2) Carryovers of net operating losses.--If any net 
        operating loss arising in a taxable year beginning 
        before January 1, 2018, is carried over to a taxable 
        year beginning on or after such date--
                    (A) subparagraph (A) of section 512(a)(6) 
                of the Internal Revenue Code of 1986, as added 
                by this Act, shall not apply to such net 
                operating loss, and
                    (B) the unrelated business taxable income 
                of the organization, after the application of 
                subparagraph (B) of such section, shall be 
                reduced by the amount of such net operating 
                loss.

SEC. 13703. UNRELATED BUSINESS TAXABLE INCOME INCREASED BY AMOUNT OF 
                    CERTAIN FRINGE BENEFIT EXPENSES FOR WHICH DEDUCTION 
                    IS DISALLOWED.

    (a) In General.--Section 512(a), as amended by this Act, is 
further amended by adding at the end the following new 
paragraph:
            ``(7) 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 
        shall 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. 13704. REPEAL OF DEDUCTION FOR AMOUNTS PAID IN EXCHANGE FOR 
                    COLLEGE ATHLETIC EVENT SEATING RIGHTS.

    (a) In General.--Section 170(l) is amended--
            (1) by striking paragraph (1) and inserting the 
        following:
            ``(1) In general.--No deduction shall be allowed 
        under this section for any amount described in 
        paragraph (2).'', and
            (2) in paragraph (2)(B), by striking ``such amount 
        would be allowable as a deduction under this section 
        but for the fact that''.
    (b) Effective Date.--The amendments made by this section 
shall apply to contributions made in taxable years beginning 
after December 31, 2017.

SEC. 13705. REPEAL OF SUBSTANTIATION EXCEPTION IN CASE OF CONTRIBUTIONS 
                    REPORTED BY DONEE.

    (a) In General.--Section 170(f)(8) is amended by striking 
subparagraph (D) and by redesignating subparagraph (E) as 
subparagraph (D).
    (b) Effective Date.--The amendments made by this section 
shall apply to contributions made in taxable years beginning 
after December 31, 2016.

                       PART IX--OTHER PROVISIONS

         Subpart A--Craft Beverage Modernization and Tax Reform

SEC. 13801. PRODUCTION PERIOD FOR BEER, WINE, AND DISTILLED SPIRITS.

    (a) In General.--Section 263A(f) is amended--
            (1) by redesignating paragraph (4) as paragraph 
        (5), and
            (2) by inserting after paragraph (3) the following 
        new paragraph:
            ``(4) Exemption for aging process of beer, wine, 
        and distilled spirits.--
                    ``(A) In general.--For purposes of this 
                subsection, the production period shall not 
                include the aging period for--
                            ``(i) beer (as defined in section 
                        5052(a)),
                            ``(ii) wine (as described in 
                        section 5041(a)), or
                            ``(iii) distilled spirits (as 
                        defined in section 5002(a)(8)), except 
                        such spirits that are unfit for use for 
                        beverage purposes.
                    ``(B) Termination.--This paragraph shall 
                not apply to interest costs paid or accrued 
                after December 31, 2019.''.
    (b) Conforming Amendment.--Paragraph (5)(B)(ii) of section 
263A(f), as redesignated by this section, is amended by 
inserting ``except as provided in paragraph (4),'' before 
``ending on the date''.
    (c) Effective Date.--The amendments made by this section 
shall apply to interest costs paid or accrued in calendar years 
beginning after December 31, 2017.

SEC. 13802. REDUCED RATE OF EXCISE TAX ON BEER.

    (a) In General.--Paragraph (1) of section 5051(a) is 
amended to read as follows:
            ``(1) In general.--
                    ``(A) Imposition of tax.--A tax is hereby 
                imposed on all beer brewed or produced, and 
                removed for consumption or sale, within the 
                United States, or imported into the United 
                States. Except as provided in paragraph (2), 
                the rate of such tax shall be the amount 
                determined under this paragraph.
                    ``(B) Rate.--Except as provided in 
                subparagraph (C), the rate of tax shall be $18 
                for per barrel.
                    ``(C) Special rule.--In the case of beer 
                removed after December 31, 2017, and before 
                January 1, 2020, the rate of tax shall be--
                            ``(i) $16 on the first 6,000,000 
                        barrels of beer--
                                    ``(I) brewed by the brewer 
                                and removed during the calendar 
                                year for consumption or sale, 
                                or
                                    ``(II) imported by the 
                                importer into the United States 
                                during the calendar year, and
                            ``(ii) $18 on any barrels of beer 
                        to which clause (i) does not apply.
                    ``(D) Barrel.--For purposes of this 
                section, a barrel shall contain not more than 
                31 gallons of beer, and any tax imposed under 
                this section shall be applied at a like rate 
                for any other quantity or for fractional parts 
                of a barrel.''.
    (b) Reduced Rate for Certain Domestic Production.--
Subparagraph (A) of section 5051(a)(2) is amended--
            (1) in the heading, by striking ``$7 a barrel'', 
        and
            (2) by inserting ``($3.50 in the case of beer 
        removed after December 31, 2017, and before January 1, 
        2020)'' after ``$7''.
    (c) Application of Reduced Tax Rate for Foreign 
Manufacturers and Importers.--Subsection (a) of section 5051 is 
amended--
            (1) in subparagraph (C)(i)(II) of paragraph (1), as 
        amended by subsection (a), by inserting ``but only if 
        the importer is an electing importer under paragraph 
        (4) and the barrels have been assigned to the importer 
        pursuant to such paragraph'' after ``during the 
        calendar year'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(4) Reduced tax rate for foreign manufacturers 
        and importers.--
                    ``(A) In general.--In the case of any 
                barrels of beer which have been brewed or 
                produced outside of the United States and 
                imported into the United States, the rate of 
                tax applicable under clause (i) of paragraph 
                (1)(C) (referred to in this paragraph as the 
                `reduced tax rate') may be assigned by the 
                brewer (provided that the brewer makes an 
                election described in subparagraph (B)(ii)) to 
                any electing importer of such barrels pursuant 
                to the requirements established by the 
                Secretary under subparagraph (B).
                    ``(B) Assignment.--The Secretary shall, 
                through such rules, regulations, and procedures 
                as are determined appropriate, establish 
                procedures for assignment of the reduced tax 
                rate provided under this paragraph, which shall 
                include--
                            ``(i) a limitation to ensure that 
                        the number of barrels of beer for which 
                        the reduced tax rate has been assigned 
                        by a brewer--
                                    ``(I) to any importer does 
                                not exceed the number of 
                                barrels of beer brewed or 
                                produced by such brewer during 
                                the calendar year which were 
                                imported into the United States 
                                by such importer, and
                                    ``(II) to all importers 
                                does not exceed the 6,000,000 
                                barrels to which the reduced 
                                tax rate applies,
                            ``(ii) procedures that allow the 
                        election of a brewer to assign and an 
                        importer to receive the reduced tax 
                        rate provided under this paragraph,
                            ``(iii) requirements that the 
                        brewer provide any information as the 
                        Secretary determines necessary and 
                        appropriate for purposes of carrying 
                        out this paragraph, and
                            ``(iv) procedures that allow for 
                        revocation of eligibility of the brewer 
                        and the importer for the reduced tax 
                        rate provided under this paragraph in 
                        the case of any erroneous or fraudulent 
                        information provided under clause (iii) 
                        which the Secretary deems to be 
                        material to qualifying for such reduced 
                        rate.
                    ``(C) Controlled group.--For purposes of 
                this section, any importer making an election 
                described in subparagraph (B)(ii) shall be 
                deemed to be a member of the controlled group 
                of the brewer, as described under paragraph 
                (5).''.
    (d) Controlled Group and Single Taxpayer Rules.--Subsection 
(a) of section 5051, as amended by this section, is amended--
            (1) in paragraph (2)--
                    (A) by striking subparagraph (B), and
                    (B) by redesignating subparagraph (C) as 
                subparagraph (B), and
            (2) by adding at the end the following new 
        paragraph:
            ``(5) Controlled group and single taxpayer rules.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), in the case of a controlled 
                group, the 6,000,000 barrel quantity specified 
                in paragraph (1)(C)(i) and the 2,000,000 barrel 
                quantity specified in paragraph (2)(A) shall be 
                applied to the controlled group, and the 
                6,000,000 barrel quantity specified in 
                paragraph (1)(C)(i) and the 60,000 barrel 
                quantity specified in paragraph (2)(A) shall be 
                apportioned among the brewers who are members 
                of such group in such manner as the Secretary 
                or their delegate shall by regulations 
                prescribe. For purposes of the preceding 
                sentence, the term `controlled group' has the 
                meaning assigned to it by subsection (a) of 
                section 1563, except that for such purposes the 
                phrase `more than 50 percent' shall be 
                substituted for the phrase `at least 80 
                percent' in each place it appears in such 
                subsection. Under regulations prescribed by the 
                Secretary, principles similar to the principles 
                of the preceding two sentences shall be applied 
                to a group of brewers under common control 
                where one or more of the brewers is not a 
                corporation.
                    ``(B) Foreign manufacturers and 
                importers.--For purposes of paragraph (4), in 
                the case of a controlled group, the 6,000,000 
                barrel quantity specified in paragraph 
                (1)(C)(i) shall be applied to the controlled 
                group and apportioned among the members of such 
                group in such manner as the Secretary shall by 
                regulations prescribe. For purposes of the 
                preceding sentence, the term `controlled group' 
                has the meaning given such term under 
                subparagraph (A). Under regulations prescribed 
                by the Secretary, principles similar to the 
                principles of the preceding two sentences shall 
                be applied to a group of brewers under common 
                control where one or more of the brewers is not 
                a corporation.
                    ``(C) Single taxpayer.--Pursuant to rules 
                issued by the Secretary, two or more entities 
                (whether or not under common control) that 
                produce beer marketed under a similar brand, 
                license, franchise, or other arrangement shall 
                be treated as a single taxpayer for purposes of 
                the application of this subsection.''.
    (e) Effective Date.--The amendments made by this section 
shall apply to beer removed after December 31, 2017.

SEC. 13803. TRANSFER OF BEER BETWEEN BONDED FACILITIES.

    (a) In General.--Section 5414 is amended--
            (1) by striking ``Beer may be removed'' and 
        inserting ``(a) In General--Beer may be removed'', and
            (2) by adding at the end the following:
    ``(b) Transfer of Beer Between Bonded Facilities.--
            ``(1) In general.--Beer may be removed from one 
        bonded brewery to another bonded brewery, without 
        payment of tax, and may be mingled with beer at the 
        receiving brewery, subject to such conditions, 
        including payment of the tax, and in such containers, 
        as the Secretary by regulations shall prescribe, which 
        shall include--
                    ``(A) any removal from one brewery to 
                another brewery belonging to the same brewer,
                    ``(B) any removal from a brewery owned by 
                one corporation to a brewery owned by another 
                corporation when--
                            ``(i) one such corporation owns the 
                        controlling interest in the other such 
                        corporation, or
                            ``(ii) the controlling interest in 
                        each such corporation is owned by the 
                        same person or persons, and
                    ``(C) any removal from one brewery to 
                another brewery when--
                            ``(i) the proprietors of 
                        transferring and receiving premises are 
                        independent of each other and neither 
                        has a proprietary interest, directly or 
                        indirectly, in the business of the 
                        other, and
                            ``(ii) the transferor has divested 
                        itself of all interest in the beer so 
                        transferred and the transferee has 
                        accepted responsibility for payment of 
                        the tax.
            ``(2) Transfer of liability for tax.--For purposes 
        of paragraph (1)(C), such relief from liability shall 
        be effective from the time of removal from the 
        transferor's bonded premises, or from the time of 
        divestment of interest, whichever is later.
            ``(3) Termination.--This subsection shall not apply 
        to any calendar quarter beginning after December 31, 
        2019.''.
    (b) Removal From Brewery by Pipeline.--Section 5412 is 
amended by inserting ``pursuant to section 5414 or'' before 
``by pipeline''.
    (c) Effective Date.--The amendments made by this section 
shall apply to any calendar quarters beginning after December 
31, 2017.

SEC. 13804. REDUCED RATE OF EXCISE TAX ON CERTAIN WINE.

    (a) In General.--Section 5041(c) is amended by adding at 
the end the following new paragraph:
            ``(8) Special rule for 2018 and 2019.--
                    ``(A) In general.--In the case of wine 
                removed after December 31, 2017, and before 
                January 1, 2020, paragraphs (1) and (2) shall 
                not apply and there shall be allowed as a 
                credit against any tax imposed by this title 
                (other than chapters 2, 21, and 22) an amount 
                equal to the sum of--
                            ``(i) $1 per wine gallon on the 
                        first 30,000 wine gallons of wine, plus
                            ``(ii) 90 cents per wine gallon on 
                        the first 100,000 wine gallons of wine 
                        to which clause (i) does not apply, 
                        plus
                            ``(iii) 53.5 cents per wine gallon 
                        on the first 620,000 wine gallons of 
                        wine to which clauses (i) and (ii) do 
                        not apply,
                which are produced by the producer and removed 
                during the calendar year for consumption or 
                sale, or which are imported by the importer 
                into the United States during the calendar 
                year.
                    ``(B) Adjustment of credit for hard 
                cider.--In the case of wine described in 
                subsection (b)(6), subparagraph (A) of this 
                paragraph shall be applied--
                            ``(i) in clause (i) of such 
                        subparagraph, by substituting `6.2 
                        cents' for `$1',
                            ``(ii) in clause (ii) of such 
                        subparagraph, by substituting `5.6 
                        cents' for `90 cents', and
                            ``(iii) in clause (iii) of such 
                        subparagraph, by substituting `3.3 
                        cents' for `53.5 cents'.'',
    (b) Controlled Group and Single Taxpayer Rules.--Paragraph 
(4) of section 5041(c) is amended by striking ``section 
5051(a)(2)(B)'' and inserting ``section 5051(a)(5)''.
    (c) Allowance of Credit for Foreign Manufacturers and 
Importers.--Subsection (c) of section 5041, as amended by 
subsection (a), is amended--
            (1) in subparagraph (A) of paragraph (8), by 
        inserting ``but only if the importer is an electing 
        importer under paragraph (9) and the wine gallons of 
        wine have been assigned to the importer pursuant to 
        such paragraph'' after ``into the United States during 
        the calendar year'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(9) Allowance of credit for foreign manufacturers 
        and importers.--
                    ``(A) In general.--In the case of any wine 
                gallons of wine which have been produced 
                outside of the United States and imported into 
                the United States, the credit allowable under 
                paragraph (8) (referred to in this paragraph as 
                the `tax credit') may be assigned by the person 
                who produced such wine (referred to in this 
                paragraph as the `foreign producer'), provided 
                that such person makes an election described in 
                subparagraph (B)(ii), to any electing importer 
                of such wine gallons pursuant to the 
                requirements established by the Secretary under 
                subparagraph (B).
                    ``(B) Assignment.--The Secretary shall, 
                through such rules, regulations, and procedures 
                as are determined appropriate, establish 
                procedures for assignment of the tax credit 
                provided under this paragraph, which shall 
                include--
                            ``(i) a limitation to ensure that 
                        the number of wine gallons of wine for 
                        which the tax credit has been assigned 
                        by a foreign producer--
                                    ``(I) to any importer does 
                                not exceed the number of wine 
                                gallons of wine produced by 
                                such foreign producer during 
                                the calendar year which were 
                                imported into the United States 
                                by such importer, and
                                    ``(II) to all importers 
                                does not exceed the 750,000 
                                wine gallons of wine to which 
                                the tax credit applies,
                            ``(ii) procedures that allow the 
                        election of a foreign producer to 
                        assign and an importer to receive the 
                        tax credit provided under this 
                        paragraph,
                            ``(iii) requirements that the 
                        foreign producer provide any 
                        information as the Secretary determines 
                        necessary and appropriate for purposes 
                        of carrying out this paragraph, and
                            ``(iv) procedures that allow for 
                        revocation of eligibility of the 
                        foreign producer and the importer for 
                        the tax credit provided under this 
                        paragraph in the case of any erroneous 
                        or fraudulent information provided 
                        under clause (iii) which the Secretary 
                        deems to be material to qualifying for 
                        such credit.
                    ``(C) Controlled group.--For purposes of 
                this section, any importer making an election 
                described in subparagraph (B)(ii) shall be 
                deemed to be a member of the controlled group 
                of the foreign producer, as described under 
                paragraph (4).''.
    (d) Effective Date.--The amendments made by this section 
shall apply to wine removed after December 31, 2017.

SEC. 13805. ADJUSTMENT OF ALCOHOL CONTENT LEVEL FOR APPLICATION OF 
                    EXCISE TAX RATES.

    (a) In General.--Paragraphs (1) and (2) of section 5041(b) 
are each amended by inserting ``(16 percent in the case of wine 
removed after December 31, 2017, and before January 1, 2020'' 
after ``14 percent''.
    (b) Effective Date.--The amendments made by this section 
shall apply to wine removed after December 31, 2017.

SEC. 13806. DEFINITION OF MEAD AND LOW ALCOHOL BY VOLUME WINE.

    (a) In General.--Section 5041 is amended--
            (1) in subsection (a), by striking ``Still wines'' 
        and inserting ``Subject to subsection (h), still 
        wines'', and
            (2) by adding at the end the following new 
        subsection:
    ``(h) Mead and Low Alcohol by Volume Wine.--
            ``(1) In general.--For purposes of subsections (a) 
        and (b)(1), mead and low alcohol by volume wine shall 
        be deemed to be still wines containing not more than 16 
        percent of alcohol by volume.
            ``(2) Definitions.--
                    ``(A) Mead.--For purposes of this section, 
                the term `mead' means a wine--
                            ``(i) containing not more than 0.64 
                        gram of carbon dioxide per hundred 
                        milliliters of wine, except that the 
                        Secretary shall by regulations 
                        prescribe such tolerances to this 
                        limitation as may be reasonably 
                        necessary in good commercial practice,
                            ``(ii) which is derived solely from 
                        honey and water,
                            ``(iii) which contains no fruit 
                        product or fruit flavoring, and
                            ``(iv) which contains less than 8.5 
                        percent alcohol by volume.
                    ``(B) Low alcohol by volume wine.--For 
                purposes of this section, the term `low alcohol 
                by volume wine' means a wine--
                            ``(i) containing not more than 0.64 
                        gram of carbon dioxide per hundred 
                        milliliters of wine, except that the 
                        Secretary shall by regulations 
                        prescribe such tolerances to this 
                        limitation as may be reasonably 
                        necessary in good commercial practice,
                            ``(ii) which is derived--
                                    ``(I) primarily from 
                                grapes, or
                                    ``(II) from grape juice 
                                concentrate and water,
                            ``(iii) which contains no fruit 
                        product or fruit flavoring other than 
                        grape, and
                            ``(iv) which contains less than 8.5 
                        percent alcohol by volume.
            ``(3) Termination.--This subsection shall not apply 
        to wine removed after December 31, 2019.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to wine removed after December 31, 2017.

SEC. 13807. REDUCED RATE OF EXCISE TAX ON CERTAIN DISTILLED SPIRITS.

    (a) In General.--Section 5001 is amended by redesignating 
subsection (c) as subsection (d) and by inserting after 
subsection (b) the following new subsection:
    ``(c) Reduced Rate for 2018 and 2019.--
            ``(1) In general.--In the case of a distilled 
        spirits operation, the otherwise applicable tax rate 
        under subsection (a)(1) shall be--
                    ``(A) $2.70 per proof gallon on the first 
                100,000 proof gallons of distilled spirits, and
                    ``(B) $13.34 per proof gallon on the first 
                22,130,000 of proof gallons of distilled 
                spirits to which subparagraph (A) does not 
                apply,
        which have been distilled or processed by such 
        operation and removed during the calendar year for 
        consumption or sale, or which have been imported by the 
        importer into the United States during the calendar 
        year.
            ``(2) Controlled groups.--
                    ``(A) In general.--In the case of a 
                controlled group, the proof gallon quantities 
                specified under subparagraphs (A) and (B) of 
                paragraph (1) shall be applied to such group 
                and apportioned among the members of such group 
                in such manner as the Secretary or their 
                delegate shall by regulations prescribe.
                    ``(B) Definition.--For purposes of 
                subparagraph (A), the term `controlled group' 
                shall have the meaning given such term by 
                subsection (a) of section 1563, except that 
                `more than 50 percent' shall be substituted for 
                `at least 80 percent' each place it appears in 
                such subsection.
                    ``(C) Rules for non-corporations.--Under 
                regulations prescribed by the Secretary, 
                principles similar to the principles of 
                subparagraphs (A) and (B) shall be applied to a 
                group under common control where one or more of 
                the persons is not a corporation.
                    ``(D) Single taxpayer.--Pursuant to rules 
                issued by the Secretary, two or more entities 
                (whether or not under common control) that 
                produce distilled spirits marketed under a 
                similar brand, license, franchise, or other 
                arrangement shall be treated as a single 
                taxpayer for purposes of the application of 
                this subsection.
            ``(3) Termination.--This subsection shall not apply 
        to distilled spirits removed after December 31, 
        2019.''.
    (b) Conforming Amendment.--Section 7652(f)(2) is amended by 
striking ``section 5001(a)(1)'' and inserting ``subsection 
(a)(1) of section 5001, determined as if subsection (c)(1) of 
such section did not apply''.
    (c) Application of Reduced Tax Rate for Foreign 
Manufacturers and Importers.--Subsection (c) of section 5001, 
as added by subsection (a), is amended--
            (1) in paragraph (1), by inserting ``but only if 
        the importer is an electing importer under paragraph 
        (3) and the proof gallons of distilled spirits have 
        been assigned to the importer pursuant to such 
        paragraph'' after ``into the United States during the 
        calendar year'', and
            (2) by redesignating paragraph (3) as paragraph (4) 
        and by inserting after paragraph (2) the following new 
        paragraph:
            ``(3) Reduced tax rate for foreign manufacturers 
        and importers.--
                    ``(A) In general.--In the case of any proof 
                gallons of distilled spirits which have been 
                produced outside of the United States and 
                imported into the United States, the rate of 
                tax applicable under paragraph (1) (referred to 
                in this paragraph as the `reduced tax rate') 
                may be assigned by the distilled spirits 
                operation (provided that such operation makes 
                an election described in subparagraph (B)(ii)) 
                to any electing importer of such proof gallons 
                pursuant to the requirements established by the 
                Secretary under subparagraph (B).
                    ``(B) Assignment.--The Secretary shall, 
                through such rules, regulations, and procedures 
                as are determined appropriate, establish 
                procedures for assignment of the reduced tax 
                rate provided under this paragraph, which shall 
                include--
                            ``(i) a limitation to ensure that 
                        the number of proof gallons of 
                        distilled spirits for which the reduced 
                        tax rate has been assigned by a 
                        distilled spirits operation--
                                    ``(I) to any importer does 
                                not exceed the number of proof 
                                gallons produced by such 
                                operation during the calendar 
                                year which were imported into 
                                the United States by such 
                                importer, and
                                    ``(II) to all importers 
                                does not exceed the 22,230,000 
                                proof gallons of distilled 
                                spirits to which the reduced 
                                tax rate applies,
                            ``(ii) procedures that allow the 
                        election of a distilled spirits 
                        operation to assign and an importer to 
                        receive the reduced tax rate provided 
                        under this paragraph,
                            ``(iii) requirements that the 
                        distilled spirits operation provide any 
                        information as the Secretary determines 
                        necessary and appropriate for purposes 
                        of carrying out this paragraph, and
                            ``(iv) procedures that allow for 
                        revocation of eligibility of the 
                        distilled spirits operation and the 
                        importer for the reduced tax rate 
                        provided under this paragraph in the 
                        case of any erroneous or fraudulent 
                        information provided under clause (iii) 
                        which the Secretary deems to be 
                        material to qualifying for such reduced 
                        rate.
                    ``(C) Controlled group.--
                            ``(i) In general.--For purposes of 
                        this section, any importer making an 
                        election described in subparagraph 
                        (B)(ii) shall be deemed to be a member 
                        of the controlled group of the 
                        distilled spirits operation, as 
                        described under paragraph (2).
                            ``(ii) Apportionment.--For purposes 
                        of this paragraph, in the case of a 
                        controlled group, rules similar to 
                        section 5051(a)(5)(B) shall apply.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to distilled spirits removed after December 31, 
2017.

SEC. 13808. BULK DISTILLED SPIRITS.

    (a) In General.--Section 5212 is amended by adding at the 
end the following sentence: ``In the case of distilled spirits 
transferred in bond after December 31, 2017, and before January 
1, 2020, this section shall be applied without regard to 
whether distilled spirits are bulk distilled spirits.''.
    (b) Effective Date.--The amendments made by this section 
shall apply distilled spirits transferred in bond after 
December 31, 2017.

                  Subpart B--Miscellaneous Provisions

SEC. 13821. MODIFICATION OF TAX TREATMENT OF ALASKA NATIVE CORPORATIONS 
                    AND SETTLEMENT TRUSTS.

    (a) Exclusion for ANCSA Payments Assigned to Alaska Native 
Settlement Trusts.--
            (1) In general.--Part III of subchapter B of 
        chapter 1 is amended by inserting before section 140 
        the following new section:

``SEC. 139G. ASSIGNMENTS TO ALASKA NATIVE SETTLEMENT TRUSTS.

    ``(a) In General.--In the case of a Native Corporation, 
gross income shall not include the value of any payments that 
would otherwise be made, or treated as being made, to such 
Native Corporation pursuant to, or as required by, any 
provision of the Alaska Native Claims Settlement Act (43 U.S.C. 
1601 et seq.), including any payment that would otherwise be 
made to a Village Corporation pursuant to section 7(j) of the 
Alaska Native Claims Settlement Act (43 U.S.C. 1606(j)), 
provided that any such payments--
            ``(1) are assigned in writing to a Settlement 
        Trust, and
            ``(2) were not received by such Native Corporation 
        prior to the assignment described in paragraph (1).
    ``(b) Inclusion in Gross Income.--In the case of a 
Settlement Trust which has been assigned payments described in 
subsection (a), gross income shall include such payments when 
received by such Settlement Trust pursuant to the assignment 
and shall have the same character as if such payments were 
received by the Native Corporation.
    ``(c) Amount and Scope of Assignment.--The amount and scope 
of any assignment under subsection (a) shall be described with 
reasonable particularity and may either be in a percentage of 
one or more such payments or in a fixed dollar amount.
    ``(d) Duration of Assignment; Revocability.--Any assignment 
under subsection (a) shall specify--
            ``(1) a duration either in perpetuity or for a 
        period of time, and
            ``(2) whether such assignment is revocable.
    ``(e) Prohibition on Deduction.--Notwithstanding section 
247, no deduction shall be allowed to a Native Corporation for 
purposes of any amounts described in subsection (a).
    ``(f) Definitions.--For purposes of this section, the terms 
`Native Corporation' and `Settlement Trust' have the same 
meaning given such terms under section 646(h).''.
            (2) Conforming amendment.--The table of sections 
        for part III of subchapter B of chapter 1 is amended by 
        inserting before the item relating to section 140 the 
        following new item:

``Sec. 139G. Assignments to Alaska Native Settlement Trusts.''.

            (3) Effective date.--The amendments made by this 
        subsection shall apply to taxable years beginning after 
        December 31, 2016.
    (b) Deduction of Contributions to Alaska Native Settlement 
Trusts.--
            (1) In general.--Part VIII of subchapter B of 
        chapter 1 is amended by inserting before section 248 
        the following new section:

``SEC. 247. CONTRIBUTIONS TO ALASKA NATIVE SETTLEMENT TRUSTS.

    ``(a) In General.--In the case of a Native Corporation, 
there shall be allowed a deduction for any contributions made 
by such Native Corporation to a Settlement Trust (regardless of 
whether an election under section 646 is in effect for such 
Settlement Trust) for which the Native Corporation has made an 
annual election under subsection (e).
    ``(b) Amount of Deduction.--The amount of the deduction 
under subsection (a) shall be equal to--
            ``(1) in the case of a cash contribution 
        (regardless of the method of payment, including 
        currency, coins, money order, or check), the amount of 
        such contribution, or
            ``(2) in the case of a contribution not described 
        in paragraph (1), the lesser of--
                    ``(A) the Native Corporation's adjusted 
                basis in the property contributed, or
                    ``(B) the fair market value of the property 
                contributed.
    ``(c) Limitation and Carryover.--
            ``(1) In general.--Subject to paragraph (2), the 
        deduction allowed under subsection (a) for any taxable 
        year shall not exceed the taxable income (as determined 
        without regard to such deduction) of the Native 
        Corporation for the taxable year in which the 
        contribution was made.
            ``(2) Carryover.--If the aggregate amount of 
        contributions described in subsection (a) for any 
        taxable year exceeds the limitation under paragraph 
        (1), such excess shall be treated as a contribution 
        described in subsection (a) in each of the 15 
        succeeding years in order of time.
    ``(d) Definitions.--For purposes of this section, the terms 
`Native Corporation' and `Settlement Trust' have the same 
meaning given such terms under section 646(h).
    ``(e) Manner of Making Election.--
            ``(1) In general.--For each taxable year, a Native 
        Corporation may elect to have this section apply for 
        such taxable year on the income tax return or an 
        amendment or supplement to the return of the Native 
        Corporation, with such election to have effect solely 
        for such taxable year.
            ``(2) Revocation.--Any election made by a Native 
        Corporation pursuant to this subsection may be revoked 
        pursuant to a timely filed amendment or supplement to 
        the income tax return of such Native Corporation.
    ``(f) Additional Rules.--
            ``(1) Earnings and profits.--Notwithstanding 
        section 646(d)(2), in the case of a Native Corporation 
        which claims a deduction under this section for any 
        taxable year, the earnings and profits of such Native 
        Corporation for such taxable year shall be reduced by 
        the amount of such deduction.
            ``(2) Gain or loss.--No gain or loss shall be 
        recognized by the Native Corporation with respect to a 
        contribution of property for which a deduction is 
        allowed under this section.
            ``(3) Income.--Subject to subsection (g), a 
        Settlement Trust shall include in income the amount of 
        any deduction allowed under this section in the taxable 
        year in which the Settlement Trust actually receives 
        such contribution.
            ``(4) Period.--The holding period under section 
        1223 of the Settlement Trust shall include the period 
        the property was held by the Native Corporation.
            ``(5) Basis.--The basis that a Settlement Trust has 
        for which a deduction is allowed under this section 
        shall be equal to the lesser of--
                    ``(A) the adjusted basis of the Native 
                Corporation in such property immediately before 
                such contribution, or
                    ``(B) the fair market value of the property 
                immediately before such contribution.
            ``(6) Prohibition.--No deduction shall be allowed 
        under this section with respect to any contributions 
        made to a Settlement Trust which are in violation of 
        subsection (a)(2) or (c)(2) of section 39 of the Alaska 
        Native Claims Settlement Act (43 U.S.C. 1629e).
    ``(g) Election by Settlement Trust to Defer Income 
Recognition.--
            ``(1) In general.--In the case of a contribution 
        which consists of property other than cash, a 
        Settlement Trust may elect to defer recognition of any 
        income related to such property until the sale or 
        exchange of such property, in whole or in part, by the 
        Settlement Trust.
            ``(2) Treatment.--In the case of property described 
        in paragraph (1), any income or gain realized on the 
        sale or exchange of such property shall be treated as--
                    ``(A) for such amount of the income or gain 
                as is equal to or less than the amount of 
                income which would be included in income at the 
                time of contribution under subsection (f)(3) 
                but for the taxpayer's election under this 
                subsection, ordinary income, and
                    ``(B) for any amounts of the income or gain 
                which are in excess of the amount of income 
                which would be included in income at the time 
                of contribution under subsection (f)(3) but for 
                the taxpayer's election under this subsection, 
                having the same character as if this subsection 
                did not apply.
            ``(3) Election.--
                    ``(A) In general.--For each taxable year, a 
                Settlement Trust may elect to apply this 
                subsection for any property described in 
                paragraph (1) which was contributed during such 
                year. Any property to which the election 
                applies shall be identified and described with 
                reasonable particularity on the income tax 
                return or an amendment or supplement to the 
                return of the Settlement Trust, with such 
                election to have effect solely for such taxable 
                year.
                    ``(B) Revocation.--Any election made by a 
                Settlement Trust pursuant to this subsection 
                may be revoked pursuant to a timely filed 
                amendment or supplement to the income tax 
                return of such Settlement Trust.
                    ``(C) Certain dispositions.--
                            ``(i) In general.--In the case of 
                        any property for which an election is 
                        in effect under this subsection and 
                        which is disposed of within the first 
                        taxable year subsequent to the taxable 
                        year in which such property was 
                        contributed to the Settlement Trust--
                                    ``(I) this section shall be 
                                applied as if the election 
                                under this subsection had not 
                                been made,
                                    ``(II) any income or gain 
                                which would have been included 
                                in the year of contribution 
                                under subsection (f)(3) but for 
                                the taxpayer's election under 
                                this subsection shall be 
                                included in income for the 
                                taxable year of such 
                                contribution, and
                                    ``(III) the Settlement 
                                Trust shall pay any increase in 
                                tax resulting from such 
                                inclusion, including any 
                                applicable interest, and 
                                increased by 10 percent of the 
                                amount of such increase with 
                                interest.
                            ``(ii) Assessment.--Notwithstanding 
                        section 6501(a), any amount described 
                        in subclause (III) of clause (i) may be 
                        assessed, or a proceeding in court with 
                        respect to such amount may be initiated 
                        without assessment, within 4 years 
                        after the date on which the return 
                        making the election under this 
                        subsection for such property was 
                        filed.''.
            (2) Conforming amendment.--The table of sections 
        for part VIII of subchapter B of chapter 1 is amended 
        by inserting before the item relating to section 248 
        the following new item:

``Sec. 247. Contributions to Alaska Native Settlement Trusts.''.

            (3) Effective date.--
                    (A) In general.--The amendments made by 
                this subsection shall apply to taxable years 
                for which the period of limitation on refund or 
                credit under section 6511 of the Internal 
                Revenue Code of 1986 has not expired.
                    (B) One-year waiver of statute of 
                limitations.--If the period of limitation on a 
                credit or refund resulting from the amendments 
                made by paragraph (1) expires before the end of 
                the 1-year period beginning on the date of the 
                enactment of this Act, refund or credit of such 
                overpayment (to the extent attributable to such 
                amendments) may, nevertheless, be made or 
                allowed if claim therefor is filed before the 
                close of such 1-year period.
    (c) Information Reporting for Deductible Contributions to 
Alaska Native Settlement Trusts.--
            (1) In general.--Section 6039H is amended--
                    (A) in the heading, by striking 
                ``sponsoring'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(e) Deductible Contributions by Native Corporations to 
Alaska Native Settlement Trusts.--
            ``(1) In general.--Any Native Corporation (as 
        defined in subsection (m) of section 3 of the Alaska 
        Native Claims Settlement Act (43 U.S.C. 1602(m))) which 
        has made a contribution to a Settlement Trust (as 
        defined in subsection (t) of such section) to which an 
        election under subsection (e) of section 247 applies 
        shall provide such Settlement Trust with a statement 
        regarding such election not later than January 31 of 
        the calendar year subsequent to the calendar year in 
        which the contribution was made.
            ``(2) Content of statement.--The statement 
        described in paragraph (1) shall include--
                    ``(A) the total amount of contributions to 
                which the election under subsection (e) of 
                section 247 applies,
                    ``(B) for each contribution, whether such 
                contribution was in cash,
                    ``(C) for each contribution which consists 
                of property other than cash, the date that such 
                property was acquired by the Native Corporation 
                and the adjusted basis and fair market value of 
                such property on the date such property was 
                contributed to the Settlement Trust,
                    ``(D) the date on which each contribution 
                was made to the Settlement Trust, and
                    ``(E) such information as the Secretary 
                determines to be necessary or appropriate for 
                the identification of each contribution and the 
                accurate inclusion of income relating to such 
                contributions by the Settlement Trust.''.
            (2) Conforming amendment.--The item relating to 
        section 6039H in the table of sections for subpart A of 
        part III of subchapter A of chapter 61 is amended to 
        read as follows:

``Sec. 6039H. Information With Respect to Alaska Native Settlement 
          Trusts and Native Corporations.''.

            (3) Effective date.--The amendments made by this 
        subsection shall apply to taxable years beginning after 
        December 31, 2016.

SEC. 13822. AMOUNTS PAID FOR AIRCRAFT MANAGEMENT SERVICES.

    (a) In General.--Subsection (e) of section 4261 is amended 
by adding at the end the following new paragraph:
            ``(5) Amounts paid for aircraft management 
        services.--
                    ``(A) In general.--No tax shall be imposed 
                by this section or section 4271 on any amounts 
                paid by an aircraft owner for aircraft 
                management services related to--
                            ``(i) maintenance and support of 
                        the aircraft owner's aircraft, or
                            ``(ii) flights on the aircraft 
                        owner's aircraft.
                    ``(B) Aircraft management services.--For 
                purposes of subparagraph (A), the term 
                `aircraft management services' includes--
                            ``(i) assisting an aircraft owner 
                        with administrative and support 
                        services, such as scheduling, flight 
                        planning, and weather forecasting,
                            ``(ii) obtaining insurance,
                            ``(iii) maintenance, storage and 
                        fueling of aircraft,
                            ``(iv) hiring, training, and 
                        provision of pilots and crew,
                            ``(v) establishing and complying 
                        with safety standards, and
                            ``(vi) such other services as are 
                        necessary to support flights operated 
                        by an aircraft owner.
                    ``(C) Lessee treated as aircraft owner.--
                            ``(i) In general.--For purposes of 
                        this paragraph, the term `aircraft 
                        owner' includes a person who leases the 
                        aircraft other than under a 
                        disqualified lease.
                            ``(ii) Disqualified lease.--For 
                        purposes of clause (i), the term 
                        `disqualified lease' means a lease from 
                        a person providing aircraft management 
                        services with respect to such aircraft 
                        (or a related person (within the 
                        meaning of section 465(b)(3)(C)) to the 
                        person providing such services), if 
                        such lease is for a term of 31 days or 
                        less.
                    ``(D) Pro rata allocation.--In the case of 
                amounts paid to any person which (but for this 
                subsection) are subject to the tax imposed by 
                subsection (a), a portion of which consists of 
                amounts described in subparagraph (A), this 
                paragraph shall apply on a pro rata basis only 
                to the portion which consists of amounts 
                described in such subparagraph.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to amounts paid after the date of the enactment of 
this Act.

SEC. 13823. OPPORTUNITY ZONES.

    (a) In General.--Chapter 1 is amended by adding at the end 
the following:

                   ``Subchapter Z--Opportunity Zones

``Sec. 1400Z-1. Designation.
``Sec. 1400Z-2. Special rules for capital gains invested in opportunity 
          zones.

``SEC. 1400Z-1. DESIGNATION.

    ``(a) Qualified Opportunity Zone Defined.--For the purposes 
of this subchapter, the term `qualified opportunity zone' means 
a population census tract that is a low-income community that 
is designated as a qualified opportunity zone.
    ``(b) Designation.--
            ``(1) In general.--For purposes of subsection (a), 
        a population census tract that is a low-income 
        community is designated as a qualified opportunity zone 
        if--
                    ``(A) not later than the end of the 
                determination period, the chief executive 
                officer of the State in which the tract is 
                located--
                            ``(i) nominates the tract for 
                        designation as a qualified opportunity 
                        zone, and
                            ``(ii) notifies the Secretary in 
                        writing of such nomination, and
                    ``(B) the Secretary certifies such 
                nomination and designates such tract as a 
                qualified opportunity zone before the end of 
                the consideration period.
            ``(2) Extension of periods.--A chief executive 
        officer of a State may request that the Secretary 
        extend either the determination or consideration 
        period, or both (determined without regard to this 
        subparagraph), for an additional 30 days.
    ``(c) Other Definitions.--For purposes of this subsection--
            ``(1) Low-income communities.--The term `low-income 
        community' has the same meaning as when used in section 
        45D(e).
            ``(2) Definition of periods.--
                    ``(A) Consideration period.--The term 
                `consideration period' means the 30-day period 
                beginning on the date on which the Secretary 
                receives notice under subsection (b)(1)(A)(ii), 
                as extended under subsection (b)(2).
                    ``(B) Determination period.--The term 
                `determination period' means the 90-day period 
                beginning on the date of the enactment of the 
                Tax Cuts and Jobs Act, as extended under 
                subsection (b)(2).
            ``(3) State.--For purposes of this section, the 
        term `State' includes any possession of the United 
        States.
    ``(d) Number of Designations.--
            ``(1) In general.--Except as provided by paragraph 
        (2), the number of population census tracts in a State 
        that may be designated as qualified opportunity zones 
        under this section may not exceed 25 percent of the 
        number of low-income communities in the State.
            ``(2) Exception.--If the number of low-income 
        communities in a State is less than 100, then a total 
        of 25 of such tracts may be designated as qualified 
        opportunity zones.
    ``(e) Designation of Tracts Contiguous With Low-income 
Communities.--
            ``(1) In general.--A population census tract that 
        is not a low-income community may be designated as a 
        qualified opportunity zone under this section if--
                    ``(A) the tract is contiguous with the low-
                income community that is designated as a 
                qualified opportunity zone, and
                    ``(B) the median family income of the tract 
                does not exceed 125 percent of the median 
                family income of the low-income community with 
                which the tract is contiguous.
            ``(2) Limitation.--Not more than 5 percent of the 
        population census tracts designated in a State as a 
        qualified opportunity zone may be designated under 
        paragraph (1).
    ``(f) Period for Which Designation Is in Effect.--A 
designation as a qualified opportunity zone shall remain in 
effect for the period beginning on the date of the designation 
and ending at the close of the 10th calendar year beginning on 
or after such date of designation.

``SEC. 1400Z-2. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN OPPORTUNITY 
                    ZONES.

    ``(a) In General.--
            ``(1) Treatment of gains.--In the case of gain from 
        the sale to, or exchange with, an unrelated person of 
        any property held by the taxpayer, at the election of 
        the taxpayer--
                    ``(A) gross income for the taxable year 
                shall not include so much of such gain as does 
                not exceed the aggregate amount invested by the 
                taxpayer in a qualified opportunity fund during 
                the 180-day period beginning on the date of 
                such sale or exchange,
                    ``(B) the amount of gain excluded by 
                subparagraph (A) shall be included in gross 
                income as provided by subsection (b), and
                    ``(C) subsection (c) shall apply.
            ``(2) Election.--No election may be made under 
        paragraph (1)--
                    ``(A) with respect to a sale or exchange if 
                an election previously made with respect to 
                such sale or exchange is in effect, or
                    ``(B) with respect to any sale or exchange 
                after December 31, 2026.
    ``(b) Deferral of Gain Invested in Opportunity Zone 
Property.--
            ``(1) Year of inclusion.--Gain to which subsection 
        (a)(1)(B) applies shall be included in income in the 
        taxable year which includes the earlier of--
                    ``(A) the date on which such investment is 
                sold or exchanged, or
                    ``(B) December 31, 2026.
            ``(2) Amount includible.--
                    ``(A) In general.--The amount of gain 
                included in gross income under subsection 
                (a)(1)(A) shall be the excess of--
                            ``(i) the lesser of the amount of 
                        gain excluded under paragraph (1) or 
                        the fair market value of the investment 
                        as determined as of the date described 
                        in paragraph (1), over
                            ``(ii) the taxpayer's basis in the 
                        investment.
                    ``(B) Determination of basis.--
                            ``(i) In general.--Except as 
                        otherwise provided in this clause or 
                        subsection (c), the taxpayer's basis in 
                        the investment shall be zero.
                            ``(ii) Increase for gain recognized 
                        under subsection (a)(1)(B).--The basis 
                        in the investment shall be increased by 
                        the amount of gain recognized by reason 
                        of subsection (a)(1)(B) with respect to 
                        such property.
                            ``(iii) Investments held for 5 
                        years.--In the case of any investment 
                        held for at least 5 years, the basis of 
                        such investment shall be increased by 
                        an amount equal to 10 percent of the 
                        amount of gain deferred by reason of 
                        subsection (a)(1)(A).
                            ``(iv) Investments held for 7 
                        years.--In the case of any investment 
                        held by the taxpayer for at least 7 
                        years, in addition to any adjustment 
                        made under clause (iii), the basis of 
                        such property shall be increased by an 
                        amount equal to 5 percent of the amount 
                        of gain deferred by reason of 
                        subsection (a)(1)(A).
    ``(c) Special Rule for Investments Held for at Least 10 
Years.--In the case of any investment held by the taxpayer for 
at least 10 years and with respect to which the taxpayer makes 
an election under this clause, the basis of such property shall 
be equal to the fair market value of such investment on the 
date that the investment is sold or exchanged.
    ``(d) Qualified Opportunity Fund.--For purposes of this 
section--
            ``(1) In general.--The term `qualified opportunity 
        fund' means any investment vehicle which is organized 
        as a corporation or a partnership for the purpose of 
        investing in qualified opportunity zone property (other 
        than another qualified opportunity fund) that holds at 
        least 90 percent of its assets in qualified opportunity 
        zone property, determined by the average of the 
        percentage of qualified opportunity zone property held 
        in the fund as measured--
                    ``(A) on the last day of the first 6-month 
                period of the taxable year of the fund, and
                    ``(B) on the last day of the taxable year 
                of the fund.
            ``(2) Qualified opportunity zone property.--
                    ``(A) In general.--The term `qualified 
                opportunity zone property' means property which 
                is--
                            ``(i) qualified opportunity zone 
                        stock,
                            ``(ii) qualified opportunity zone 
                        partnership interest, or
                            ``(iii) qualified opportunity zone 
                        business property.
                    ``(B) Qualified opportunity zone stock.--
                            ``(i) In general.--Except as 
                        provided in clause (ii), the term 
                        `qualified opportunity zone stock' 
                        means any stock in a domestic 
                        corporation if--
                                    ``(I) such stock is 
                                acquired by the qualified 
                                opportunity fund after December 
                                31, 2017, at its original issue 
                                (directly or through an 
                                underwriter) from the 
                                corporation solely in exchange 
                                for cash,
                                    ``(II) as of the time such 
                                stock was issued, such 
                                corporation was a qualified 
                                opportunity zone business (or, 
                                in the case of a new 
                                corporation, such corporation 
                                was being organized for 
                                purposes of being a qualified 
                                opportunity zone business), and
                                    ``(III) during 
                                substantially all of the 
                                qualified opportunity fund's 
                                holding period for such stock, 
                                such corporation qualified as a 
                                qualified opportunity zone 
                                business.
                            ``(ii) Redemptions.--A rule similar 
                        to the rule of section 1202(c)(3) shall 
                        apply for purposes of this paragraph.
                    ``(C) Qualified opportunity zone 
                partnership interest.--The term `qualified 
                opportunity zone partnership interest' means 
                any capital or profits interest in a domestic 
                partnership if--
                            ``(i) such interest is acquired by 
                        the qualified opportunity fund after 
                        December 31, 2017, from the partnership 
                        solely in exchange for cash,
                            ``(ii) as of the time such interest 
                        was acquired, such partnership was a 
                        qualified opportunity zone business 
                        (or, in the case of a new partnership, 
                        such partnership was being organized 
                        for purposes of being a qualified 
                        opportunity zone business), and
                            ``(iii) during substantially all of 
                        the qualified opportunity fund's 
                        holding period for such interest, such 
                        partnership qualified as a qualified 
                        opportunity zone business.
                    ``(D) Qualified opportunity zone business 
                property.--
                            ``(i) In general.--The term 
                        `qualified opportunity zone business 
                        property' means tangible property used 
                        in a trade or business of the qualified 
                        opportunity fund if--
                                    ``(I) such property was 
                                acquired by the qualified 
                                opportunity fund by purchase 
                                (as defined in section 
                                179(d)(2)) after December 31, 
                                2017,
                                    ``(II) the original use of 
                                such property in the qualified 
                                opportunity zone commences with 
                                the qualified opportunity fund 
                                or the qualified opportunity 
                                fund substantially improves the 
                                property, and
                                    ``(III) during 
                                substantially all of the 
                                qualified opportunity fund's 
                                holding period for such 
                                property, substantially all of 
                                the use of such property was in 
                                a qualified opportunity zone.
                            ``(ii) Substantial improvement.--
                        For purposes of subparagraph (A)(ii), 
                        property shall be treated as 
                        substantially improved by the qualified 
                        opportunity fund only if, during any 
                        30-month period beginning after the 
                        date of acquisition of such property, 
                        additions to basis with respect to such 
                        property in the hands of the qualified 
                        opportunity fund exceed an amount equal 
                        to the adjusted basis of such property 
                        at the beginning of such 30-month 
                        period in the hands of the qualified 
                        opportunity fund.
                            ``(iii) Related party.--For 
                        purposes of subparagraph (A)(i), the 
                        related person rule of section 
                        179(d)(2) shall be applied pursuant to 
                        paragraph (8) of this subsection in 
                        lieu of the application of such rule in 
                        section 179(d)(2)(A).
            ``(3) Qualified opportunity zone business.--
                    ``(A) In general.--The term `qualified 
                opportunity zone business' means a trade or 
                business--
                            ``(i) in which substantially all of 
                        the tangible property owned or leased 
                        by the taxpayer is qualified 
                        opportunity zone business property 
                        (determined by substituting `qualified 
                        opportunity zone business' for 
                        `qualified opportunity fund' each place 
                        it appears in paragraph (2)(D)),
                            ``(ii) which satisfies the 
                        requirements of paragraphs (2), (4), 
                        and (8) of section 1397C(b), and
                            ``(iii) which is not described in 
                        section 144(c)(6)(B).
                    ``(B) Special rule.--For purposes of 
                subparagraph (A), tangible property that ceases 
                to be a qualified opportunity zone business 
                property shall continue to be treated as a 
                qualified opportunity zone business property 
                for the lesser of--
                            ``(i) 5 years after the date on 
                        which such tangible property ceases to 
                        be so qualified, or
                            ``(ii) the date on which such 
                        tangible property is no longer held by 
                        the qualified opportunity zone 
                        business.
    ``(e) Applicable Rules.--
            ``(1) Treatment of investments with mixed funds.--
        In the case of any investment in a qualified 
        opportunity fund only a portion of which consists of 
        investments of gain to which an election under 
        subsection (a) is in effect--
                    ``(A) such investment shall be treated as 2 
                separate investments, consisting of--
                            ``(i) one investment that only 
                        includes amounts to which the election 
                        under subsection (a) applies, and
                            ``(ii) a separate investment 
                        consisting of other amounts, and
                    ``(B) subsections (a), (b), and (c) shall 
                only apply to the investment described in 
                subparagraph (A)(i).
            ``(2) Related persons.--For purposes of this 
        section, persons are related to each other if such 
        persons are described in section 267(b) or 707(b)(1), 
        determined by substituting `20 percent' for `50 
        percent' each place it occurs in such sections.
            ``(3) Decedents.--In the case of a decedent, 
        amounts recognized under this section shall, if not 
        properly includible in the gross income of the 
        decedent, be includible in gross income as provided by 
        section 691.
            ``(4) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to 
        carry out the purposes of this section, including--
                    ``(A) rules for the certification of 
                qualified opportunity funds for the purposes of 
                this section,
                    ``(B) rules to ensure a qualified 
                opportunity fund has a reasonable period of 
                time to reinvest the return of capital from 
                investments in qualified opportunity zone stock 
                and qualified opportunity zone partnership 
                interests, and to reinvest proceeds received 
                from the sale or disposition of qualified 
                opportunity zone property, and
                    ``(C) rules to prevent abuse.
    ``(f) Failure of Qualified Opportunity Fund to Maintain 
Investment Standard.--
            ``(1) In general.--If a qualified opportunity fund 
        fails to meet the 90-percent requirement of subsection 
        (c)(1), the qualified opportunity fund shall pay a 
        penalty for each month it fails to meet the requirement 
        in an amount equal to the product of--
                    ``(A) the excess of--
                            ``(i) the amount equal to 90 
                        percent of its aggregate assets, over
                            ``(ii) the aggregate amount of 
                        qualified opportunity zone property 
                        held by the fund, multiplied by
                    ``(B) the underpayment rate established 
                under section 6621(a)(2) for such month.
            ``(2) Special rule for partnerships.--In the case 
        that the qualified opportunity fund is a partnership, 
        the penalty imposed by paragraph (1) shall be taken 
        into account proportionately as part of the 
        distributive share of each partner of the partnership.
            ``(3) Reasonable cause exception.--No penalty shall 
        be imposed under this subsection with respect to any 
        failure if it is shown that such failure is due to 
        reasonable cause.''.
    (b) Basis Adjustments.--Section 1016(a) is amended by 
striking ``and'' at the end of paragraph (36), by striking the 
period at the end of paragraph (37) and inserting ``, and'', 
and by inserting after paragraph (37) the following:
            ``(38) to the extent provided in subsections (b)(2) 
        and (c) of section 1400Z-2.''.
    (c) Clerical Amendment.--The table of subchapters for 
chapter 1 is amended by adding at the end the following new 
item:

                  ``subchapter z. opportunity zones''.

    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                Subtitle D--International Tax Provisions

                     PART I--OUTBOUND TRANSACTIONS

Subpart A--Establishment of Participation Exemption System for Taxation 
                           of Foreign Income

SEC. 14101. 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--
            ``(1) In general.--The term `specified 10-percent 
        owned foreign corporation' means any foreign 
        corporation with respect to which any domestic 
        corporation is a United States shareholder with respect 
        to such corporation.
            ``(2) Exclusion of passive foreign investment 
        companies.--Such term shall not include any corporation 
        which is a passive foreign investment company (as 
        defined in section 1297) with respect to the 
        shareholder and which 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 from a specified 10-percent owned foreign 
        corporation is an amount which bears the same ratio to 
        such dividend as--
                    ``(A) the undistributed foreign earnings of 
                the specified 10-percent owned foreign 
                corporation, bears to
                    ``(B) the total undistributed earnings of 
                such foreign corporation.
            ``(2) Undistributed earnings.--The term 
        `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)--
                    ``(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) Undistributed foreign earnings.--The term 
        `undistributed foreign earnings' means the portion of 
        the 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)).
    ``(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) Special Rules for Hybrid Dividends.--
            ``(1) In general.--Subsection (a) shall not apply 
        to any dividend received by a United States shareholder 
        from a controlled foreign corporation if the dividend 
        is a hybrid dividend.
            ``(2) Hybrid dividends of tiered corporations.--If 
        a controlled foreign corporation with respect to which 
        a domestic corporation is a United States shareholder 
        receives a hybrid dividend from any other controlled 
        foreign corporation with respect to which such domestic 
        corporation is also a United States shareholder, then, 
        notwithstanding any other provision of this title--
                    ``(A) the hybrid dividend shall be treated 
                for purposes of section 951(a)(1)(A) as subpart 
                F income of the receiving controlled foreign 
                corporation for the taxable year of the 
                controlled foreign corporation in which the 
                dividend was received, and
                    ``(B) the United States shareholder shall 
                include in gross income an amount equal to the 
                shareholder's pro rata share (determined in the 
                same manner as under section 951(a)(2)) of the 
                subpart F income described in subparagraph (A).
            ``(3) Denial of foreign tax credit, etc.--The rules 
        of subsection (d) shall apply to any hybrid dividend 
        received by, or any amount included under paragraph (2) 
        in the gross income of, a United States shareholder.
            ``(4) Hybrid dividend.--The term `hybrid dividend' 
        means an amount received from a controlled foreign 
        corporation--
                    ``(A) for which a deduction would be 
                allowed under subsection (a) but for this 
                subsection, and
                    ``(B) for which the controlled foreign 
                corporation received a deduction (or other tax 
                benefit) with respect to any income, war 
                profits, or excess profits taxes imposed by any 
                foreign country or possession of the United 
                States.
    ``(f) Special Rule for Purging Distributions of Passive 
Foreign Investment Companies.--Any amount which is treated as a 
dividend under section 1291(d)(2)(B) shall not be treated as a 
dividend for purposes of this section.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations or other guidance as may be necessary or 
appropriate to carry out the provisions of this section, 
including regulations for the treatment of United States 
shareholders owning stock of a specified 10 percent owned 
foreign corporation through a partnership.''.
    (b) Application of Holding Period Requirement.--Subsection 
(c) of section 246 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) 1-year holding period requirement.--
                For purposes of section 245A--
                            ``(i) paragraph (1)(A) shall be 
                        applied--
                                    ``(I) by substituting `365 
                                days' for `45 days' each place 
                                it appears, and
                                    ``(II) by substituting 
                                `731-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 at 
                        all times during such period, and
                            ``(ii) the taxpayer is a United 
                        States shareholder with respect to such 
                        specified 10-percent owned foreign 
                        corporation at all times during such 
                        period.''.
    (c) Application of Rules Generally Applicable to Deductions 
for Dividends Received.--
            (1) Treatment of dividends from certain 
        corporations.--Paragraph (1) of section 246(a) is 
        amended by striking ``and 245'' and inserting ``245, 
        and 245A''.
            (2) Coordination with section 1059.--Subparagraph 
        (B) of section 1059(b)(2) is amended by striking ``or 
        245'' and inserting ``245, or 245A''.
    (d) Coordination With Foreign Tax Credit Limitation.--
Subsection (b) of section 904 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 domestic corporation which is 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 amounts 
                        includible under section 951(a)(1) or 
                        951A(a)) 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 amounts includible under 
                        section 951(a)(1) or 951A(a).
        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) Subsection (b) of section 951 is amended by 
        striking ``subpart'' and inserting ``title''.
            (2) Subsection (a) of section 957 is amended by 
        striking ``subpart'' in the matter preceding paragraph 
        (1) and inserting ``title''.
            (3) The table of sections for part VIII of 
        subchapter B of chapter 1 is amended by inserting after 
        the item relating to section 245 the following new 
        item:

``Sec. 245A. Deduction for foreign source-portion of dividends received 
          by domestic corporations from certain 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. 14102. SPECIAL RULES RELATING TO SALES OR TRANSFERS INVOLVING 
                    SPECIFIED 10-PERCENT OWNED FOREIGN CORPORATIONS.

    (a) Sales by United States Persons of Stock.--
            (1) In general.--Section 1248 is amended by 
        redesignating subsection (j) as subsection (k) and by 
        inserting after subsection (i) the following new 
        subsection:
    ``(j) Coordination With Dividends Received Deduction.--In 
the case of the sale or exchange by a domestic corporation of 
stock in a foreign corporation held for 1 year or more, any 
amount received by the domestic corporation which is treated as 
a dividend by reason of this section shall be treated as a 
dividend for purposes of applying section 245A.''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply to sales or exchanges after 
        December 31, 2017.
    (b) 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.
    (c) Sale by a CFC of a Lower Tier CFC.--
            (1) In general.--Section 964(e) is amended by 
        adding at the end the following new paragraph:
            ``(4) Coordination with dividends received 
        deduction.--
                    ``(A) In general.--If, for any taxable year 
                of a controlled foreign corporation beginning 
                after December 31, 2017, any amount is treated 
                as a dividend under paragraph (1) by reason of 
                a sale or exchange by the controlled foreign 
                corporation of stock in another foreign 
                corporation held for 1 year or more, then, 
                notwithstanding any other provision of this 
                title--
                            ``(i) the foreign-source portion of 
                        such dividend shall be treated for 
                        purposes of section 951(a)(1)(A) as 
                        subpart F income of the selling 
                        controlled foreign corporation for such 
                        taxable year,
                            ``(ii) a United States shareholder 
                        with respect to the selling controlled 
                        foreign corporation shall include in 
                        gross income for the taxable year of 
                        the shareholder with or within which 
                        such taxable year of the controlled 
                        foreign corporation ends an amount 
                        equal to the shareholder's pro rata 
                        share (determined in the same manner as 
                        under section 951(a)(2)) of the amount 
                        treated as subpart F income under 
                        clause (i), and
                            ``(iii) the deduction under section 
                        245A(a) shall be allowable to the 
                        United States shareholder with respect 
                        to the subpart F income included in 
                        gross income under clause (ii) in the 
                        same manner as if such subpart F income 
                        were a dividend received by the 
                        shareholder from the selling controlled 
                        foreign corporation.
                    ``(B) Application of basis or similar 
                adjustment.--For purposes of this title, in the 
                case of a sale or exchange by a controlled 
                foreign corporation of stock in another foreign 
                corporation in a taxable year of the selling 
                controlled foreign corporation beginning after 
                December 31, 2017, rules similar to the rules 
                of section 961(d) shall apply.
                    ``(C) Foreign-source portion.--For purposes 
                of this paragraph, the foreign-source portion 
                of any amount treated as a dividend under 
                paragraph (1) shall be determined in the same 
                manner as under section 245A(c).''.
            (2) Effective date.--The amendments made by this 
        subsection shall apply to sales or exchanges after 
        December 31, 2017.
    (d) 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), as in effect before the date 
of the enactment of the Tax Cuts and Jobs Act) 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.--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 
(b)(2)(B)).
    ``(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 shall 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) 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.''.

            (3) Effective date.--The amendments made by this 
        subsection shall apply to transfers after December 31, 
        2017.
            (4) Transition rule.--The amount of gain taken into 
        account under section 91(c) of the Internal Revenue 
        Code of 1986, as added by this subsection, shall be 
        reduced by the amount of gain which would be recognized 
        under section 367(a)(3)(C) (determined without regard 
        to the amendments made by subsection (e)) with respect 
        to losses incurred before January 1, 2018.
    (e) Repeal of Active Trade or Business Exception Under 
Section 367.--
            (1) In general.--Section 367(a) is amended by 
        striking paragraph (3) and redesignating paragraphs 
        (4), (5), and (6) as paragraphs (3), (4), and (5), 
        respectively.
            (2) Conforming amendments.--Section 367(a)(4), as 
        redesignated by paragraph (1), is amended--
                    (A) by striking ``Paragraphs (2) and (3)'' 
                and inserting ``Paragraph (2)'', and
                    (B) by striking ``Paragraphs (2) and (3)'' 
                in the heading and inserting ``Paragraph (2)''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to transfers after December 31, 
        2017.

SEC. 14103. 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 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.--
                            ``(i) In general.--The term 
                        `aggregate foreign E&P; deficit' means, 
                        with respect to any United States 
                        shareholder, the lesser of--
                                    ``(I) 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, or
                                    ``(II) the amount 
                                determined under paragraph 
                                (2)(B).
                            ``(ii) Allocation of deficit.--If 
                        the amount described in clause (i)(II) 
                        is less than the amount described in 
                        clause (i)(I), then the shareholder 
                        shall designate, in such form and 
                        manner as the Secretary determines--
                                    ``(I) the amount of the 
                                specified E&P; deficit which is 
                                to be taken into account for 
                                each E&P; deficit corporation 
                                with respect to the taxpayer, 
                                and
                                    ``(II) in the case of an 
                                E&P; deficit corporation which 
                                has a qualified deficit (as 
                                defined in section 952), the 
                                portion (if any) of the deficit 
                                taken into account under 
                                subclause (I) which is 
                                attributable to a qualified 
                                deficit, including the 
                                qualified activities to which 
                                such portion is attributable.
                    ``(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, as 
                of November 2, 2017--
                            ``(i) such specified foreign 
                        corporation has a deficit in post-1986 
                        earnings and profits,
                            ``(ii) such corporation was a 
                        specified foreign corporation, and
                            ``(iii) 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) Treatment of earnings and profits in future 
        years.--
                    ``(A) Reduced earnings and profits treated 
                as previously taxed income when distributed.--
                For purposes of applying section 959 in any 
                taxable year beginning with the taxable year 
                described in subsection (a), with respect to 
                any United States shareholder of a deferred 
                foreign income corporation, an amount equal to 
                such shareholder's reduction under paragraph 
                (1) which is allocated to such deferred foreign 
                income corporation under this subsection shall 
                be treated as an amount which was included in 
                the gross income of such United States 
                shareholder under section 951(a).
                    ``(B) E&P; deficits.--For purposes of this 
                title, with respect to any taxable year 
                beginning with the taxable year described in 
                subsection (a), a United States shareholder's 
                pro rata share of the earnings and profits of 
                any E&P; deficit foreign corporation under this 
                subsection shall be increased by the amount of 
                the specified E&P; deficit of such corporation 
                taken into account by such shareholder under 
                paragraph (1), and, for purposes of section 
                952, such increase shall be attributable to the 
                same activity to which the deficit so taken 
                into account was attributable.
            ``(5) 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) without regard to clause (i)(II) 
                        thereof), 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 8 
                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 15.5 
                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) 8 and 15.5 percent rate equivalent 
        percentages.--For purposes of this subsection--
                    ``(A) 8 percent rate equivalent 
                percentage.--The term `8 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 8 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) 15.5 percent rate equivalent 
                percentage.--The term `15.5 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 `15.5 
                percent rate of tax' for `8 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, the greater 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 the 
                        close of the last taxable year of such 
                        specified foreign corporation which 
                        begins before January 1, 2018, or
                            ``(ii) one half of the sum of--
                                    ``(I) 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, plus
                                    ``(II) 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 subclause (I).
                    ``(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) Personal property 
                                which is of a type that is 
                                actively traded and 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.--Cash 
                positions of a specified foreign corporation 
                described in clause (ii), (iii)(I), or 
                (iii)(IV) of subparagraph (B) shall not be 
                taken into account by a United States 
                shareholder under subparagraph (A) to the 
                extent that such United States shareholder 
                demonstrates to the satisfaction of the 
                Secretary that such amount is so taken into 
                account by such United States shareholder with 
                respect to another specified foreign 
                corporation.
                    ``(E) Cash positions of certain non-
                corporate entities taken into account.--An 
                entity (other than a 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.
                    ``(F) Anti-abuse.--If the Secretary 
                determines that a 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)) 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) in the case of a controlled foreign 
                corporation, 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, and by only 
        taking into account periods when the foreign 
        corporation was a specified foreign corporation) 
        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, and
                    ``(B) without diminution by reason of 
                dividends distributed during the taxable year 
                described in subsection (a) other than 
                dividends distributed to another specified 
                foreign corporation.
    ``(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.
            ``(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) Exclusion of passive foreign investment 
        companies.--Such term shall not include any corporation 
        which is a passive foreign investment company (as 
        defined in section 1297) with respect to the 
        shareholder and which is not a controlled foreign 
        corporation.
    ``(f) Determinations of Pro Rata Share.--
            ``(1) In general.--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).
            ``(2) Special rules.--The portion which is included 
        in the income of a United States shareholder under 
        section 951(a)(1) by reason of subsection (a) which is 
        equal to the deduction allowed under subsection (c) by 
        reason of such inclusion--
                    ``(A) shall be treated as income exempt 
                from tax for purposes of sections 705(a)(1)(B) 
                and 1367(a)(1)(A), and
                    ``(B) shall not be treated as income exempt 
                from tax for purposes of determining whether an 
                adjustment shall be made to an accumulated 
                adjustment account under section 1368(e)(1)(A).
    ``(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) 0.771 multiplied by 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) 0.557 multiplied by 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.
    ``(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 installments of 
        the following amounts:
                    ``(A) 8 percent of the net tax liability in 
                the case of each of the first 5 of such 
                installments,
                    ``(B) 15 percent of the net tax liability 
                in the case of the 6th such installment,
                    ``(C) 20 percent of the net tax liability 
                in the case of the 7th such installment, and
                    ``(D) 25 percent of the net tax liability 
                in the case of the 8th such installment.
            ``(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 shall 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 or deduction 
                                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 of tax 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) of subparagraph (A) 
                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.--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 shall provide.
    ``(j) Reporting by S Corporation.--Each S corporation which 
is a United States shareholder of a specified foreign 
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) Extension of Limitation on Assessment.--
Notwithstanding section 6501, the limitation on the time period 
for the assessment of the net tax liability under this section 
(as defined in subsection (h)(6)) shall not expire before the 
date that is 6 years after the return for the taxable year 
described in such subsection was filed.
    ``(l) Recapture for Expatriated Entities.--
            ``(1) In general.--If a deduction is allowed under 
        subsection (c) to a United States shareholder and such 
        shareholder first becomes an expatriated entity at any 
        time during the 10-year period beginning on the date of 
        the enactment of the Tax Cuts and Jobs Act (with 
        respect to a surrogate foreign corporation which first 
        becomes a surrogate foreign corporation during such 
        period), then--
                    ``(A) the tax imposed by this chapter shall 
                be increased for the first taxable year in 
                which such taxpayer becomes an expatriated 
                entity by an amount equal to 35 percent of the 
                amount of the deduction allowed under 
                subsection (c), and
                    ``(B) no credits shall be allowed against 
                the increase in tax under subparagraph (A).
            ``(2) Expatriated entity.--For purposes of this 
        subsection, the term `expatriated entity' has the same 
        meaning given such term under section 7874(a)(2), 
        except that such term shall not include an entity if 
        the surrogate foreign corporation with respect to the 
        entity is treated as a domestic corporation under 
        section 7874(b).
            ``(3) Surrogate foreign corporation.--For purposes 
        of this subsection, the term `surrogate foreign 
        corporation' has the meaning given such term in section 
        7874(a)(2)(B).
    ``(m) Special Rules for United States Shareholders Which 
Are Real Estate Investment Trusts.--
            ``(1) In general.--If a real estate investment 
        trust is a United States shareholder in 1 or more 
        deferred foreign income corporations--
                    ``(A) any amount required to be taken into 
                account under section 951(a)(1) by reason of 
                this section shall not be taken into account as 
                gross income of the real estate investment 
                trust for purposes of applying paragraphs (2) 
                and (3) of section 856(c) to any taxable year 
                for which such amount is taken into account 
                under section 951(a)(1), and
                    ``(B) if the real estate investment trust 
                elects the application of this subparagraph, 
                notwithstanding subsection (a), any amount 
                required to be taken into account under section 
                951(a)(1) by reason of this section shall, in 
                lieu of the taxable year in which it would 
                otherwise be included in gross income (for 
                purposes of the computation of real estate 
                investment trust taxable income under section 
                857(b)), be included in gross income as 
                follows:
                            ``(i) 8 percent of such amount in 
                        the case of each of the taxable years 
                        in the 5-taxable year period beginning 
                        with the taxable year in which such 
                        amount would otherwise be included.
                            ``(ii) 15 percent of such amount in 
                        the case of the 1st taxable year 
                        following such period.
                            ``(iii) 20 percent of such amount 
                        in the case of the 2nd taxable year 
                        following such period.
                            ``(iv) 25 percent of such amount in 
                        the case of the 3rd taxable year 
                        following such period.
            ``(2) Rules for trusts electing deferred 
        inclusion.--
                    ``(A) Election.--Any election under 
                paragraph (1)(B) shall be made not later than 
                the due date for the first taxable year in the 
                5-taxable year period described in clause (i) 
                of paragraph (1)(B) and shall be made in such 
                manner as the Secretary shall provide.
                    ``(B) Special rules.--If an election under 
                paragraph (1)(B) is in effect with respect to 
                any real estate investment trust, the following 
                rules shall apply:
                            ``(i) Application of participation 
                        exemption.--For purposes of subsection 
                        (c)(1)--
                                    ``(I) the aggregate amount 
                                to which subparagraph (A) or 
                                (B) of subsection (c)(1) 
                                applies shall be determined 
                                without regard to the election,
                                    ``(II) each such aggregate 
                                amount shall be allocated to 
                                each taxable year described in 
                                paragraph (1)(B) in the same 
                                proportion as the amount 
                                included in the gross income of 
                                such United States shareholder 
                                under section 951(a)(1) by 
                                reason of this section is 
                                allocated to each such taxable 
                                year.
                                    ``(III) No installment 
                                payments.--The real estate 
                                investment trust may not make 
                                an election under subsection 
                                (g) for any taxable year 
                                described in paragraph (1)(B).
                            ``(ii) Acceleration of inclusion.--
                        If there is a liquidation or sale of 
                        substantially all the assets of the 
                        real estate investment trust (including 
                        in a title 11 or similar case), a 
                        cessation of business by such trust, or 
                        any similar circumstance, then any 
                        amount not yet included in gross income 
                        under paragraph (1)(B) shall be 
                        included in gross income as of the day 
                        before the date of the event and the 
                        unpaid portion of any tax liability 
                        with respect to such inclusion 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).
    ``(n) Election Not to Apply Net Operating Loss Deduction.--
            ``(1) In general.--If a United States shareholder 
        of a deferred foreign income corporation elects the 
        application of this subsection for the taxable year 
        described in subsection (a), then the amount described 
        in paragraph (2) shall not be taken into account--
                    ``(A) in determining the amount of the net 
                operating loss deduction under section 172 of 
                such shareholder for such taxable year, or
                    ``(B) in determining the amount of taxable 
                income for such taxable year which may be 
                reduced by net operating loss carryovers or 
                carrybacks to such taxable year under section 
                172.
            ``(2) Amount described.--The amount described in 
        this paragraph is the sum of--
                    ``(A) the amount required to be taken into 
                account under section 951(a)(1) by reason of 
                this section (determined after the application 
                of subsection (c)), plus
                    ``(B) in the case of a domestic corporation 
                which chooses to have the benefits of subpart A 
                of part III of subchapter N for the taxable 
                year, the taxes deemed to be paid by such 
                corporation under subsections (a) and (b) of 
                section 960 for such taxable year with respect 
                to the amount described in subparagraph (A) 
                which are treated as a dividends under section 
                78.
            ``(3) Election.--Any election under this subsection 
        shall be made not later than the due date (including 
        extensions) for filing the return of tax for the 
        taxable year and shall be made in such manner as the 
        Secretary shall prescribe.
    ``(o) Regulations.--The Secretary shall prescribe such 
regulations or other guidance as may be necessary or 
appropriate to carry out the provisions of this section, 
including--
            ``(1) regulations or other guidance to provide 
        appropriate basis adjustments, and
            ``(2) regulations or other guidance to prevent the 
        avoidance of the purposes of this section, including 
        through a reduction in earnings and profits, through 
        changes in entity classification or accounting methods, 
        or otherwise.''.
    (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.''.

         Subpart B--Rules Related to Passive and Mobile Income

  CHAPTER 1--TAXATION OF FOREIGN-DERIVED INTANGIBLE INCOME AND GLOBAL 
                      INTANGIBLE LOW-TAXED INCOME

SEC. 14201. CURRENT YEAR INCLUSION OF GLOBAL INTANGIBLE LOW-TAXED 
                    INCOME BY UNITED STATES SHAREHOLDERS.

    (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. GLOBAL INTANGIBLE LOW-TAXED INCOME 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 such shareholder's global intangible low-taxed 
income for such taxable year.
    ``(b) Global Intangible Low-taxed Income.--For purposes of 
this section--
            ``(1) In general.--The term `global intangible low-
        taxed income' 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) such shareholder's net deemed 
                tangible income return for such taxable year.
            ``(2) Net deemed tangible income return.--The term 
        `net deemed tangible income return' means, with respect 
        to any United States shareholder for any taxable year, 
        the excess of--
                    ``(A) 10 percent 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
                    ``(B) 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 to the extent the 
                interest income attributable to such expense is 
                not taken into account in determining such 
                shareholder's net CFC tested income.
    ``(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 
                                described in section 952(b),
                                    ``(II) any gross income 
                                taken into account in 
                                determining the subpart F 
                                income of such corporation,
                                    ``(III) any gross income 
                                excluded from the foreign base 
                                company income (as defined in 
                                section 954) and the insurance 
                                income (as defined in section 
                                953) of such corporation by 
                                reason of section 954(b)(4),
                                    ``(IV) any dividend 
                                received from a related person 
                                (as defined in section 
                                954(d)(3)), and
                                    ``(V) any foreign oil and 
                                gas extraction income (as 
                                defined in section 907(c)(1)) 
                                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 to which such 
                        deductions would be allocable if there 
                        were such gross income).
                    ``(B) Tested loss.--
                            ``(i) In general.--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).
                            ``(ii) Coordination with subpart f 
                        to deny double benefit of losses.--
                        Section 952(c)(1)(A) shall be applied 
                        by increasing the earnings and profits 
                        of the controlled foreign corporation 
                        by the tested loss of such corporation.
    ``(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, the average 
        of such corporation's aggregate adjusted bases as of 
        the close of each quarter of 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 167.
            ``(2) Specified tangible property.--
                    ``(A) In general.--The term `specified 
                tangible property' means, except as provided in 
                subparagraph (B), any tangible property used in 
                the production of tested income.
                    ``(B) Dual use property.--In the case of 
                property used both in the production of tested 
                income and income which is not tested income, 
                such property shall be treated as specified 
                tangible property in the same proportion that 
                the gross income described in subsection 
                (c)(1)(A) produced with respect to such 
                property bears to the total gross income 
                produced with respect to such property.
            ``(3) Determination of adjusted basis.--For 
        purposes of this subsection, notwithstanding any 
        provision of this title (or any other provision of law) 
        which is enacted after the date of the enactment of 
        this section, the adjusted basis in any property shall 
        be determined--
                    ``(A) by using the alternative depreciation 
                system under section 168(g), and
                    ``(B) by allocating the depreciation 
                deduction with respect to such property ratably 
                to each day during the period in the taxable 
                year to which such depreciation relates.
            ``(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 167, and
                    ``(C) is used in the production of tested 
                income (determined with respect to such 
                controlled foreign corporation's distributive 
                share of income 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 with respect 
        to such property.
            ``(4) 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) Determination of Pro Rata Share, etc.--For purposes 
of this section--
            ``(1) In general.--The pro rata shares referred to 
        in subsections (b), (c)(1)(A), and (c)(1)(B), 
        respectively, shall be determined under the rules of 
        section 951(a)(2) in the same manner as such section 
        applies to subpart F income and shall be taken into 
        account in the taxable year of the United States 
        shareholder in which or with which the taxable year of 
        the controlled foreign corporation ends.
            ``(2) Treatment as united states shareholder.--A 
        person shall be treated as a United States shareholder 
        of a controlled foreign corporation for any taxable 
        year of such person only if such person owns (within 
        the meaning of section 958(a)) stock in such foreign 
        corporation on the last day in the taxable year of such 
        foreign corporation on which such foreign corporation 
        is a controlled foreign corporation.
            ``(3) Treatment as controlled foreign 
        corporation.--A foreign corporation shall be treated as 
        a controlled foreign corporation for any taxable year 
        if such foreign corporation is a controlled foreign 
        corporation at any time during such taxable year.
    ``(f) Treatment as Subpart F Income for Certain Purposes.--
            ``(1) In general.--
                    ``(A) Application.--Except as provided in 
                subparagraph (B), any global intangible low-
                taxed income 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).
                    ``(B) Exception.--The Secretary shall 
                provide rules for the application of 
                subparagraph (A) to other provisions of this 
                title in any case in which the determination of 
                subpart F income is required to be made at the 
                level of the controlled foreign corporation.
            ``(2) Allocation of global intangible low-taxed 
        income 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 global intangible low-taxed income 
        included in gross income of a United States shareholder 
        under subsection (a), the portion of such global 
        intangible low-taxed income which is treated as being 
        with respect to such controlled foreign corporation 
        is--
                    ``(A) in the case of a controlled foreign 
                corporation with no tested income, zero, and
                    ``(B) in the case of a controlled foreign 
                corporation with tested income, the portion of 
                such global intangible low-taxed income which 
                bears the same ratio to such global intangible 
                low-taxed income 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 
                        described in subsection (c)(1)(A) with 
                        respect to such United States 
                        shareholder.''.
    (b) Foreign Tax Credit.--
            (1) Application of deemed paid foreign tax 
        credit.--Section 960 is amended adding at the end the 
        following new subsection:
    ``(d) Deemed Paid Credit for Taxes Properly Attributable to 
Tested Income.--
            ``(1) In general.--For purposes of subpart A of 
        this part, 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 the product 
        of--
                    ``(A) such domestic corporation's inclusion 
                percentage, multiplied by
                    ``(B) the aggregate tested foreign income 
                taxes paid or accrued by controlled foreign 
                corporations.
            ``(2) Inclusion percentage.--For purposes of 
        paragraph (1), the term `inclusion percentage' means, 
        with respect to any domestic corporation, the ratio 
        (expressed as a percentage) of--
                    ``(A) such corporation's global intangible 
                low-taxed income (as defined in section 
                951A(b)), divided by
                    ``(B) the aggregate amount described in 
                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 the tested income of such foreign 
        corporation taken into account by such domestic 
        corporation under section 951A.''.
            (2) Application of foreign tax credit limitation.--
                    (A) Separate basket for global intangible 
                low-taxed income.--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 (other than passive category 
                income),''.
                    (B) Exclusion from general category 
                income.--Section 904(d)(2)(A)(ii) is amended by 
                inserting ``income described in paragraph 
                (1)(A) and'' before ``passive category 
                income''.
                    (C) No carryover or carryback 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).''.
    (c) Clerical Amendment.--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. Global intangible low-taxed income 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. 14202. DEDUCTION FOR FOREIGN-DERIVED INTANGIBLE INCOME AND GLOBAL 
                    INTANGIBLE LOW-TAXED INCOME.

    (a) In General.--Part VIII of subchapter B of chapter 1 is 
amended by adding at the end the following new section:

``SEC. 250. FOREIGN-DERIVED INTANGIBLE INCOME AND GLOBAL INTANGIBLE 
                    LOW-TAXED INCOME.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--In the case of a domestic 
        corporation for any taxable year, there shall be 
        allowed as a deduction an amount equal to the sum of--
                    ``(A) 37.5 percent of the foreign-derived 
                intangible income of such domestic corporation 
                for such taxable year, plus
                    ``(B) 50 percent of--
                            ``(i) the global intangible low-
                        taxed income amount (if any) which is 
                        included in the gross income of such 
                        domestic corporation under section 951A 
                        for such taxable year, and
                            ``(ii) the amount treated as a 
                        dividend received by such corporation 
                        under section 78 which is attributable 
                        to the amount described in clause (i).
            ``(2) Limitation based on taxable income.--
                    ``(A) In general.--If, for any taxable 
                year--
                            ``(i) the sum of the foreign-
                        derived intangible income and the 
                        global intangible low-taxed income 
                        amount otherwise taken into account by 
                        the domestic corporation under 
                        paragraph (1), exceeds
                            ``(ii) the taxable income of the 
                        domestic corporation (determined 
                        without regard to this section),
                then the amount of the foreign-derived 
                intangible income and the global intangible 
                low-taxed income amount so taken into account 
                shall be reduced as provided in subparagraph 
                (B).
                    ``(B) Reduction.--For purposes of 
                subparagraph (A)--
                            ``(i) foreign-derived intangible 
                        income shall be reduced by an amount 
                        which bears the same ratio to the 
                        excess described in subparagraph (A) as 
                        such foreign-derived intangible income 
                        bears to the sum described in 
                        subparagraph (A)(i), and
                            ``(ii) the global intangible low-
                        taxed income amount shall be reduced by 
                        the remainder of such excess.
            ``(3) Reduction in deduction for taxable years 
        after 2025.--In the case of any taxable year beginning 
        after December 31, 2025, paragraph (1) shall be applied 
        by substituting--
                    ``(A) `21.875 percent' for `37.5 percent' 
                in subparagraph (A), and
                    ``(B) `37.5 percent' for `50 percent' in 
                subparagraph (B).
    ``(b) Foreign-derived Intangible Income.--For purposes of 
this section--
            ``(1) In general.--The foreign-derived intangible 
        income of any domestic corporation is the amount which 
        bears the same ratio to the deemed intangible income of 
        such corporation as--
                    ``(A) the foreign-derived deduction 
                eligible income of such corporation, bears to
                    ``(B) the deduction eligible income of such 
                corporation.
            ``(2) Deemed intangible income.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `deemed 
                intangible income' means the excess (if any) 
                of--
                            ``(i) the deduction eligible income 
                        of the domestic corporation, over
                            ``(ii) the deemed tangible income 
                        return of the corporation.
                    ``(B) Deemed tangible income return.--The 
                term `deemed tangible income return' means, 
                with respect to any corporation, an amount 
                equal to 10 percent of the corporation's 
                qualified business asset investment (as defined 
                in section 951A(d), determined by substituting 
                `deduction eligible income' for `tested income' 
                in paragraph (2) thereof and without regard to 
                whether the corporation is a controlled foreign 
                corporation).
            ``(3) Deduction eligible income.--
                    ``(A) In general.--The term `deduction 
                eligible income' means, with respect to any 
                domestic corporation, the excess (if any) of--
                            ``(i) gross income of such 
                        corporation determined without regard 
                        to--
                                    ``(I) any amount included 
                                in the gross income of such 
                                corporation under section 
                                951(a)(1),
                                    ``(II) the global 
                                intangible low-taxed income 
                                included in the gross income of 
                                such corporation under section 
                                951A,
                                    ``(III) any financial 
                                services income (as defined in 
                                section 904(d)(2)(D)) of such 
                                corporation,
                                    ``(IV) any dividend 
                                received from a corporation 
                                which is a controlled foreign 
                                corporation of such domestic 
                                corporation,
                                    ``(V) any domestic oil and 
                                gas extraction income of such 
                                corporation, and
                                    ``(VI) any foreign branch 
                                income (as defined in section 
                                904(d)(2)(J)), over
                            ``(ii) the deductions (including 
                        taxes) properly allocable to such gross 
                        income.
                    ``(B) Domestic oil and gas extraction 
                income.--For purposes of subparagraph (A), the 
                term `domestic oil and gas extraction income' 
                means income described in section 907(c)(1), 
                determined by substituting `within the United 
                States' for `without the United States'.
            ``(4) Foreign-derived deduction eligible income.--
        The term `foreign-derived deduction eligible income' 
        means, with respect to any taxpayer for any taxable 
        year, any deduction eligible income of such taxpayer 
        which is derived in connection with--
                    ``(A) property--
                            ``(i) which is sold by the taxpayer 
                        to any person who is not a United 
                        States person, and
                            ``(ii) which the taxpayer 
                        establishes to the satisfaction of the 
                        Secretary is for a foreign use, or
                    ``(B) services provided by the taxpayer 
                which the taxpayer establishes to the 
                satisfaction of the Secretary are provided to 
                any person, or with respect to property, not 
                located within the United States.
            ``(5) Rules relating to foreign use property or 
        services.--For purposes of this subsection--
                    ``(A) Foreign use.--The term `foreign use' 
                means any use, consumption, or disposition 
                which is not within the United States.
                    ``(B) Property or services provided to 
                domestic intermediaries.--
                            ``(i) Property.--If a taxpayer 
                        sells property to another person (other 
                        than a related party) for further 
                        manufacture or other modification 
                        within the United States, such property 
                        shall not be treated as sold for a 
                        foreign use even if such other person 
                        subsequently uses such property for a 
                        foreign use.
                            ``(ii) Services.--If a taxpayer 
                        provides services to another person 
                        (other than a related party) located 
                        within the United States, such services 
                        shall not be treated as described in 
                        paragraph (4)(B) even if such other 
                        person uses such services in providing 
                        services which are so described.
                    ``(C) Special rules with respect to related 
                party transactions.--
                            ``(i) Sales to related parties.--If 
                        property is sold to a related party who 
                        is not a United States person, such 
                        sale shall not be treated as for a 
                        foreign use unless--
                                    ``(I) such property is 
                                ultimately sold by a related 
                                party, or used by a related 
                                party in connection with 
                                property which is sold or the 
                                provision of services, to 
                                another person who is an 
                                unrelated party who is not a 
                                United States person, and
                                    ``(II) the taxpayer 
                                establishes to the satisfaction 
                                of the Secretary that such 
                                property is for a foreign use.
                        For purposes of this clause, a sale of 
                        property shall be treated as a sale of 
                        each of the components thereof.
                            ``(ii) Service provided to related 
                        parties.--If a service is provided to a 
                        related party who is not located in the 
                        United States, such service shall not 
                        be treated described in subparagraph 
                        (A)(ii) unless the taxpayer established 
                        to the satisfaction of the Secretary 
                        that such service is not substantially 
                        similar to services provided by such 
                        related party to persons located within 
                        the United States.
                    ``(D) Related party.--For purposes of this 
                paragraph, the term `related party' means any 
                member of 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).
                Any person (other than a corporation) shall be 
                treated as a member of such group if such 
                person is controlled by members of such group 
                (including any entity treated as a member of 
                such group by reason of this sentence) or 
                controls any such member. For purposes of the 
                preceding sentence, control shall be determined 
                under the rules of section 954(d)(3).
                    ``(E) Sold.--For purposes of this 
                subsection, the terms `sold', `sells', and 
                `sale' shall include any lease, license, 
                exchange, or other disposition.
    ``(c) Regulations.--The Secretary shall prescribe such 
regulations or other guidance as may be necessary or 
appropriate to carry out the provisions of this section.''.
    (b) Conforming Amendments.--
            (1) Section 172(d), as amended by this Act, is 
        amended by adding at the end the following new 
        paragraph:
            ``(9) Deduction for foreign-derived intangible 
        income.--The deduction under section 250 shall not be 
        allowed.''.
            (2) Section 246(b)(1) is amended--
                    (A) by striking ``and subsection (a) and 
                (b) of section 245'' the first place it appears 
                and inserting ``, subsection (a) and (b) of 
                section 245, and section 250'',
                    (B) by striking ``and subsection (a) and 
                (b) of section 245'' the second place it 
                appears and inserting ``subsection (a) and (b) 
                of section 245, and 250''.
            (3) Section 469(i)(3)(F)(iii) is amended by 
        striking ``and 222'' and inserting ``222, and 250''.
            (4) The table of sections for part VIII of 
        subchapter B of chapter 1 is amended by adding at the 
        end the following new item:

``Sec. 250. Foreign-derived intangible income and global intangible low-
          taxed income.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

         CHAPTER 2--OTHER MODIFICATIONS OF SUBPART F PROVISIONS

SEC. 14211. ELIMINATION OF INCLUSION OF FOREIGN BASE COMPANY OIL 
                    RELATED INCOME.

    (a) Repeal.--Subsection (a) of section 954 is amended--
            (1) by inserting ``and'' at the end of paragraph 
        (2),
            (2) by striking the comma at the end of paragraph 
        (3) and inserting a period, and
            (3) by striking paragraph (5).
    (b) Conforming Amendments.--
            (1) Section 952(c)(1)(B)(iii) is amended by 
        striking subclause (I) and redesignating subclauses 
        (II) through (V) as subclauses (I) through (IV), 
        respectively.
            (2) Section 954(b) is amended--
                    (A) by striking the second sentence of 
                paragraph (4),
                    (B) by striking ``the foreign base company 
                services income, and the foreign base company 
                oil related income'' in paragraph (5) and 
                inserting ``and the foreign base company 
                services income'', and
                    (C) by striking paragraph (6).
            (3) 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 with or within which such taxable years of foreign 
corporations end.

SEC. 14212. 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) 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. 14213. 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) Effective Date.--The amendments made by this section 
shall apply to--
            (1) the last taxable year of foreign corporations 
        beginning before January 1, 2018, and each subsequent 
        taxable year of such foreign corporations, and
            (2) taxable years of United States shareholders in 
        which or with which such taxable years of foreign 
        corporations end.

SEC. 14214. MODIFICATION OF DEFINITION OF UNITED STATES SHAREHOLDER.

    (a) In General.--Section 951(b) is amended by inserting ``, 
or 10 percent or more of the total value of shares of all 
classes of stock of such foreign corporation'' after ``such 
foreign corporation''.
    (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.

SEC. 14215. 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.

                 CHAPTER 3--PREVENTION OF BASE EROSION

SEC. 14221. LIMITATIONS ON INCOME SHIFTING THROUGH INTANGIBLE PROPERTY 
                    TRANSFERS.

    (a) Definition of Intangible Asset.--Section 936(h)(3)(B) 
is amended--
            (1) by striking ``or'' at the end of clause (v),
            (2) by striking clause (vi) and inserting the 
        following:
                            ``(vi) any goodwill, going concern 
                        value, or workforce in place (including 
                        its composition and terms and 
                        conditions (contractual or otherwise) 
                        of its employment); or
                            ``(vii) any other item the value or 
                        potential value of which is not 
                        attributable to tangible property or 
                        the services of any individual.'', and
            (3) by striking the flush language after clause 
        (vii), as added by paragraph (2).
    (b) Clarification of Allowable Valuation Methods.--
            (1) Foreign corporations.--Section 367(d)(2) is 
        amended by adding at the end the following new 
        subparagraph:
                    ``(D) Regulatory authority.--For purposes 
                of the last sentence of subparagraph (A), the 
                Secretary shall require--
                            ``(i) the valuation of transfers of 
                        intangible property, including 
                        intangible property transferred with 
                        other property or services, on an 
                        aggregate basis, or
                            ``(ii) the valuation of such a 
                        transfer on the basis of the realistic 
                        alternatives to such a transfer,
                if the Secretary determines that such basis is 
                the most reliable means of valuation of such 
                transfers.''.
            (2) Allocation among taxpayers.--Section 482 is 
        amended by adding at the end the following: ``For 
        purposes of this section, the Secretary shall require 
        the valuation of transfers of intangible property 
        (including intangible property transferred with other 
        property or services) on an aggregate basis or the 
        valuation of such a transfer on the basis of the 
        realistic alternatives to such a transfer, if the 
        Secretary determines that such basis is the most 
        reliable means of valuation of such transfers.''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to transfers in taxable years 
        beginning after December 31, 2017.
            (2) No inference.--Nothing in the amendment made by 
        subsection (a) shall be construed to create any 
        inference with respect to the application of section 
        936(h)(3) of the Internal Revenue Code of 1986, or the 
        authority of the Secretary of the Treasury to provide 
        regulations for such application, with respect to 
        taxable years beginning before January 1, 2018.

SEC. 14222. CERTAIN RELATED PARTY AMOUNTS PAID OR ACCRUED IN HYBRID 
                    TRANSACTIONS OR WITH HYBRID ENTITIES.

    (a) In General.--Part IX of subchapter B of chapter 1 is 
amended by inserting after section 267 the following:

``SEC. 267A. CERTAIN RELATED PARTY AMOUNTS PAID OR ACCRUED IN HYBRID 
                    TRANSACTIONS OR WITH HYBRID ENTITIES.

    ``(a) In General.--No deduction shall be allowed under this 
chapter for any disqualified related party amount paid or 
accrued pursuant to a hybrid transaction or by, or to, a hybrid 
entity.
    ``(b) Disqualified Related Party Amount.--For purposes of 
this section--
            ``(1) Disqualified related party amount.--The term 
        `disqualified related party amount' means any interest 
        or royalty paid or accrued to a related party to the 
        extent that--
                    ``(A) such amount is not included in the 
                income of such related party under the tax law 
                of the country of which such related party is a 
                resident for tax purposes or is subject to tax, 
                or
                    ``(B) such related party is allowed a 
                deduction with respect to such amount under the 
                tax law of such country.
        Such term shall not include any payment to the extent 
        such payment is included in the gross income of a 
        United States shareholder under section 951(a).
            ``(2) Related party.--The term `related party' 
        means a related person as defined in section 954(d)(3), 
        except that such section shall be applied with respect 
        to the person making the payment described in paragraph 
        (1) in lieu of the controlled foreign corporation 
        otherwise referred to in such section.
    ``(c) Hybrid Transaction.--For purposes of this section, 
the term `hybrid transaction' means any transaction, series of 
transactions, agreement, or instrument one or more payments 
with respect to which are treated as interest or royalties for 
purposes of this chapter and which are not so treated for 
purposes the tax law of the foreign country of which the 
recipient of such payment is resident for tax purposes or is 
subject to tax.
    ``(d) Hybrid Entity.--For purposes of this section, the 
term `hybrid entity' means any entity which is either--
            ``(1) treated as fiscally transparent for purposes 
        of this chapter but not so treated for purposes of the 
        tax law of the foreign country of which the entity is 
        resident for tax purposes or is subject to tax, or
            ``(2) treated as fiscally transparent for purposes 
        of such tax law but not so treated for purposes of this 
        chapter.
    ``(e) Regulations.--The Secretary shall 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 providing for--
            ``(1) rules for treating certain conduit 
        arrangements which involve a hybrid transaction or a 
        hybrid entity as subject to subsection (a),
            ``(2) rules for the application of this section to 
        branches or domestic entities,
            ``(3) rules for treating certain structured 
        transactions as subject to subsection (a),
            ``(4) rules for treating a tax preference as an 
        exclusion from income for purposes of applying 
        subsection (b)(1) if such tax preference has the effect 
        of reducing the generally applicable statutory rate by 
        25 percent or more,
            ``(5) rules for treating the entire amount of 
        interest or royalty paid or accrued to a related party 
        as a disqualified related party amount if such amount 
        is subject to a participation exemption system or other 
        system which provides for the exclusion or deduction of 
        a substantial portion of such amount,
            ``(6) rules for determining the tax residence of a 
        foreign entity if the entity is otherwise considered a 
        resident of more than one country or of no country,
            ``(7) exceptions from subsection (a) with respect 
        to--
                    ``(A) cases in which the disqualified 
                related party amount is taxed under the laws of 
                a foreign country other than the country of 
                which the related party is a resident for tax 
                purposes, and
                    ``(B) other cases which the Secretary 
                determines do not present a risk of eroding the 
                Federal tax base,
            ``(8) requirements for record keeping and 
        information reporting in addition to any requirements 
        imposed by section 6038A.''.
    (b) Conforming Amendment.--The table of sections for part 
IX of subchapter B of chapter 1 is amended by inserting after 
the item relating to section 267 the following new item:

``Sec. 267A. Certain related party amounts paid or accrued in hybrid 
          transactions or with hybrid entities.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 14223. SHAREHOLDERS OF SURROGATE FOREIGN CORPORATIONS NOT ELIGIBLE 
                    FOR REDUCED RATE ON DIVIDENDS.

    (a) In General.--Section 1(h)(11)(C)(iii) is amended--
            (1) by striking ``shall not include any foreign 
        corporation'' and inserting ``shall not include--
                                    ``(I) any foreign 
                                corporation'',
            (2) by striking the period at the end and inserting 
        ``, and'', and
            (3) by adding at the end the following new 
        subclause:
                                    ``(II) any corporation 
                                which first becomes a surrogate 
                                foreign corporation (as defined 
                                in section 7874(a)(2)(B)) after 
                                the date of the enactment of 
                                this subclause, other than a 
                                foreign corporation which is 
                                treated as a domestic 
                                corporation under section 
                                7874(b).''.
    (b) Effective Date.--The amendments made by this section 
shall apply to dividends received after the date of the 
enactment of this Act.

     Subpart C--Modifications Related to Foreign Tax Credit System

SEC. 14301. 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, as amended by section 14201, 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 subpart A of this part, 
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 subpart A of this part--
            ``(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 (d) (as added by 
        section 14201) the following new subsections:
    ``(e) 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.
    ``(f) Regulations.--The Secretary shall 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), 
(b), and (d) of section 960 (determined without regard to the 
phrase `80 percent of' in subsection (d)(1) thereof) for such 
taxable year shall be treated for purposes of this title (other 
than sections 245 and 245A) as a dividend received by such 
domestic corporation from the foreign corporation.''.
            (2) Paragraph (4) of section 245(a) is amended to 
        read as follows:
            ``(4) Post-1986 undistributed earnings.--The term 
        `post-1986 undistributed earnings' means the amount of 
        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--
                    ``(A) as of the close of the taxable year 
                of the foreign corporation in which the 
                dividend is distributed, and
                    ``(B) without diminution by reason of 
                dividends distributed during such taxable 
                year.''.
            (3) Section 245(a)(10)(C) is amended by striking 
        ``902, 907, and 960'' and inserting ``907 and 960''.
            (4) Sections 535(b)(1) and 545(b)(1) are each 
        amended by striking ``section 902(a) or 960(a)(1)'' and 
        inserting ``section 960''.
            (5) 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.--''.
            (6) Section 865(h)(1)(B) is amended by striking 
        ``902, 907,'' and inserting ``907''.
            (7) Section 901(a) is amended by striking 
        ``sections 902 and 960'' and inserting ``section 960''.
            (8) 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''.
            (9) Section 901(f) is amended by striking 
        ``sections 902 and 960'' and inserting ``section 960''.
            (10) Section 901(j)(1)(A) is amended by striking 
        ``902 or''.
            (11) Section 901(j)(1)(B) is amended by striking 
        ``sections 902 and 960'' and inserting ``section 960''.
            (12) Section 901(k)(2) is amended by striking ``, 
        902,''.
            (13) Section 901(k)(6) is amended by striking ``902 
        or''.
            (14) Section 901(m)(1)(B) is amended to read as 
        follows:
                    ``(B) in the case of a foreign income tax 
                paid by a foreign corporation, shall not be 
                taken into account for purposes of section 
                960.''.
            (15) Section 904(d)(2)(E) is amended--
                    (A) by amending clause (i) to read as 
                follows:
                            ``(i) Noncontrolled 10-percent 
                        owned foreign corporation.--The term 
                        `noncontrolled 10-percent owned foreign 
                        corporation' means any foreign 
                        corporation which is--
                                    ``(I) a specified 10-
                                percent owned foreign 
                                corporation (as defined in 
                                section 245A(b)), or
                                    ``(II) a passive foreign 
                                investment company (as defined 
                                in section 1297(a)) with 
                                respect to which the taxpayer 
                                meets the stock ownership 
                                requirements of section 902(a) 
                                (or, for purposes of applying 
                                paragraphs (3) and (4), the 
                                requirements of section 
                                902(b)).
                        A controlled foreign corporation shall 
                        not be treated as a noncontrolled 10-
                        percent owned foreign corporation with 
                        respect to any distribution out of its 
                        earnings and profits for periods during 
                        which it was a controlled foreign 
                        corporation. Any reference to section 
                        902 in this clause shall be treated as 
                        a reference to such section as in 
                        effect before its repeal.'', and
                    (B) by striking ``non-controlled section 
                902 corporation'' in clause (ii) and inserting 
                ``noncontrolled 10-percent owned foreign 
                corporation''.
            (16) Section 904(d)(4) is amended--
                    (A) by striking ``noncontrolled section 902 
                corporation'' each place it appears and 
                inserting ``noncontrolled 10-percent owned 
                foreign corporation'',
                    (B) by striking ``noncontrolled section 902 
                corporations'' in the heading thereof and 
                inserting ``noncontrolled 10-percent owned 
                foreign corporations''.
            (17) Section 904(d)(6)(A) is amended by striking 
        ``902, 907,'' and inserting ``907''.
            (18) Section 904(h)(10)(A) is amended by striking 
        ``sections 902, 907, and 960'' and inserting ``sections 
        907 and 960''.
            (19) Section 904(k) is amended to read as follows:
    ``(k) Cross References.--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(c).''.
            (20) Section 905(c)(1) is amended by striking the 
        last sentence.
            (21) 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''.
            (22) Section 906(a) is amended by striking ``(or 
        deemed, under section 902, paid or accrued during the 
        taxable year)''.
            (23) Section 906(b) is amended by striking 
        paragraphs (4) and (5).
            (24) Section 907(b)(2)(B) is amended by striking 
        ``902 or''.
            (25) Section 907(c)(3)(A) is amended--
                    (A) by striking subparagraph (A) and 
                inserting the following:
                    ``(A) interest, to the extent the category 
                of income of such interest is determined under 
                section 904(d)(3),'', and
                    (B) by striking ``section 960(a)'' in 
                subparagraph (B) and inserting ``section 960''.
            (26) Section 907(c)(5) is amended by striking ``902 
        or''.
            (27) Section 907(f)(2)(B)(i) is amended by striking 
        ``902 or''.
            (28) Section 908(a) is amended by striking ``902 
        or''.
            (29) Section 909(b) is amended--
                    (A) by striking ``section 902 corporation'' 
                in the matter preceding paragraph (1) and 
                inserting ``specified 10-percent owned foreign 
                corporation (as defined in section 245A(b) 
                without regard to paragraph (2) thereof)'',
                    (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 specified 10-percent owned foreign 
                corporation or a domestic corporation which is 
                a United States shareholder with respect to 
                such specified 10-percent owned foreign 
                corporation.'', and
                    (D) by striking ``Section 902 
                Corporations'' in the heading thereof and 
                inserting ``Specified 10-percent Owned Foreign 
                Corporations''.
            (30) Section 909(d) is amended by striking 
        paragraph (5).
            (31) Section 958(a)(1) is amended by striking 
        ``960(a)(1)'' and inserting ``960''.
            (32) Section 959(d) is amended by striking ``Except 
        as provided in section 960(a)(3), any'' and inserting 
        ``Any''.
            (33) Section 959(e) is amended by striking 
        ``section 960(b)'' and inserting ``section 960(c)''.
            (34) 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''.
            (35) Section 1293(f) is amended by striking ``and'' 
        at the end of paragraph (1), by striking the period at 
        the end of paragraph (2) and inserting ``, and'', and 
        by adding at the end the following new paragraph:
            ``(3) a domestic corporation which owns (or is 
        treated under section 1298(a) as owning) stock of a 
        qualified electing fund shall be treated in the same 
        manner as a United States shareholder of a controlled 
        foreign corporation (and such qualified electing fund 
        shall be treated in the same manner as such controlled 
        foreign corporation) if such domestic corporation meets 
        the stock ownership requirements of subsection (a) or 
        (b) of section 902 (as in effect before its repeal) 
        with respect to such qualified electing fund.''.
            (36) 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''.
            (37) Section 6038(c)(4) is amended by striking 
        subparagraph (C).
            (38) 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.
            (39) 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 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. 14302. SEPARATE FOREIGN TAX CREDIT LIMITATION BASKET FOR FOREIGN 
                    BRANCH INCOME.

    (a) In General.--Section 904(d)(1), as amended by section 
14201, is amended by redesignating subparagraphs (B) and (C) as 
subparagraphs (C) and (D), respectively, and by inserting after 
subparagraph (A) the following new subparagraph:
                    ``(B) foreign branch income,''.
    (b) Foreign Branch Income.--
            (1) In general.--Section 904(d)(2) is amended by 
        inserting after subparagraph (I) the following new 
        subparagraph:
                    ``(J) Foreign branch income.--
                            ``(i) In general.--The term 
                        `foreign branch income' means the 
                        business profits of such United States 
                        person which are attributable to 1 or 
                        more qualified business units (as 
                        defined in section 989(a)) in 1 or more 
                        foreign countries. For purposes of the 
                        preceding sentence, the amount of 
                        business profits attributable to a 
                        qualified business unit shall be 
                        determined under rules established by 
                        the Secretary.
                            ``(ii) Exception.--Such term shall 
                        not include any income which is passive 
                        category income.''.
            (2) Conforming amendment.--Section 
        904(d)(2)(A)(ii), as amended by section 14201, is 
        amended by striking ``income described in paragraph 
        (1)(A) and'' and inserting ``income described in 
        paragraph (1)(A), foreign branch income, and''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2017.

SEC. 14303. 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.

SEC. 14304. ELECTION TO INCREASE PERCENTAGE OF DOMESTIC TAXABLE INCOME 
                    OFFSET BY OVERALL DOMESTIC LOSS TREATED AS FOREIGN 
                    SOURCE.

    (a) In General.--Section 904(g) is amended by adding at the 
end the following new paragraph:
            ``(5) Election to increase percentage of taxable 
        income treated as foreign source.--
                    ``(A) In general.--If any pre-2018 unused 
                overall domestic loss is taken into account 
                under paragraph (1) for any applicable taxable 
                year, the taxpayer may elect to have such 
                paragraph applied to such loss by substituting 
                a percentage greater than 50 percent (but not 
                greater than 100 percent) for 50 percent in 
                subparagraph (B) thereof.
                    ``(B) Pre-2018 unused overall domestic 
                loss.--For purposes of this paragraph, the term 
                `pre-2018 unused overall domestic loss' means 
                any overall domestic loss which--
                            ``(i) arises in a qualified taxable 
                        year beginning before January 1, 2018, 
                        and
                            ``(ii) has not been used under 
                        paragraph (1) for any taxable year 
                        beginning before such date.
                    ``(C) Applicable taxable year.--For 
                purposes of this paragraph, the term 
                `applicable taxable year' means any taxable 
                year of the taxpayer beginning after December 
                31, 2017, and before January 1, 2028.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

                     PART II--INBOUND TRANSACTIONS

SEC. 14401. BASE EROSION AND ANTI-ABUSE TAX.

    (a) Imposition of Tax.--Subchapter A of chapter 1 is 
amended by adding at the end the following new part:

              ``PART VII--BASE EROSION AND ANTI-ABUSE TAX

``Sec. 59A. Tax on base erosion payments of taxpayers with substantial 
          gross receipts.

``SEC. 59A. TAX ON BASE EROSION PAYMENTS OF TAXPAYERS WITH SUBSTANTIAL 
                    GROSS RECEIPTS.

    ``(a) Imposition of Tax.--There is hereby imposed on each 
applicable taxpayer for any taxable year a tax equal to the 
base erosion minimum tax amount for the taxable year. Such tax 
shall be in addition to any other tax imposed by this subtitle.
    ``(b) Base Erosion Minimum Tax Amount.--For purposes of 
this section--
            ``(1) In general.--Except as provided in paragraphs 
        (2) and (3), the term `base erosion minimum tax amount' 
        means, with respect to any applicable taxpayer for any 
        taxable year, the excess (if any) of--
                    ``(A) an amount equal to 10 percent (5 
                percent in the case of taxable years beginning 
                in calendar year 2018) of the modified taxable 
                income of such taxpayer for the taxable year, 
                over
                    ``(B) an amount equal to the regular tax 
                liability (as defined in section 26(b)) of the 
                taxpayer for the taxable year, reduced (but not 
                below zero) by the excess (if any) of--
                            ``(i) the credits allowed under 
                        this chapter against such regular tax 
                        liability, over
                            ``(ii) the sum of--
                                    ``(I) the credit allowed 
                                under section 38 for the 
                                taxable year which is properly 
                                allocable to the research 
                                credit determined under section 
                                41(a), plus
                                    ``(II) the portion of the 
                                applicable section 38 credits 
                                not in excess of 80 percent of 
                                the lesser of the amount of 
                                such credits or the base 
                                erosion minimum tax amount 
                                (determined without regard to 
                                this subclause).
            ``(2) Modifications for taxable years beginning 
        after 2025.--In the case of any taxable year beginning 
        after December 31, 2025, paragraph (1) shall be 
        applied--
                    ``(A) by substituting `12.5 percent' for 
                `10 percent' in subparagraph (A) thereof, and
                    ``(B) by reducing (but not below zero) the 
                regular tax liability (as defined in section 
                26(b)) for purposes of subparagraph (B) thereof 
                by the aggregate amount of the credits allowed 
                under this chapter against such regular tax 
                liability rather than the excess described in 
                such subparagraph.
            ``(3) Increased rate for certain banks and 
        securities dealers.--
                    ``(A) In general.--In the case of a 
                taxpayer described in subparagraph (B) who is 
                an applicable taxpayer for any taxable year, 
                the percentage otherwise in effect under 
                paragraphs (1)(A) and (2)(A) shall each be 
                increased by one percentage point.
                    ``(B) Taxpayer described.--A taxpayer is 
                described in this subparagraph if such taxpayer 
                is a member of an affiliated group (as defined 
                in section 1504(a)(1)) which includes--
                            ``(i) a bank (as defined in section 
                        581), or
                            ``(ii) a registered securities 
                        dealer under section 15(a) of the 
                        Securities Exchange Act of 1934.
            ``(4) Applicable section 38 credits.--For purposes 
        of paragraph (1)(B)(ii)(II), the term `applicable 
        section 38 credits' means the credit allowed under 
        section 38 for the taxable year which is properly 
        allocable to--
                    ``(A) the low-income housing credit 
                determined under section 42(a),
                    ``(B) the renewable electricity production 
                credit determined under section 45(a), and
                    ``(C) the investment credit determined 
                under section 46, but only to the extent 
                properly allocable to the energy credit 
                determined under section 48.
    ``(c) Modified Taxable Income.--For purposes of this 
section--
            ``(1) In general.--The term `modified taxable 
        income' means the taxable income of the taxpayer 
        computed under this chapter for the taxable year, 
        determined without regard to--
                    ``(A) any base erosion tax benefit with 
                respect to any base erosion payment, or
                    ``(B) the base erosion percentage of any 
                net operating loss deduction allowed under 
                section 172 for the taxable year.
            ``(2) Base erosion tax benefit.--
                    ``(A) In general.--The term `base erosion 
                tax benefit' means--
                            ``(i) any deduction described in 
                        subsection (d)(1) which is allowed 
                        under this chapter for the taxable year 
                        with respect to any base erosion 
                        payment,
                            ``(ii) in the case of a base 
                        erosion payment described in subsection 
                        (d)(2), any deduction allowed under 
                        this chapter for the taxable year for 
                        depreciation (or amortization in lieu 
                        of depreciation) with respect to the 
                        property acquired with such payment,
                            ``(iii) in the case of a base 
                        erosion payment described in subsection 
                        (d)(3)--
                                    ``(I) any reduction under 
                                section 803(a)(1)(B) in the 
                                gross amount of premiums and 
                                other consideration on 
                                insurance and annuity contracts 
                                for premiums and other 
                                consideration arising out of 
                                indemnity insurance, and
                                    ``(II) any deduction under 
                                section 832(b)(4)(A) from the 
                                amount of gross premiums 
                                written on insurance contracts 
                                during the taxable year for 
                                premiums paid for reinsurance, 
                                and
                            ``(iv) in the case of a base 
                        erosion payment described in subsection 
                        (d)(4), any reduction in gross receipts 
                        with respect to such payment in 
                        computing gross income of the taxpayer 
                        for the taxable year for purposes of 
                        this chapter.
                    ``(B) Tax benefits disregarded if tax 
                withheld on base erosion payment.--
                            ``(i) In general.--Except as 
                        provided in clause (ii), any base 
                        erosion tax benefit attributable to any 
                        base erosion payment--
                                    ``(I) on which tax is 
                                imposed by section 871 or 881, 
                                and
                                    ``(II) with respect to 
                                which tax has been deducted and 
                                withheld under section 1441 or 
                                1442,
                        shall not be taken into account in 
                        computing modified taxable income under 
                        paragraph (1)(A) or the base erosion 
                        percentage under paragraph (4).
                            ``(ii) Exception.--The amount not 
                        taken into account in computing 
                        modified taxable income by reason of 
                        clause (i) shall be reduced under rules 
                        similar to the rules under section 
                        163(j)(5)(B) (as in effect before the 
                        date of the enactment of the Tax Cuts 
                        and Jobs Act).
            ``(3) Special rules for determining interest for 
        which deduction allowed.--For purposes of applying 
        paragraph (1), in the case of a taxpayer to which 
        section 163(j) applies for the taxable year, the 
        reduction in the amount of interest for which a 
        deduction is allowed by reason of such subsection shall 
        be treated as allocable first to interest paid or 
        accrued to persons who are not related parties with 
        respect to the taxpayer and then to such related 
        parties.
            ``(4) Base erosion percentage.--For purposes of 
        paragraph (1)(B)--
                    ``(A) In general.--The term `base erosion 
                percentage' means, for any taxable year, the 
                percentage determined by dividing--
                            ``(i) the aggregate amount of base 
                        erosion tax benefits of the taxpayer 
                        for the taxable year, by
                            ``(ii) the sum of--
                                    ``(I) the aggregate amount 
                                of the deductions (including 
                                deductions described in clauses 
                                (i) and (ii) of paragraph 
                                (2)(A)) allowable to the 
                                taxpayer under this chapter for 
                                the taxable year, plus
                                    ``(II) the base erosion tax 
                                benefits described in clauses 
                                (iii) and (iv) of paragraph 
                                (2)(A) allowable to the 
                                taxpayer for the taxable year.
                    ``(B) Certain items not taken into 
                account.--The amount under subparagraph (A)(ii) 
                shall be determined by not taking into 
                account--
                            ``(i) any deduction allowed under 
                        section 172, 245A, or 250 for the 
                        taxable year,
                            ``(ii) any deduction for amounts 
                        paid or accrued for services to which 
                        the exception under subsection (d)(5) 
                        applies, and
                            ``(iii) any deduction for qualified 
                        derivative payments which are not 
                        treated as a base erosion payment by 
                        reason of subsection (h).
    ``(d) Base Erosion Payment.--For purposes of this section--
            ``(1) In general.--The term `base erosion payment' 
        means any amount paid or accrued by the taxpayer to a 
        foreign person which is a related party of the taxpayer 
        and with respect to which a deduction is allowable 
        under this chapter.
            ``(2) Purchase of depreciable property.--Such term 
        shall also include any amount paid or accrued by the 
        taxpayer to a foreign person which is a related party 
        of the taxpayer in connection with the acquisition by 
        the taxpayer from such person of property of a 
        character subject to the allowance for depreciation (or 
        amortization in lieu of depreciation).
            ``(3) Reinsurance payments.--Such term shall also 
        include any premium or other consideration paid or 
        accrued by the taxpayer to a foreign person which is a 
        related party of the taxpayer for any reinsurance 
        payments which are taken into account under sections 
        803(a)(1)(B) or 832(b)(4)(A).
            ``(4) Certain payments to expatriated entities.--
                    ``(A) In general.--Such term shall also 
                include any amount paid or accrued by the 
                taxpayer with respect to a person described in 
                subparagraph (B) which results in a reduction 
                of the gross receipts of the taxpayer.
                    ``(B) Person described.--A person is 
                described in this subparagraph if such person 
                is a--
                            ``(i) surrogate foreign corporation 
                        which is a related party of the 
                        taxpayer, but only if such person first 
                        became a surrogate foreign corporation 
                        after November 9, 2017, or
                            ``(ii) foreign person which is a 
                        member of the same expanded affiliated 
                        group as the surrogate foreign 
                        corporation.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Surrogate foreign 
                        corporation.--The term `surrogate 
                        foreign corporation' has the meaning 
                        given such term by section 
                        7874(a)(2)(B) but does not include a 
                        foreign corporation treated as a 
                        domestic corporation under section 
                        7874(b).
                            ``(ii) Expanded affiliated group.--
                        The term `expanded affiliated group' 
                        has the meaning given such term by 
                        section 7874(c)(1).
            ``(5) Exception for certain amounts with respect to 
        services.--Paragraph (1) shall not apply to any amount 
        paid or accrued by a taxpayer for services if--
                    ``(A) such services are services which meet 
                the requirements for eligibility for use of the 
                services cost method under section 482 
                (determined without regard to the requirement 
                that the services not contribute significantly 
                to fundamental risks of business success or 
                failure), and
                    ``(B) such amount constitutes the total 
                services cost with no markup component.
    ``(e) Applicable Taxpayer.--For purposes of this section--
            ``(1) In general.--The term `applicable taxpayer' 
        means, with respect to any taxable year, a taxpayer--
                    ``(A) which is a corporation other than a 
                regulated investment company, a real estate 
                investment trust, or an S corporation,
                    ``(B) the average annual gross receipts of 
                which for the 3-taxable-year period ending with 
                the preceding taxable year are at least 
                $500,000,000, and
                    ``(C) the base erosion percentage (as 
                determined under subsection (c)(4)) of which 
                for the taxable year is 3 percent (2 percent in 
                the case of a taxpayer described in subsection 
                (b)(3)(B)) or higher.
            ``(2) Gross receipts.--
                    ``(A) Special rule for foreign persons.--In 
                the case of a foreign person the gross receipts 
                of which are taken into account for purposes of 
                paragraph (1)(B), only gross receipts which are 
                taken into account in determining income which 
                is effectively connected with the conduct of a 
                trade or business within the United States 
                shall be taken into account. In the case of a 
                taxpayer which is a foreign person, the 
                preceding sentence shall not apply to the gross 
                receipts of any United States person which are 
                aggregated with the taxpayer's gross receipts 
                by reason of paragraph (3).
                    ``(B) Other rules made applicable.--Rules 
                similar to the rules of subparagraphs (B), (C), 
                and (D) of section 448(c)(3) shall apply in 
                determining gross receipts for purposes of this 
                section.
            ``(3) Aggregation rules.--All persons treated as a 
        single employer under subsection (a) of section 52 
        shall be treated as 1 person for purposes of this 
        subsection and subsection (c)(4), except that in 
        applying section 1563 for purposes of section 52, the 
        exception for foreign corporations under section 
        1563(b)(2)(C) shall be disregarded.
    ``(f) Foreign Person.--For purposes of this section, the 
term `foreign person' has the meaning given such term by 
section 6038A(c)(3).
    ``(g) Related Party.--For purposes of this section--
            ``(1) In general.--The term `related party' means, 
        with respect to any applicable taxpayer--
                    ``(A) any 25-percent owner of the taxpayer,
                    ``(B) any person who is related (within the 
                meaning of section 267(b) or 707(b)(1)) to the 
                taxpayer or any 25-percent owner of the 
                taxpayer, and
                    ``(C) any other person who is related 
                (within the meaning of section 482) to the 
                taxpayer.
            ``(2) 25-percent owner.--The term `25-percent 
        owner' means, with respect to any corporation, any 
        person who owns at least 25 percent of--
                    ``(A) the total voting power of all classes 
                of stock of a corporation entitled to vote, or
                    ``(B) the total value of all classes of 
                stock of such corporation.
            ``(3) Section 318 to apply.--Section 318 shall 
        apply for purposes of paragraphs (1) and (2), except 
        that--
                    ``(A) `10 percent' shall be substituted for 
                `50 percent' in section 318(a)(2)(C), and
                    ``(B) subparagraphs (A), (B), and (C) of 
                section 318(a)(3) shall not be applied so as to 
                consider a United States person as owning stock 
                which is owned by a person who is not a United 
                States person.
    ``(h) Exception for Certain Payments Made in the Ordinary 
Course of Trade or Business.--For purposes of this section--
            ``(1) In general.--Except as provided in paragraph 
        (3), any qualified derivative payment shall not be 
        treated as a base erosion payment.
            ``(2) Qualified derivative payment.--
                    ``(A) In general.--The term `qualified 
                derivative payment' means any payment made by a 
                taxpayer pursuant to a derivative with respect 
                to which the taxpayer--
                            ``(i) recognizes gain or loss as if 
                        such derivative were sold for its fair 
                        market value on the last business day 
                        of the taxable year (and such 
                        additional times as required by this 
                        title or the taxpayer's method of 
                        accounting),
                            ``(ii) treats any gain or loss so 
                        recognized as ordinary, and
                            ``(iii) treats the character of all 
                        items of income, deduction, gain, or 
                        loss with respect to a payment pursuant 
                        to the derivative as ordinary.
                    ``(B) Reporting requirement.--No payments 
                shall be treated as qualified derivative 
                payments under subparagraph (A) for any taxable 
                year unless the taxpayer includes in the 
                information required to be reported under 
                section 6038B(b)(2) with respect to such 
                taxable year such information as is necessary 
                to identify the payments to be so treated and 
                such other information as the Secretary 
                determines necessary to carry out the 
                provisions of this subsection.
            ``(3) Exceptions for payments otherwise treated as 
        base erosion payments.--This subsection shall not apply 
        to any qualified derivative payment if--
                    ``(A) the payment would be treated as a 
                base erosion payment if it were not made 
                pursuant to a derivative, including any 
                interest, royalty, or service payment, or
                    ``(B) in the case of a contract which has 
                derivative and nonderivative components, the 
                payment is properly allocable to the 
                nonderivative component.
            ``(4) Derivative defined.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `derivative' 
                means any contract (including any option, 
                forward contract, futures contract, short 
                position, swap, or similar contract) the value 
                of which, or any payment or other transfer with 
                respect to which, is (directly or indirectly) 
                determined by reference to one or more of the 
                following:
                            ``(i) Any share of stock in a 
                        corporation.
                            ``(ii) Any evidence of 
                        indebtedness.
                            ``(iii) Any commodity which is 
                        actively traded.
                            ``(iv) Any currency.
                            ``(v) Any rate, price, amount, 
                        index, formula, or algorithm.
                Such term shall not include any item described 
                in clauses (i) through (v).
                    ``(B) Treatment of american depository 
                receipts and similar instruments.--Except as 
                otherwise provided by the Secretary, for 
                purposes of this part, American depository 
                receipts (and similar instruments) with respect 
                to shares of stock in foreign corporations 
                shall be treated as shares of stock in such 
                foreign corporations.
                    ``(C) Exception for certain contracts.--
                Such term shall not include any insurance, 
                annuity, or endowment contract issued by an 
                insurance company to which subchapter L applies 
                (or issued by any foreign corporation to which 
                such subchapter would apply if such foreign 
                corporation were a domestic corporation).
    ``(i) Regulations.--The Secretary shall prescribe such 
regulations or other guidance as may be necessary or 
appropriate to carry out the provisions of this section, 
including regulations--
            ``(1) providing for such adjustments to the 
        application of this section as are necessary to prevent 
        the avoidance of the purposes of this section, 
        including through--
                    ``(A) the use of unrelated persons, conduit 
                transactions, or other intermediaries, or
                    ``(B) transactions or arrangements 
                designed, in whole or in part--
                            ``(i) to characterize payments 
                        otherwise subject to this section as 
                        payments not subject to this section, 
                        or
                            ``(ii) to substitute payments not 
                        subject to this section for payments 
                        otherwise subject to this section and
            ``(2) for the application of subsection (g), 
        including rules to prevent the avoidance of the 
        exceptions under subsection (g)(3).''.
    (b) Reporting Requirements and Penalties.--
            (1) In general.--Subsection (b) of section 6038A is 
        amended to read as follows:
    ``(b) Required Information.--
            ``(1) In general.--For purposes of subsection (a), 
        the information described in this subsection is such 
        information as the Secretary prescribes by regulations 
        relating to--
                    ``(A) the name, principal place of 
                business, nature of business, and country or 
                countries in which organized or resident, of 
                each person which--
                            ``(i) is a related party to the 
                        reporting corporation, and
                            ``(ii) had any transaction with the 
                        reporting corporation during its 
                        taxable year,
                    ``(B) the manner in which the reporting 
                corporation is related to each person referred 
                to in subparagraph (A), and
                    ``(C) transactions between the reporting 
                corporation and each foreign person which is a 
                related party to the reporting corporation.
            ``(2) Additional information regarding base erosion 
        payments.--For purposes of subsection (a) and section 
        6038C, if the reporting corporation or the foreign 
        corporation to whom section 6038C applies is an 
        applicable taxpayer, the information described in this 
        subsection shall include--
                    ``(A) such information as the Secretary 
                determines necessary to determine the base 
                erosion minimum tax amount, base erosion 
                payments, and base erosion tax benefits of the 
                taxpayer for purposes of section 59A for the 
                taxable year, and
                    ``(B) such other information as the 
                Secretary determines necessary to carry out 
                such section.
        For purposes of this paragraph, any term used in this 
        paragraph which is also used in section 59A shall have 
        the same meaning as when used in such section.''.
            (2) Increase in penalty.--Paragraphs (1) and (2) of 
        section 6038A(d) are each amended by striking 
        ``$10,000'' and inserting ``$25,000''.
    (c) Disallowance of Credits Against Base Erosion Tax.--
Paragraph (2) of section 26(b) is amended by inserting after 
subparagraph (A) the following new subparagraph:
                    ``(B) section 59A (relating to base erosion 
                and anti-abuse tax),''.
    (d) Conforming Amendments.--
            (1) The table of parts for subchapter A of chapter 
        1 is amended by adding after the item relating to part 
        VI the following new item:

             ``Part VII. Base Erosion and Anti-abuse Tax''.

            (2) Paragraph (1) of section 882(a), as amended by 
        this Act, is amended by inserting `` or 59A,'' after 
        ``section 11,''.
            (3) Subparagraph (A) of section 6425(c)(1), as 
        amended by section 13001, is amended to read as 
        follows:
                    ``(A) the sum of--
                            ``(i) the tax imposed by section 
                        11, or subchapter L of chapter 1, 
                        whichever is applicable, plus
                            ``(ii) the tax imposed by section 
                        59A, over''.
            (4)(A) Subparagraph (A) of section 6655(g)(1), as 
        amended by sections 12001 and 13001, is amended by 
        striking ``plus'' at the end of clause (i), by 
        redesignating clause (ii) as clause (iii), and by 
        inserting after clause (i) the following new clause:
                            ``(ii) the tax imposed by section 
                        59A, plus''.
            (B) Subparagraphs (A)(i) and (B)(i) of section 
        6655(e)(2), as amended by sections 12001 and 13001, are 
        each amended by inserting ``and modified taxable 
        income'' after ``taxable income''.
            (C) Subparagraph (B) of section 6655(e)(2) is 
        amended by adding at the end the following new clause:
                            ``(iii) Modified taxable income.--
                        The term `modified taxable income' has 
                        the meaning given such term by section 
                        59A(c)(1).''.
    (e) Effective Date.--The amendments made by this section 
shall apply to base erosion payments (as defined in section 
59A(d) of the Internal Revenue Code of 1986, as added by this 
section) paid or accrued in taxable years beginning after 
December 31, 2017.

                       PART III--OTHER PROVISIONS

SEC. 14501. 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.

SEC. 14502. REPEAL OF FAIR MARKET VALUE METHOD OF INTEREST EXPENSE 
                    APPORTIONMENT.

    (a) In General.--Paragraph (2) of section 864(e) is amended 
to read as follows:
            ``(2) Gross income and fair market value methods 
        may not be used for interest.--All allocations and 
        apportionments of interest expense shall be determined 
        using the adjusted bases of assets rather than on the 
        basis of the fair market value of the assets or gross 
        income.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2017.

                                TITLE II

SEC. 20001. OIL AND GAS PROGRAM.

    (a) Definitions.--In this section:
            (1) Coastal plain.--The term ``Coastal Plain'' 
        means the area identified as the 1002 Area on the 
        plates prepared by the United States Geological Survey 
        entitled ``ANWR Map - Plate 1'' and ``ANWR Map - Plate 
        2'', dated October 24, 2017, and on file with the 
        United States Geological Survey and the Office of the 
        Solicitor of the Department of the Interior.
            (2) Secretary.--The term ``Secretary'' means the 
        Secretary of the Interior, acting through the Bureau of 
        Land Management.
    (b) Oil and Gas Program.--
            (1) In general.--Section 1003 of the Alaska 
        National Interest Lands Conservation Act (16 U.S.C. 
        3143) shall not apply to the Coastal Plain.
            (2) Establishment.--
                    (A) In general.--The Secretary shall 
                establish and administer a competitive oil and 
                gas program for the leasing, development, 
                production, and transportation of oil and gas 
                in and from the Coastal Plain.
                    (B) Purposes.--Section 303(2)(B) of the 
                Alaska National Interest Lands Conservation Act 
                (Public Law 96-487; 94 Stat. 2390) is amended--
                            (i) in clause (iii), by striking 
                        ``and'' at the end;
                            (ii) in clause (iv), by striking 
                        the period at the end and inserting ``; 
                        and''; and
                            (iii) by adding at the end the 
                        following:
                            ``(v) to provide for an oil and gas 
                        program on the Coastal Plain.''.
            (3) Management.--Except as otherwise provided in 
        this section, the Secretary shall manage the oil and 
        gas program on the Coastal Plain in a manner similar to 
        the administration of lease sales under the Naval 
        Petroleum Reserves Production Act of 1976 (42 U.S.C. 
        6501 et seq.) (including regulations).
            (4) Royalties.--Notwithstanding the Mineral Leasing 
        Act (30 U.S.C. 181 et seq.), the royalty rate for 
        leases issued pursuant to this section shall be 16.67 
        percent.
            (5) Receipts.--Notwithstanding the Mineral Leasing 
        Act (30 U.S.C. 181 et seq.), of the amount of adjusted 
        bonus, rental, and royalty receipts derived from the 
        oil and gas program and operations on Federal land 
        authorized under this section--
                    (A) 50 percent shall be paid to the State 
                of Alaska; and
                    (B) the balance shall be deposited into the 
                Treasury as miscellaneous receipts.
    (c) 2 Lease Sales Within 10 Years.--
            (1) Requirement.--
                    (A) In general.--Subject to subparagraph 
                (B), the Secretary shall conduct not fewer than 
                2 lease sales area-wide under the oil and gas 
                program under this section by not later than 10 
                years after the date of enactment of this Act.
                    (B) Sale acreages; schedule.--
                            (i) Acreages.--The Secretary shall 
                        offer for lease under the oil and gas 
                        program under this section--
                                    (I) not fewer than 400,000 
                                acres area-wide in each lease 
                                sale; and
                                    (II) those areas that have 
                                the highest potential for the 
                                discovery of hydrocarbons.
                            (ii) Schedule.--The Secretary shall 
                        offer--
                                    (I) the initial lease sale 
                                under the oil and gas program 
                                under this section not later 
                                than 4 years after the date of 
                                enactment of this Act; and
                                    (II) a second lease sale 
                                under the oil and gas program 
                                under this section not later 
                                than 7 years after the date of 
                                enactment of this Act.
            (2) Rights-of-way.--The Secretary shall issue any 
        rights-of-way or easements across the Coastal Plain for 
        the exploration, development, production, or 
        transportation necessary to carry out this section.
            (3) Surface development.--In administering this 
        section, the Secretary shall authorize up to 2,000 
        surface acres of Federal land on the Coastal Plain to 
        be covered by production and support facilities 
        (including airstrips and any area covered by gravel 
        berms or piers for support of pipelines) during the 
        term of the leases under the oil and gas program under 
        this section.

SEC. 20002. LIMITATIONS ON AMOUNT OF DISTRIBUTED QUALIFIED OUTER 
                    CONTINENTAL SHELF REVENUES.

    Section 105(f)(1) of the Gulf of Mexico Energy Security Act 
of 2006 (43 U.S.C. 1331 note; Public Law 109-432) is amended by 
striking ``exceed $500,000,000 for each of fiscal years 2016 
through 2055.'' and inserting the following: ``exceed--
                    ``(A) $500,000,000 for each of fiscal years 
                2016 through 2019;
                    ``(B) $650,000,000 for each of fiscal years 
                2020 and 2021; and
                    ``(C) $500,000,000 for each of fiscal years 
                2022 through 2055.''.

SEC. 20003. STRATEGIC PETROLEUM RESERVE DRAWDOWN AND SALE.

    (a) Drawdown and Sale.--
            (1) In general.--Notwithstanding section 161 of the 
        Energy Policy and Conservation Act (42 U.S.C. 6241), 
        except as provided in subsections (b) and (c), the 
        Secretary of Energy shall draw down and sell from the 
        Strategic Petroleum Reserve 7,000,000 barrels of crude 
        oil during the period of fiscal years 2026 through 
        2027.
            (2) Deposit of amounts received from sale.--Amounts 
        received from a sale under paragraph (1) shall be 
        deposited in the general fund of the Treasury during 
        the fiscal year in which the sale occurs.
    (b) Emergency Protection.--The Secretary of Energy shall 
not draw down and sell crude oil under subsection (a) in a 
quantity that would limit the authority to sell petroleum 
products under subsection (h) of section 161 of the Energy 
Policy and Conservation Act (42 U.S.C. 6241) in the full 
quantity authorized by that subsection.
    (c) Limitation.--The Secretary of Energy shall not drawdown 
or conduct sales of crude oil under subsection (a) after the 
date on which a total of $600,000,000 has been deposited in the 
general fund of the Treasury from sales authorized under that 
subsection.
      And the Senate agree to the same.
                From the Committee on Ways and Means, for 
                consideration of the House bill and the Senate 
                amendment, and modifications committed to 
                conference:

                                   Kevin Brady,
                                   Devin Nunes,
                                   Peter J. Roskam,
                                   Diane Black,
                                   Kristi L. Noem,
                From the Committee on Energy and Commerce, for 
                consideration of sec. 20003 of the Senate 
                amendment, and modifications committed to 
                conference:
                                   Fred Upton,
                                   John Shimkus,
                From the Committee on Natural Resources, for 
                consideration of secs. 20001 and 20002 of the 
                Senate amendment, and modifications committed 
                to conference:
                                   Rob Bishop,
                                   Don Young,
                                 Managers on the Part of the House.

                                   Orrin G. Hatch,
                                   Michael B. Enzi,
                                   Lisa Murkowski,
                                   John Cornyn,
                                   John Thune,
                                   Rob Portman,
                                   Tim Scott,
                                   Patrick J. Toomey,
                                Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and the Senate at 
the conference on the disagreeing votes of the two Houses on 
the amendment of the Senate to the bill (H.R. 1), the Tax Cuts 
and Jobs Act, submit the following joint statement to the House 
and the Senate in explanation of the effect of the action 
agreed upon by the managers and recommended in the accompanying 
conference report:
      The Senate amendment struck all of the House bill after 
the enacting clause and inserted a substitute text.
      The House recedes from its disagreement to the amendment 
of the Senate with an amendment that is a substitute for the 
House bill and the Senate amendment. The differences between 
the House bill, the Senate amendment, and the substitute agreed 
to in conference are noted below, except for clerical 
corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clarifying 
changes.

                                TITLE I

                       INDIVIDUAL TAX PROVISIONS

 A. Reduction and Simplification of Individual Income Tax Rates (sec. 
1001 of the House bill, sec. 11001 of the Senate amendment, 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(e)(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).
---------------------------------------------------------------------------
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.

                               HOUSE BILL

Modification of rates
      The House bill replaces the individual income tax rate 
structure with a new rate structure.

 TABLE 2.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2018 UNDER THE HOUSE
                                  BILL
------------------------------------------------------------------------
           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 dollar amounts for bracket thresholds are all 
adjusted for inflation and then rounded to the next lowest 
multiple of $100 in future years.\12\ Unlike present law, which 
uses a measure of the Consumer Price Index for All Urban 
Consumers (``CPI-U''), the new inflation adjustment uses the 
Chained Consumer Price Index for All Urban Consumers (``C-CPI-
U'').
---------------------------------------------------------------------------
    \12\Some thresholds are defined as 1/2 of dollar amounts and thus 
may be multiples of $50.
---------------------------------------------------------------------------
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 ordinary and capital gains rates 
applicable to trusts and estates to the net unearned income of 
a child. Thus, as under present law, taxable income 
attributable to earned income is taxed according to an 
unmarried taxpayers' brackets and rates. Taxable income 
attributable to net unearned income is taxed according to the 
brackets applicable to trusts and estates, with respect to both 
ordinary income and income taxed at preferential rates. Thus, 
under the provision, the child's tax is unaffected by the tax 
situation of the child's parent or the unearned income of any 
siblings.
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 based on 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, such gain 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 applies to taxable years 
beginning after December 31, 2017.

                            SENATE AMENDMENT

Temporary modification of rates
      The Senate amendment temporarily replaces the individual 
income tax rate structure with a new rate structure.

 TABLE 3.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2018 UNDER THE SENATE
                                AMENDMENT
------------------------------------------------------------------------
           If taxable income is:               Then income tax equals:
------------------------------------------------------------------------
                           Single Individuals
Not over $9,525...........................  10% of the taxable income
Over $9,525 but not over $38,700..........  $952.50 plus 12% of the
                                             excess over $9,525
Over $38,700 but not over $70,000.........  $4,453.50 plus 22% of the
                                             excess over $38,700
Over $70,000 but not over $160,000........  $11,339.50 plus 24% of the
                                             excess over $70,000
Over $160,000 but not over $200,000.......  $32,939.50 plus 32% of the
                                             excess over $160,000
Over $200,000 but not over $500,000.......  $45,739.50 plus 35% of the
                                             excess over $200,000
Over $500,000.............................  $150,739.50 plus 38.5% of
                                             the excess over $500,000
------------------------------------------------------------------------
                           Heads of Households
Not over $13,600..........................  10% of the taxable income
Over $13,600 but not over $51,800.........  $1,360 plus 12% of the
                                             excess over $13,600
Over $51,800 but not over $70,000.........  $5,944 plus 22% of the
                                             excess over $51,800
Over $70,000 but not over $160,000........  $9,948 plus 24% of the
                                             excess over $70,000
Over $160,000 but not over $200,000.......  $31,548 plus 32% of the
                                             excess over $160,000
Over $200,000 but not over $500,000.......  $44,348 plus 35% of the
                                             excess over $200,000
Over $500,000.............................  $149,348 plus 38.5% of the
                                             excess over $500,000
------------------------------------------------------------------------
     Married Individuals Filing Joint Returns and Surviving Spouses
Not over $19,050..........................  10% of the taxable income
Over $19,050 but not over $77,400.........  $1,905 plus 12% of the
                                             excess over $19,050
Over $77,400 but not over $140,000........  $8,907 plus 22% of the
                                             excess over $77,400
Over $140,000 but not over $320,000.......  $22,679 plus 24% of the
                                             excess over $140,000
Over $320,000 but not over $400,000.......  $65,879 plus 32% of the
                                             excess over $320,000
Over $400,000 but not over $1,000,000.....  $91,479 plus 35% of the
                                             excess over $400,000
Over $1,000,000...........................  $301,479 plus 38.5% of the
                                             excess over $1,000,000
------------------------------------------------------------------------
               Married Individuals Filing Separate Returns
Not over $9,525...........................  10% of the taxable income
Over $9,525 but not over $38,700..........  $952.50 plus 12% of the
                                             excess over $9,525
Over $38,700 but not over $70,000.........  $4,453.50 plus 22% of the
                                             excess over $38,700
Over $70,000 but not over $160,000........  $11,339.50 plus 24% of the
                                             excess over $70,000
Over $160,000 but not over $200,000.......  $32,939.50 plus 32% of the
                                             excess over $160,000
Over $200,000 but not over $500,000.......  $45,739.50 plus 35% of the
                                             excess over $200,000
Over $500,000.............................  $150,739.50 plus 38.5% of
                                             the excess over $500,000
------------------------------------------------------------------------
                           Estates and Trusts
Not over $2,550...........................  10% of the taxable income
Over $2,550 but not over $9,150...........  $255 plus 24% of the excess
                                             over $2,550
Over $9,150 but not over $12,500..........  $1,839 plus 35% of the
                                             excess over $9,150
Over $12,500..............................  $3,011.50 plus 38.5% of the
                                             excess over $12,500
------------------------------------------------------------------------

      Unlike present law, which uses a measure of the CPI-U, 
the new inflation adjustment uses the C-CPI-U.
      The provision's rate structure does not apply to taxable 
years beginning after December 31, 2025.
Temporary simplification of tax on unearned income of children
      The Senate amendment follows the House bill in applying 
ordinary and capital gains rates applicable to trusts and 
estates to the net unearned income of a child, but does not 
apply these changes to taxable years beginning after December 
31, 2025.
Maximum rates on capital gains and qualified dividends
      The Senate amendment follows the House bill and generally 
retains the present-law maximum rates on net capital gain and 
qualified dividends.
Paid preparer due diligence requirement for head of household status
      The Senate amendment directs the Secretary of the 
Treasury to promulgate due diligence requirements for paid 
preparers in determining eligibility for a taxpayer to file as 
head of household. A penalty of $500 is imposed for each 
failure to meet these requirements.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2017.

                          CONFERENCE AGREEMENT

      The conference agreement temporarily replaces the 
existing rate structure with a new rate structure.

    TABLE 4.--FEDERAL INDIVIDUAL INCOME TAX RATES FOR 2018 UNDER THE
                          CONFERENCE AGREEMENT
------------------------------------------------------------------------
           If taxable income is:               Then income tax equals:
------------------------------------------------------------------------
                           Single Individuals
Not over $9,525...........................  10% of the taxable income
Over $9,525 but not over $38,700..........  $952.50 plus 12% of the
                                             excess over $9,525
Over $38,700 but not over $82,500.........  $4,453.50 plus 22% of the
                                             excess over $38,700
Over $82,500 but not over $157,500........  $14,089.50 plus 24% of the
                                             excess over $82,500
Over $157,500 but not over $200,000.......  $32,089.50 plus 32% of the
                                             excess over $157,500
Over $200,000 but not over $500,000.......  $45,689.50 plus 35% of the
                                             excess over $200,000
Over $500,000.............................  $150,689.50 plus 37% of the
                                             excess over $500,000
------------------------------------------------------------------------
                           Heads of Households
Not over $13,600..........................  10% of the taxable income
Over $13,600 but not over $51,800.........  $1,360 plus 12% of the
                                             excess over $13,600
Over $51,800 but not over $82,500.........  $5,944 plus 22% of the
                                             excess over $51,800
Over $82,500 but not over $157,500........  $12,698 plus 24% of the
                                             excess over $82,500
Over $157,500 but not over $200,000.......  $30,698 plus 32% of the
                                             excess over $157,500
Over $200,000 but not over $500,000.......  $44,298 plus 35% of the
                                             excess over $200,000
Over $500,000.............................  $149,298 plus 37% of the
                                             excess over $500,000
------------------------------------------------------------------------
     Married Individuals Filing Joint Returns and Surviving Spouses
Not over $19,050..........................  10% of the taxable income
Over $19,050 but not over $77,400.........  $1,905 plus 12% of the
                                             excess over $19,050
Over $77,400 but not over $165,000........  $8,907 plus 22% of the
                                             excess over $77,400
Over $165,000 but not over $315,000.......  $28,179 plus 24% of the
                                             excess over $165,000
Over $315,000 but not over $400,000.......  $64,179 plus 32% of the
                                             excess over $315,000
Over $400,000 but not over $600,000.......  $91,379 plus 35% of the
                                             excess over $400,000
Over $600,000.............................  $161,379 plus 37% of the
                                             excess over $600,000
------------------------------------------------------------------------
               Married Individuals Filing Separate Returns
Not over $9,525...........................  10% of the taxable income
Over $9,525 but not over $38,700..........  $952.50 plus 12% of the
                                             excess over $9,525
Over $38,700 but not over $82,500.........  $4,453.50 plus 22% of the
                                             excess over $38,700
Over $82,500 but not over $157,500........  $14,089.50 plus 24% of the
                                             excess over $82,500
Over $157,500 but not over $200,000.......  $32,089.50 plus 32% of the
                                             excess over $157,500
Over $200,000 but not over $300,000.......  $45,689.50 plus 35% of the
                                             excess over $200,000
Over $300,000.............................  $80,689.50 plus 37% of the
                                             excess over $300,000
------------------------------------------------------------------------
                           Estates and Trusts
Not over $2,550...........................  10% of the taxable income
Over $2,550 but not over $9,150...........  $255 plus 24% of the excess
                                             over $2,550
Over $9,150 but not over $12,500..........  $1,839 plus 35% of the
                                             excess over $9,150
Over $12,500..............................  $3,011.50 plus 37% of the
                                             excess over $12,500
------------------------------------------------------------------------

      The provision's rate structure does not apply to taxable 
years beginning after December 31, 2025.
      The conference agreement does not follow the House bill 
in phasing out the 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 conference agreement follows the House bill and 
generally retains present-law maximum rates on net capital 
gains and qualified dividends.
      The conference agreement follows the House bill in 
simplifying the tax on the unearned income of children. This 
provision does not apply to taxable years beginning after 
December 31, 2025.
      The conference agreement follows the Senate amendment and 
directs the Secretary of the Treasury to promulgate due 
diligence requirements for paid preparers in determining 
eligibility for a taxpayer to file as head of household.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2017.
1. Increase in standard deduction (sec. 1002 of the House bill, sec. 
        11021 of the Senate amendment, and sec. 63 of the Code)

                              PRESENT LAW

      Under present law, an individual who does not elect to 
itemize deductions may reduce his or her adjusted gross income 
(``AGI'') by the amount of the applicable standard deduction in 
arriving at his or her taxable income. The standard deduction 
is the sum of the basic standard deduction and, if applicable, 
the additional standard deduction. The basic standard deduction 
varies depending upon a taxpayer's filing status. For 2017, the 
amount of the basic standard deduction is $6,350 for single 
individuals and married individuals filing separate returns, 
$9,350 for heads of households, and $12,700 for married 
individuals filing a joint return and surviving spouses. An 
additional standard deduction is allowed with respect to any 
individual who is elderly or blind.\13\ The amount of the 
standard deduction is indexed annually for inflation.
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    \13\For 2017, the additional amount is $1,250 for married taxpayers 
(for each spouse meeting the applicable criterion) and surviving 
spouses. The additional amount for single individuals and heads of 
households is $1,550. An individual who qualifies as both blind and 
elderly is entitled to two additional standard deductions, 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.

                               HOUSE BILL

      The House bill 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 C-CPI-U 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.

                            SENATE AMENDMENT

      The Senate amendment temporarily increases the basic 
standard deduction for individuals across all filing statuses. 
Under the provision, the amount of the standard deduction is 
temporarily increased to $24,000 for married individuals filing 
a joint return, $18,000 for head-of-household filers, and 
$12,000 for all other individuals. The amount of the standard 
deduction is indexed for inflation using the C-CPI-U for 
taxable years beginning after December 31, 2018.
      The additional standard deduction for the elderly and the 
blind is not changed by the provision.
      The increase of the basic standard deduction does not 
apply to taxable years beginning after December 31, 2025.\15\
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    \15\The standard deduction continues to be indexed with the C-CPI-U 
after this sunset.
---------------------------------------------------------------------------
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2017.

                          CONFERENCE AGREEMENT

      The conference agreement follows the Senate amendment.
2. Repeal of the deduction for personal exemptions (sec. 1003 of the 
        House bill, sec. 11041 of the Senate amendment, and sec. 151 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 married taxpayers filing 
jointly, $287,650 for heads of household, $156,900 for married 
taxpayers filing separately, 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.

                               HOUSE BILL

      The House bill 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.

                            SENATE AMENDMENT

      The Senate amendment suspends the deduction for personal 
exemptions.\16\
---------------------------------------------------------------------------
    \16\The provision also clarifies that, for purposes of taxable 
years in which the personal exemption is reduced to zero, this should 
not alter the operation of those provisions of the Code which refer to 
a taxpayer allowed a deduction (or an individual with respect to whom a 
taxpayer is allowed a deduction) under section 151. Thus, for instance, 
sec. 24(a) allows a credit against tax with respect to each qualifying 
child of the taxpayer for which the taxpayer is allowed a deduction 
under section 151. A qualifying child, as defined under section 152(c), 
remains eligible for the credit, notwithstanding that the deduction 
under section 151 has been reduced to zero.
---------------------------------------------------------------------------
      The Senate amendment follows the House bill in modifying 
the requirements for those who are required to file a tax 
return.
      The provision does not apply to taxable years beginning 
after December 31, 2025.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2017.

                          CONFERENCE AGREEMENT

      The conference agreement follows the Senate amendment and 
suspends the deduction for personal exemptions. The suspension 
does not apply to taxable years beginning after December 31, 
2025.
      The conference agreement generally follows the House bill 
in modifying the withholding rules to reflect that taxpayers no 
longer claim personal exemptions under the conference 
agreement.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2017. The conference 
agreement provides that the Secretary may administer the 
withholding rules under section 3402 for taxable years 
beginning before January 1, 2019, without regard to the 
amendments made under this provision. Thus, at the Secretary's 
discretion, wage withholding rules may remain the same as under 
present law for 2018.
3. Alternative inflation adjustment (secs. 1001 and 1005 of the House 
        bill, sec. 11002 of the Senate amendment, and sec. 1 of the 
        Code)

                              PRESENT LAW

      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'').\17\ 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.
---------------------------------------------------------------------------
    \17\Generally, the Code adjusts calendar year values for cost of 
living by using the percentage by which the price index for the 
preceding calendar year exceeds the price index for a base calendar 
year. Sec. 1(f).
---------------------------------------------------------------------------
      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.

                               HOUSE BILL

      The House bill requires the use of the Chained Consumer 
Price Index for All Urban Consumers (``C-CPI-U'') to adjust 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.
      Under the provision, indexed parameters in the Code 
switch from CPI-U indexing to C-CPI-U indexing going forward in 
taxable years beginning after December 31, 2017. Therefore, in 
the case of any existing tax parameters that are not reset for 
2018, the provision indexes parameters as if CPI-U applies 
through 2017 and C-CPI-U applies for years thereafter; the 
provision does not index all existing tax parameters from their 
base years using the C-CPI-U. Tax parameters with cost-of-
living adjustment base years of 2016 and later are indexed 
solely with C-CPI-U. Therefore, tax values that are reset for 
2018 are indexed by the C-CPI-U in taxable years beginning 
after December 31, 2018.\18\
---------------------------------------------------------------------------
    \18\One exception is the increased standard deduction which is 
indexed by C-CPI-U in taxable years beginning after December 31, 2019 
and therefore is the same in 2018 and 2019.
---------------------------------------------------------------------------
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2017.

                            SENATE AMENDMENT

      The Senate amendment generally follows the House 
bill.\19\
---------------------------------------------------------------------------
    \19\The Senate Amendment indexes all tax values that are 
temporarily reset for 2018, including the basic standard deduction, 
with the C-CPI-U in taxable years beginning after December 31, 2018.
---------------------------------------------------------------------------
      The provision requiring C-CPI-U indexing after 2017 is 
permanent. Thus, after certain temporary tax parameters sunset, 
such as bracket thresholds and the increased basic standard 
deduction, corresponding present law values in the Code are 
indexed appropriately with the C-CPI-U.
      Effective date.--The provision applies to taxable years 
beginning after December 31, 2017.

                          CONFERENCE AGREEMENT

      The conference agreement follows the Senate amendment.

  B. Treatment of Business Income of Individuals, Trusts, and Estates

1. Deduction for qualified business income (sec. 1004 of the House 
        bill, sec. 11011 of the Senate amendment, and sec. 199A 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.
Partnerships
      Partnerships generally are treated for Federal income tax 
purposes as pass-through entities not subject to tax at the 
entity level.\20\ 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).\21\ A partner's deduction for partnership 
losses is limited to the partner's adjusted basis in its 
partnership interest.\22\ 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.\23\ Partners generally may 
receive distributions of partnership property without 
recognition of gain or loss, subject to some exceptions.\24\
---------------------------------------------------------------------------
    \20\Sec. 701.
    \21\Sec. 702(a).
    \22\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.
    \23\Sec. 705.
    \24\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.\25\ 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.\26\
---------------------------------------------------------------------------
    \25\Sec. 704(b)(2).
    \26\Treas. Reg. sec. 1.704-1(b)(2).
---------------------------------------------------------------------------
      State laws of every State provide for limited liability 
companies\27\ (``LLCs''), which are neither partnerships nor 
corporations under applicable State law, but which are 
generally treated as partnerships for Federal tax purposes.\28\
---------------------------------------------------------------------------
    \27\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.
    \28\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 be treated as a corporation for 
Federal income tax purposes. Treas. Reg. sec. 301.7701-3. These are 
known as the ``check-the-box'' regulations.
---------------------------------------------------------------------------
      Under present law, a publicly traded partnership 
generally is treated as a corporation for Federal tax 
purposes.\29\ 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).\30\
---------------------------------------------------------------------------
    \29\Sec. 7704(a).
    \30\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.\31\
---------------------------------------------------------------------------
    \31\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
      For Federal income tax purposes, an S corporation\32\ 
generally is not subject to tax at the corporate level.\33\ 
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.\34\
---------------------------------------------------------------------------
    \32\An S corporation is so named because its Federal tax treatment 
is governed by subchapter S of the Code.
    \33\Secs. 1363 and 1366.
    \34\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).
---------------------------------------------------------------------------
      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.
            Electing S corporation status
      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.\35\ Only individuals (other 
than nonresident aliens), certain tax-exempt organizations, and 
certain trusts and estates are permitted shareholders of an S 
corporation.
---------------------------------------------------------------------------
    \35\Sec. 1361. For this purpose, a husband and wife and all members 
of a family are treated as one shareholder. Sec. 1361(c)(1).
---------------------------------------------------------------------------
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.\36\ 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,\37\ for certain excise 
taxes,\38\ and certain information reporting requirements.\39\
---------------------------------------------------------------------------
    \36\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).
    \37\Treas. Reg. sec. 301.7701-2(c)(2)(iv).
    \38\Treas. Reg. sec. 301.7701-2(c)(2)(v).
    \39\Treas. Reg. sec. 301.7701-2(c)(2)(vi).
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                               HOUSE BILL

      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.

                            SENATE AMENDMENT

In general
      For taxable years beginning after December 31, 2017 and 
before January 1, 2026, an individual taxpayer generally may 
deduct 23 percent of qualified business income from a 
partnership, S corporation, or sole proprietorship, as well as 
23 percent of aggregate qualified REIT dividends, qualified 
cooperative dividends, and qualified publicly traded 
partnership income. Special rules apply to specified 
agricultural or horticultural cooperatives. A limitation based 
on W-2 wages paid is phased in above a threshold amount of 
taxable income. A disallowance of the deduction with respect to 
specified service trades or businesses is also phased in above 
the threshold amount of taxable income.\40\
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    \40\For purposes of this provision, taxable income is computed 
without regard to the 23 percent deduction.
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Qualified business income
      Qualified business income is determined for each 
qualified trade or business of the taxpayer. For any taxable 
year, qualified business income means the net amount of 
qualified items of income, gain, deduction, and loss with 
respect to the qualified trade or business of the taxpayer. The 
determination of qualified items of income, gain, deduction, 
and loss takes into account these items only to the extent 
included or allowed in the determination of taxable income for 
the year. For example, if in a taxable year, a qualified 
business has $100,000 of ordinary income from inventory sales, 
and makes an expenditure of $25,000 that is required to be 
capitalized and amortized over 5 years under applicable tax 
rules, the qualified business income is $100,000 minus $5,000 
(current-year ordinary amortization deduction), or $95,000. The 
qualified 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.
      If the net amount of qualified business income from all 
qualified trades or businesses during the taxable year is a 
loss, it is carried forward as a loss from a qualified trade or 
business in the next taxable year. Similar to a qualified trade 
or business that has a qualified business loss for the current 
taxable year, any deduction allowed in a subsequent year is 
reduced (but not below zero) by 23 percent of any carryover 
qualified business loss. For example, Taxpayer has qualified 
business income of $20,000 from qualified business A and a 
qualified business loss of $50,000 from qualified business B in 
Year 1. Taxpayer is not permitted a deduction for Year 1 and 
has a carryover qualified business loss of $30,000 to Year 2. 
In Year 2, Taxpayer has qualified business income of $20,000 
from qualified business A and qualified business income of 
$50,000 from qualified business B. To determine the deduction 
for Year 2, Taxpayer reduces the 23 percent deductible amount 
determined for the qualified business income of $70,000 from 
qualified businesses A and B by 23 percent of the $30,000 
carryover qualified business loss.
            Domestic business
      Items are treated as qualified items of income, gain, 
deduction, and loss only to the extent they are effectively 
connected with the conduct of a trade or business within the 
United States.\41\ In the case of a taxpayer who is an 
individual with otherwise qualified business income from 
sources within the commonwealth of Puerto Rico, if all the 
income is taxable under section 1 (income tax rates for 
individuals) for the taxable year, the ``United States'' is 
considered to include Puerto Rico for purposes of determining 
the individual's qualified business income.
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    \41\For this purpose, section 864(c) is applied substituting 
``qualified trade or business (within the meaning of section 199A)'' 
for ``nonresident alien individual or a foreign corporation'' or ``a 
foreign corporation.''
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            Treatment of investment income
      Qualified items do not include specified investment-
related income, deductions, or loss. Specifically, qualified 
items of income, gain, deduction and loss do 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 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. Qualified items under this 
provision do not include any item of deduction or loss properly 
allocable to such income.
            Reasonable compensation and guaranteed payments
      Qualified business income does not include any amount 
paid by an S corporation that is treated as reasonable 
compensation of the taxpayer. Similarly, qualified business 
income does not include any guaranteed payment for services 
rendered with respect to the trade or business,\42\ and to the 
extent provided in regulations, does not include any amount 
paid or incurred by a partnership to a partner who is acting 
other than in his or her capacity as a partner for 
services.\43\
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    \42\Described in sec. 707(c).
    \43\Described in sec. 707(a).
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            Qualified trade or business
      A qualified trade or business means any trade or business 
other than a specified service trade or business and other than 
the trade or business of being an employee.
            Specified service business
      A specified service trade or business means any trade or 
business involving the performance of services in the fields of 
health,\44\ law, engineering, architecture, accounting, 
actuarial science, performing arts,\45\ consulting,\46\ 
athletics, financial services, brokerage services, including 
investing and investment management, trading, or dealing in 
securities, partnership interests, or commodities, and 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. 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).
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    \44\A similar list of service trades or business is provided in 
section 448(d)(2)(A) and Treas. Reg. sec. 1.448-1T(e)(4)(i). For 
purposes of section 448, Treasury regulations provide that the 
performance of services in the field of health means the provision of 
medical services by physicians, nurses, dentists, and other similar 
healthcare professionals. The performance of services in the field of 
health does not include the provision of services not directly related 
to a medical field, even though the services may purportedly relate to 
the health of the service recipient. For example, the performance of 
services in the field of health does not include the operation of 
health clubs or health spas that provide physical exercise or 
conditioning to their customers. See Treas. Reg. sec. 1.448-
1T(e)(4)(ii).
    \45\For purposes of the similar list of services in section 448, 
Treasury regulations provide that the performance of services in the 
field of the performing arts means the provision of services by actors, 
actresses, singers, musicians, entertainers, and similar artists in 
their capacity as such. The performance of services in the field of the 
performing arts does not include the provision of services by persons 
who themselves are not performing artists (e.g., persons who may manage 
or promote such artists, and other persons in a trade or business that 
relates to the performing arts). Similarly, the performance of services 
in the field of the performing arts does not include the provision of 
services by persons who broadcast or otherwise disseminate the 
performance of such artists to members of the public (e.g., employees 
of a radio station that broadcasts the performances of musicians and 
singers). See Treas. Reg. sec. 1.448-1T(e)(4)(iii).
    \46\For purposes of the similar list of services in section 448, 
Treasury regulations provide that the performance of services in the 
field of consulting means the provision of advice and counsel. The 
performance of services in the field of consulting does not include the 
performance of services other than advice and counsel, such as sales or 
brokerage services, or economically similar services. For purposes of 
the preceding sentence, the determination of whether a person's 
services are sales or brokerage services, or economically similar 
services, shall be based on all the facts and circumstances of that 
person's business. Such facts and circumstances include, for example, 
the manner in which the taxpayer is compensated for the services 
provided (e.g., whether the compensation for the services is contingent 
upon the consummation of the transaction that the services were 
intended to effect). See Treas. Reg. sec. 1.448-1T(e)(4)(iv).
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            Phase-in of specified service business limitation
      The exclusion from the definition of a qualified business 
for specified service trades or businesses phases in for a 
taxpayer with taxable income in excess of a threshold amount. 
The threshold amount is $250,000 (200 percent of that amount, 
or $500,000, in the case of a joint return) (the ``threshold 
amount''). The threshold amount is indexed for inflation. The 
exclusion from the definition of a qualified business for 
specified service trades or businesses is fully phased in for a 
taxpayer with taxable income in excess of the threshold amount 
plus $50,000 ($100,000 in the case of a joint return). For a 
taxpayer with taxable income within the phase-in range, the 
exclusion applies as follows.
      In computing the qualified business income with respect 
to a specified service trade or business, the taxpayer takes 
into account only the applicable percentage of qualified items 
of income, gain, deduction, or loss, and of allocable W-2 
wages. The applicable percentage with respect to any taxable 
year is 100 percent reduced by the percentage equal to the 
ratio of the excess of the taxable income of the taxpayer over 
the threshold amount bears to $50,000 ($100,000 in the case of 
a joint return).
      For example, Taxpayer has taxable income of $280,000, of 
which $200,000 is attributable to an accounting sole 
proprietorship after paying wages of $100,000 to employees. 
Taxpayer has an applicable percentage of 40 percent.\47\ In 
determining includible qualified business income, Taxpayer 
takes into account 40 percent of $200,000, or $80,000. In 
determining the includible W-2 wages, Taxpayer takes into 
account 40 percent of $100,000, or $40,000. Taxpayer calculates 
the deduction by taking the lesser of 23 percent of $80,000 
($18,400) or 50 percent of $40,000 ($20,000). Taxpayer takes a 
deduction for $18,400.
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    \47\1 - ($280,000 - $250,000)/$50,000 = 1 - 30,000/50,000 = 1 -.6 = 
40 percent.
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Tentative deductible amount for a qualified trade or business
            In general
      For each qualified trade or business, the taxpayer is 
allowed a deductible amount equal to the lesser of 23 percent 
of the qualified business income with respect to such trade or 
business or 50 percent of the W-2 wages with respect to such 
business (the ``wage limit''). However, if the taxpayer's 
taxable income is below the threshold amount, the deductible 
amount for each qualified trade or business is equal to 23 
percent of the qualified business income with respect to each 
respective trade or business.
            W-2 wages
      W-2 wages are the total wages\48\ subject to wage 
withholding, elective deferrals,\49\ and deferred 
compensation\50\ paid by the qualified trade or business with 
respect to employment of its employees during the calendar year 
ending during the taxable year of the taxpayer.\51\ W-2 wages 
do not include any amount which is not properly allocable to 
the qualified business income as a qualified item of deduction. 
In addition, W-2 wages do not include any amount which was not 
properly included in a return filed with the Social Security 
Administration on or before the 60th day after the due date 
(including extensions) for such return.
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    \48\Defined in sec. 3401(a).
    \49\Within the meaning of sec. 402(g)(3).
    \50\Deferred compensation includes compensation deferred under 
section 457, as well as the amount of any designated Roth contributions 
(as defined in section 402A).
    \51\In the case of a taxpayer with a short taxable year that does 
not contain a calendar year ending during such short taxable year, the 
Committee intends that the following amounts shall be treated as the W-
2 wages of the taxpayer for the short taxable year: (1) only those 
wages paid during the short taxable year to employees of the qualified 
trade or business, (2) only those elective deferrals (within the 
meaning of section 402(g)(3)) made during the short taxable year by 
employees of the qualified trade or business, and (3) only compensation 
actually deferred under section 457 during the short taxable year with 
respect to employees of the qualified trade or business. The Committee 
intends that amounts that are treated as W-2 wages for a taxable year 
shall not be treated as W-2 wages of any other taxable year.
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      In the case of a taxpayer who is an individual with 
otherwise qualified business income from sources within the 
commonwealth of Puerto Rico, if all the income is taxable under 
section 1 (income tax rates for individuals) for the taxable 
year, the determination of W-2 wages with respect to the 
taxpayer's trade or business conducted in Puerto Rico is made 
without regard to any exclusion under the wage withholding 
rules\52\ for remuneration paid for services in Puerto Rico.
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    \52\As provided in sec. 3401(a)(8).
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            Phase-in of wage limit
      The application of the wage limit phases in for a 
taxpayer with taxable income in excess of the threshold amount. 
The wage limit applies fully for a taxpayer with taxable income 
in excess of the threshold amount plus $50,000 ($100,000 in the 
case of a joint return). For a taxpayer with taxable income 
within the phase-in range, the wage limit applies as follows.
      With respect to any qualified trade or business, the 
taxpayer compares (1) 23 percent of the taxpayer's qualified 
business income with respect to the qualified trade or business 
with (2) 50 percent of the W-2 wages with respect to the 
qualified trade or business. If the amount determined under (2) 
is less than the amount determined (1), (that is, if the wage 
limit is binding), the taxpayer's deductible amount is the 
amount determined under (1) reduced by the same proportion of 
the difference between the two amounts as the excess of the 
taxable income of the taxpayer over the threshold amount bears 
to $50,000 ($100,000 in the case of a joint return).
      For example, H and W file a joint return on which they 
report taxable income of $520,000. W has a qualified trade or 
business that is not a specified service business, such that 23 
percent of the qualified business income with respect to the 
business is $15,000. W's share of wages paid by the business is 
$20,000, such that 50 percent of the W-2 wages with respect to 
the business is $10,000. The $15,000 amount is reduced by 20 
percent\53\ of the difference between $15,000 and $10,000, or 
$1,000. H and W take a deduction for $14,000.
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    \53\($520,000- $500,000)/$100,000 = 20 percent.
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Qualified REIT dividends, cooperative dividends, and publicly traded 
        partnership income
      A deduction is allowed under the provision for 23 percent 
of the taxpayer's aggregate amount of qualified REIT dividends, 
qualified cooperative dividends, and qualified publicly traded 
partnership income for the taxable year. Qualified REIT 
dividends do not include any portion of a dividend received 
from a REIT that is a capital gain dividend\54\ or a qualified 
dividend.\55\ A qualified cooperative dividend means a 
patronage dividend,\56\ per-unit retain allocation,\57\ 
qualified written notice of allocation,\58\ or any similar 
amount, provided it is includible in gross income and is 
received from either (1) a tax-exempt benevolent life insurance 
association, mutual ditch or irrigation company, cooperative 
telephone company, like cooperative organization,\59\ or a 
taxable or tax-exempt cooperative that is described in section 
1381(a), or (2) a taxable cooperative governed by tax rules 
applicable to cooperatives before the enactment of subchapter T 
of the Code in 1962. Qualified publicly traded partnership 
income means (with respect to any qualified trade or business 
of the taxpayer), the sum of the (a) net amount of the 
taxpayer's allocable share of each qualified item of income, 
gain, deduction, and loss (that are effectively connected with 
a U.S. trade or business and are included or allowed in 
determining taxable income for the taxable year and do not 
constitute excepted enumerated investment-type income, and not 
including the taxpayer's reasonable compensation, guaranteed 
payments for services, or (to the extent provided in 
regulations) section 707(a) payments for services) from a 
publicly traded partnership not treated as a corporation, and 
(b) gain recognized by the taxpayer on disposition of its 
interest in the partnership that is treated as ordinary income 
(for example, by reason of section 751).
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    \54\Defined in sec. 857(b)(3).
    \55\Defined in sec. 1(h)(11).
    \56\Defined in sec. 1388(a).
    \57\Defined in sec. 1388(f).
    \58\Defined in sec. 1388(c).
    \59\Described in sec. 501(c)(12).
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Determination of the taxpayer's deduction
      The taxpayer's deduction for qualified business income is 
equal to the lesser of the combined qualified business income 
amount for the taxable year or an amount equal to 23 percent of 
the taxpayer's taxable income (reduced by any net capital 
gain\60\) for the taxable year. The combined qualified business 
income amount is the sum of the deductible amounts determined 
for each qualified trade or business for the taxable year and 
23 percent of the qualified REIT dividends and qualified 
cooperative dividends received by the taxpayer for the taxable 
year.
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    \60\Defined in sec. 1(h).
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Specified agricultural or horticultural cooperatives
      For taxable years beginning after December 31, 2018 but 
not after December 31, 2025, a deduction is allowed to any 
specified agricultural or horticultural cooperative equal to 
the lesser of 23 percent of the cooperative's taxable income 
for the taxable year or 50 percent of the W-2 wages paid by the 
cooperative with respect to its trade or business. A specified 
agricultural or horticultural cooperative is an organization to 
which subchapter T applies that is engaged in (a) the 
manufacturing, production, growth, or extraction in whole or 
significant part of any agricultural or horticultural product, 
(b) the marketing of agricultural or horticultural products 
that its patrons have so manufactured, produced, grown, or 
extracted, or (c) the provision of supplies, equipment, or 
services to farmers or organizations described in the 
foregoing.
Special rules and definitions
      For purposes of the provision, taxable income is 
determined without regard to the deduction allowable under the 
provision.
      In the case of a partnership or S corporation, the 
provision applies at the partner or shareholder level. Each 
partner takes into account the partner's allocable share of 
each qualified item of income, gain, deduction, and loss, and 
is treated as having W-2 wages for the taxable year equal to 
the partner's allocable share of W-2 wages of the partnership. 
The partner's allocable share of W-2 wages is required to be 
determined in the same manner as the partner's share of wage 
expenses. For example, if a partner is allocated a deductible 
amount of 10 percent of wages paid by the partnership to 
employees for the taxable year, the partner is required to be 
allocated 10 percent of the W-2 wages of the partnership for 
purposes of calculating the wage limit under this deduction. 
Similarly, each shareholder of an S corporation takes into 
account the shareholder's pro rata share of each qualified item 
of income, gain, deduction, and loss, and is treated as having 
W-2 wages for the taxable year equal to the shareholder's pro 
rata share of W-2 wages of the S corporation.
      Qualified business income is determined without regard to 
any adjustments prescribed under the rules of the alternative 
minimum tax.
      The provision does not apply to a trust or estate.
      The deduction under the provision is allowed only for 
Federal income tax purposes.
      For purposes of determining a substantial underpayment of 
income tax under the accuracy related penalty,\61\ a 
substantial underpayment exists if the amount of the 
understatement exceeds the greater of five percent (not 10 
percent) of the tax required to be shown on the return or 
$5,000.
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    \61\Sec. 6662(d)(1)(A).
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      Authority is provided to promulgate regulations needed to 
carry out the purposes of the provision, including regulations 
requiring, or restricting, the allocation of items of income, 
gain, loss, or deduction, or of wages under the provision. In 
addition, regulatory authority is provided to address reporting 
requirements appropriate under the provision, and the 
application of the provision in the case of tiered entities.
      The provision does not apply to taxable years beginning 
after December 31, 2025.
Additional examples
      The following examples provide a comprehensive 
illustration of the provision.
            Example 1
      H and W file a joint return on which they report taxable 
income of $520,000 (determined without regard to this 
provision). H is a partner in a qualified trade or business 
that is not a specified service business (``qualified business 
A''). W has a sole proprietorship qualified trade or business 
that is a specified service business (``qualified business 
B''). H and W also received $10,000 in qualified REIT dividends 
during the tax year.
      H's allocable share of qualified business income from 
qualified business A is $300,000, such that 23 percent of the 
qualified business income with respect to the business is 
$69,000.\62\ H's allocable share of wages paid by qualified 
business A is $100,000, such that 50 percent of the W-2 wages 
with respect to the business is $50,000.\63\ As H and W's 
taxable income is above the threshold amount for a joint 
return, the application of the wage limit for qualified 
business A is phased in. Accordingly, the $69,000 amount is 
reduced by 20 percent\64\ of the difference between $69,000 and 
$50,000, or $3,800.\65\ H's deductible amount for qualified 
business A is $65,200.\66\
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    \62\$300,000*.23 = $69,000.
    \63\$100,000*.5 = $50,000.
    \64\($520,000-$500,000)/$100,000 = 20 percent.
    \65\($69,000-$50,000)*.2 = $3,800.
    \66\$69,000-$3,800 = $65,200.
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      W's qualified business income and W-2 wages from 
qualified business B, which is a specified service business, 
are $325,000 and $150,000, respectively. H and W's taxable 
income is above the threshold amount for a joint return. Thus, 
the exclusion of qualified business income and W-2 wages from 
the specified service business are phased in. W has an 
applicable percentage of 80 percent.\67\ In determining 
includible qualified business income, W takes into account 80 
percent of $325,000, or $260,000. In determining includible W-2 
wages, W takes into account 80 percent of $150,000, or 
$120,000. W calculates the deductible amount for qualified 
business B by taking the lesser of 23 percent of $260,000 
($59,800) or 50 percent of includible W-2 wages of $120,000 
($60,000).\68\ W's deductible amount for qualified business B 
is $59,800.
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    \67\1-($520,000-$500,000)/$100,000 = 1-$20,000/$100,000 = 1-.2 = 80 
percent.
    \68\Although H and W's taxable income is above the threshold amount 
for a joint return, the wage limit is not binding as the 23 percent of 
includible qualified business income of qualified business B ($59,800) 
is less than 50 percent of includible W-2 wages of qualified business B 
($60,000).
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      H and W's combined qualified business income amount of 
$127,300 is comprised of the deductible amount for qualified 
business A of $65,200, the deductible amount for qualified 
business B of $59,800, and 23 percent of the $10,000 qualified 
REIT dividends ($2,300). H and W's deduction is limited to 23 
percent of their taxable income for the year ($520,000), or 
$119,600. Accordingly, H and W's deduction for the taxable year 
is $119,600.
            Example 2
      H and W file a joint return on which they report taxable 
income of $200,000 (determined without regard to this 
provision). H has a sole proprietorship qualified trade or 
business that is not a specified service business (``qualified 
business A''). W is a partner in a qualified trade or business 
that is not a specified service business (``qualified business 
B''). H and W have a carryover qualified business loss of 
$50,000.
      H's qualified business income from qualified business A 
is $150,000, such that 23 percent of the qualified business 
income with respect to the business is $34,500. As H and W's 
taxable income is below the threshold amount for a joint 
return, the wage limit does not apply to qualified business A. 
H's deductible amount for qualified business A is $34,500.
      W's allocable share of qualified business loss is 
$40,000, such that 23 percent of the qualified business loss 
with respect to the business is $9,200. As H and W's taxable 
income is below the threshold amount for a joint return, the 
wage limit does not apply to qualified business B. W's 
deductible amount for qualified business B is a reduction to 
the deduction of $9,200.
      H and W's combined qualified business income amount of 
$13,800 is comprised of the deductible amount for qualified 
business A of $34,500, the reduction to the deduction for 
qualified business B of $9,200, and the reduction to the 
deduction of $11,500 attributable to the carryover qualified 
business loss. H and W's deduction is limited to 23 percent of 
their taxable income for the year ($200,000), or $46,000. 
Accordingly, H and W's deduction for the taxable year is 
$13,800.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2017.

                          CONFERENCE AGREEMENT

      The conference agreement follows the Senate amendment 
with modifications.
Deduction percentage
      Under the conference agreement, the percentage of the 
deduction allowable under the provision is 20 percent (not 23 
percent).
Threshold amount
      The conference agreement reduces the threshold amount 
above which both the limitation on specified service businesses 
and the wage limit are phased in. Under the conference 
agreement, the threshold amount is $157,500 (twice that amount 
or $315,000 in the case of a joint return), indexed. The 
conferees expect that the reduced threshold amount will serve 
to deter high-income taxpayers from attempting to convert wages 
or other compensation for personal services to income eligible 
for the 20-percent deduction under the provision.
      The conference agreement provides that the range over 
which the phase-in of these limitations applies is $50,000 
($100,000 in the case of a joint return).
Limitation based on W-2 wages and capital
      The conference agreement modifies the wage limit 
applicable to taxpayers with taxable income above the threshold 
amount to provide a limit based either on wages paid or on 
wages paid plus a capital element. Under the conference 
agreement, the limitation is the greater of (a) 50 percent of 
the W-2 wages paid with respect to the qualified trade or 
business, or (b) the sum of 25 of percent of the W-2 wages with 
respect to the qualified trade or business plus 2.5 percent of 
the unadjusted basis, immediately after acquisition, of all 
qualified property.
      For purposes of the provision, qualified property means 
tangible property of a character subject to depreciation that 
is held by, and available for use in, the qualified trade or 
business at the close of the taxable year, and which is used in 
the production of qualified business income, and for which the 
depreciable period has not ended before the close of the 
taxable year. The depreciable period with respect to qualified 
property of a taxpayer means the period beginning on the date 
the property is first placed in service by the taxpayer and 
ending on the later of (a) the date 10 years after that date, 
or (b) the last day of the last full year in the applicable 
recovery period that would apply to the property under section 
168 (without regard to section 168(g)).
      For example, a taxpayer (who is subject to the limit) 
does business as a sole proprietorship conducting a widget-
making business. The business buys a widget-making machine for 
$100,000 and places it in service in 2020. The business has no 
employees in 2020. The limitation in 2020 is the greater of (a) 
50 percent of W-2 wages, or $0, or (b) the sum of 25 percent of 
W-2 wages ($0) plus 2.5 percent of the unadjusted basis of the 
machine immediately after its acquisition: $100,000  
.025 = $2,500. The amount of the limitation on the taxpayer's 
deduction is $2,500.
      In the case of property that is sold, for example, the 
property is no longer available for use in the trade or 
business and is not taken into account in determining the 
limitation. The Secretary is required to provide rules for 
applying the limitation in cases of a short taxable year of 
where the taxpayer acquires, or disposes of, the major portion 
of a trade or business or the major portion of a separate unit 
of a trade or business during the year. The Secretary is 
required to provide guidance applying rules similar to the 
rules of section 179(d)(2) to address acquisitions of property 
from a related party, as well as in a sale-leaseback or other 
transaction as needed to carry out the purposes of the 
provision and to provide anti-abuse rules, including under the 
limitation based on W-2 wages and capital. Similarly, the 
Secretary shall provide guidance prescribing rules for 
determining the unadjusted basis immediately after acquisition 
of qualified property acquired in like-kind exchanges or 
involuntary conversions as needed to carry out the purposes of 
the provision and to provide anti-abuse rules, including under 
the limitation based on W-2 wages and capital.
Specified service trade or business
      The conference agreement modifies the definition of a 
specified service trade or business in several respects. The 
definition is modified to exclude engineering and architecture 
services, and to take into account the reputation or skill of 
owners.
      A specified service trade or business means any trade or 
business involving the performance of services in the fields of 
health, law, consulting, athletics, financial services, 
brokerage services, or 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 owners, or which 
involves the performance of services that consist of investing 
and investment management 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).
Determination of the taxpayer's deduction
      The taxpayer's deduction for qualified business income 
for the taxable year is equal to the sum of (a) the lesser of 
the combined qualified business income amount for the taxable 
year or an amount equal to 20 percent of the excess of 
taxpayer's taxable income over any net capital gain\69\ and 
qualified cooperative dividends, plus (b) the lesser of 20 
percent of qualified cooperative dividends and taxable income 
(reduced by net capital gain). This sum may not exceed the 
taxpayer's taxable income for the taxable year (reduced by net 
capital gain). Under the provision, the 20-percent deduction 
with respect to qualified cooperative dividends is limited to 
taxable income (reduced by net capital gain) for the year. The 
combined qualified business income amount for the taxable year 
is the sum of the deductible amounts determined for each 
qualified trade or business carried on by the taxpayer and 20 
percent of the taxpayer's qualified REIT dividends and 
qualified publicly traded partnership income. The deductible 
amount for each qualified trade or business is the lesser of 
(a) 20 percent of the taxpayer's qualified business income with 
respect to the trade or business, or (b) the greater of 50 
percent of the W-2 wages with respect to the trade or business 
or the sum of 25 percent of the W-2 wages with respect to the 
trade or business and 2.5 percent of the unadjusted basis, 
immediately after acquisition, of all qualified property.
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    \69\Defined in sec. 1(h).
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Deduction against taxable income
      The conference agreement clarifies that the 20-percent 
deduction is not allowed in computing adjusted gross income, 
and instead is allowed as a deduction reducing taxable income. 
Thus, for example, the provision does not affect limitations 
based on adjusted gross income. Similarly the conference 
agreement clarifies that the deduction is available to both 
non-itemizers and itemizers.
Treatment of agricultural and horticultural cooperatives
      For taxable years beginning after December 31, 2017 but 
not after December 31, 2025, a deduction is allowed to any 
specified agricultural or horticultural cooperative equal to 
the lesser of (a) 20 percent of the cooperative's taxable 
income for the taxable year or (b) the greater of 50 percent of 
the W-2 wages paid by the cooperative with respect to its trade 
or business or the sum of 25 percent of the W-2 wages of the 
cooperative with respect to its trade or business plus 2.5 
percent of the unadjusted basis immediately after acquisition 
of qualified property of the cooperative. A specified 
agricultural or horticultural cooperative is a organization to 
which subchapter T applies that is engaged in (a) the 
manufacturing, production, growth, or extraction in whole or 
significant part of any agricultural or horticultural product, 
(b) the marketing of agricultural or horticultural products 
that its patrons have so manufactured, produced, grown, or 
extracted, or (c) the provision of supplies, equipment, or 
services to farmers or organizations described in the 
foregoing.
Treatment of trusts and estates
      The conference agreement provides that trusts and estates 
are eligible for the 20-percent deduction under the provision. 
Rules sim